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November 16, 2011
Bankruptcy Isn’t A Good Excuse Not To Pay Employee Wages
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Just because your company is going bankrupt doesn’t mean you’re off the hook from paying your employees’ wages. Under Washington law, corporate employers and their individual officers and agents could be personally liable if they willfully deprive employees of wages owed. Our Washington Supreme Court recently refused to recognize a company’s bankruptcy as a defense to charges that its executives were liable for employee wages.

Control of Wage Payments

In the recent case of Morgan v. Kingen, Case No. 81202-1, Wash. Ct. App. (July 2, 2009), the trial court entered judgment against two executives and awarded double damages, costs, and attorneys’ fees to their employees for willfully withholding their wages. The executives appealed, claiming they had not willfully withheld wages. The executives instead claimed they couldn’t pay the wages because the bankruptcy court had froze all available funds.

Washington wage laws, which are protective of employees’ rights, impose personal liability on officers and agents who willfully withhold wages. Other Washington cases have consistently held that financial insolvency is not a defense against a personal liability claim. But the executives here thought their case was different, since it was the bankruptcy court, and not the company, who tied up the company’s funds, and therefore, made wage payments nearly impossible. They were wrong.

The wage statute’s language clearly provides that officers who control wage payments can be held liable in both a personal and corporate capacity. A company’s insolvency and bankruptcy has no impact on personal liability – especially when the facts indicate that the executives controlled how the company’s money was spent. Because the executives made the financial decisions, they are liable for the consequences of not paying wages owed. As a result, the court determined that their decisions were, in fact, “willful and intentional” within the meaning of the wage statutes.

How to Avoid Personal Liability

It’s important that officers and agents who have a say in payroll decisions be aware that they could be on the hook personally if wages are not paid. Please contact Clemencia Castro-Woolery or any member of Eisenhower’s Employment Law Group for further information on how to prevent personal liability in the employment context – especially during these rough economic times.

Disclaimer

This advisory is a publication of Eisenhower Carlson PLLC. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

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