My company is failing. We have recently been contacted by the labor board and are being audited. I am wondering if we are found to be liable for back pay to employees, does that apply just to the company or to me personally? If the company goes bankrupt, can the employees sue me personally?
Ann Kiernan replies:
Under federal wage and hour law, a corporate officer with operational control can be held personally liable for willful violations of the statute, along with the corporation. Examples of “operational control” include day-to-day control over the employer’s operations, hiring and firing authority, power to set salaries, responsibility for maintaining employee records, and of course, the power to manage the company’s finances, including directing the payment or nonpayment of wages, according to a 2007 federal appeals court decision. In that case, a group of hotel workers successfully sued their corporate employer as well as its president for minimum wage and overtime pay. Because the president had personally taken charge of payroll practices, the court held the hotel and its president jointly liable for over $280,000 in back wages. (Chao v. Hotel Oasis, Inc., 493 F.3d 26 (1st Cir. 2007)).
Whether or not the company files bankruptcy makes no difference in whether an individual corporate officer or executive is personally on the hook for unpaid wages. Also, you should be aware that under the law of some states, including New York and Illinois, managers can go to jail if workers aren’t paid.
If cash flow problems are preventing the prompt payment of wages, you should immediately consult legal counsel on the best ways to minimize the unpaid wage claim and connected fines, penalties and attorneys’ fees, as well as any potential personal liability. I am sorry for your troubles and wish you, your employees and the company the best of luck.
Information here is correct at the time it is posted. Case decisions cited here may be reversed. Please do not rely on this information without consulting an attorney first.