Shareholder Liability for Age Discrimination
In Leek v. Cooper, employees sued a corporation and its sole shareholder for alleged age discrimination under the California Fair Employment and Housing Act ("FEHA") and violations of the California Family Rights Act ("CFRA"). Only an "employer", as opposed to a supervising employee, may be held liable under FEHA for discrimination, or under the CFRA. The shareholder defended the action on the ground that he was shielded from liability as a shareholder in the corporation, and that the corporation, and not himself, was the "employer" of the employees. The employees argued that the shareholder should be considered to be their "employer", given the extent and degree of his control over the employees.
Prior to trial, the shareholder brought a motion for summary judgment on the ground that he was exempt from liability for the corporation's alleged discrimination. The trial court agreed, explaining that the employees had not properly alleged any alter ego allegations which would pierce the corporate veil and make the shareholder personally liable for the corporation's conduct.
On appeal, the Third District Court of Appeal affirmed the trial court's grant of the motion for summary judgment. The Court of Appeal explained that alleging a shareholder's control over corporate employees was not the proper test to determine whether the shareholder was the actual "employer." The proper test is whether the corporation is simply the alter ego of its shareholder. Because the employees failed to plead facts supporting an alter ego theory, they could not hold the shareholder personally liable for discrimination under FEHA or the CFRA.
Leek v. Cooper establishes that shareholder(s) of a corporation may be deemed "employers" under FEHA and the CFRA, and thus potentially held personally liable for discrimination claims brought by employees of the corporation. In order for personal liability to attach to the shareholder(s), an employee must establish that the shareholder(s) is (are) the alter ego of the corporation by alleging and proving that the corporation was a "mere shell" for the shareholder(s), and that adherence to the fiction of the corporate existence would promote injustice.
The Leek case sets forth the manner in which an employee may establish a corporate shareholder's personal liability for discrimination under FEHA and the CFRA. Given the decision in Leek, it is now more important than ever for small business owners to ensure that they form, organize and operate their corporations and/or limited liability companies in a manner that prevents, or at least greatly diminishes, the possibility that the corporate veil may be pierced by way of the alter ego doctrine.
SHAPIRO BUCHMAN PROVINE BROTHERS SMITH LLP provides its clients, professional advisors and its friends with up-to-date reports on recent developments in business, real estate, employment, estate planning and taxation.
Authored by: Dominic Signorotti, Esq. and Tonya D. Hubinger, Esq.
T: (925) 944-9700