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| Am I My Company's Keeper? Personal Liability for Corporate Salary Obligations Under a relatively unknown and arguably under-utilized New York State law, employees of certain New York corporations who claim that their employer failed to pay them wages may file an action seeking to hold the ten largest shareholders of the employer corporation liable for any amount in wages that remain unpaid. Section 630 of New York's Business Corporation Law defines unpaid "wages" broadly to include not only unpaid salary, but also overtime, vacation and severance pay. Moreover, the obligation imposed by section 630 to pay such "wages" applies whether or not the ten largest shareholders are individuals, partnerships or corporations. Asserting a claim under Section 630 is a three-step process: • First, within six months (180 days) after the termination of the employee's employment, the employee must give proper written notice to each of the ten largest shareholders that the employee intends to seek to hold liable for unpaid wages.Section 630 makes clear that an employee does not have a viable claim against a shareholder until a judgment against the employer-corporation has been obtained and cannot be collected. In other words, the liability of the employer-corporation is primary, and the top ten shareholders are only secondarily liable. To the extent an employee's claim under Section 630 is based on a default judgment entered against the employer corporation, the shareholder(s) may litigate the amount of the underlying judgment. Because the corporation defaulted, the shareholders have not lost their opportunity to contest the amount of wages that the employee claims is owed. It is unclear, however, whether an employee may seek to hold a shareholder liable under Section 630 for any amount of a judgment that represents attorneys fees or liquidated damages to which the employee was entitled-under a different statutory scheme - to collect against the employer. It is arguable that an employee who successfully asserts a Section 630 claim is entitled to collect the entire amount of the judgment, which may include attorneys' fees, liquidated damages and pre-judgment interest, against the ten largest shareholders. If any one of the top ten largest shareholders has paid more than its fair share of a judgment obtained against the employer, the shareholder may be entitled to contribution from any of the other shareholders who may be held liable under Section 630. The shareholder claiming contribution must provide written notice to any shareholder against whom a claim for contribution is asserted. We expect to see more employees filing claims under section 630 given the alarming rate at which dotcom companies are presently going out of business. As a result, there is potentially increased exposure to individuals and companies who have invested in New York corporations that become unable to pay wages and salaries to their employees. Many investors may be wise to investigate whether or not a company in which they are, or are considering becoming, a large shareholder, is incorporated in New York, to assess their own liability if the New York company becomes unable to pay wages. Interestingly, this New York statute does not apply to companies incorporated in other states even if a company is authorized to do business in New York. As a result, some practitioners choose to incorporate in a state other than New York. For example, Delaware does not have a similar statute and is, therefore, a popular state of incorporation. © 2001 Davis & Gilbert LLP |
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