Financially distressed companies face a host of challenging legal issues when a potential reorganization or dissolution is on the horizon, especially in the balancing of fiduciary duties to constituents such as creditors, shareholders, customers, and employees. Among these are a variety of federal and state laws governing employee compensation that can offer snares for the unwary. Particularly when a company is teetering on the brink of insolvency, in-house counsel are faced with protecting the corporation from liability as well as with shielding corporate officers from personal responsibility for unpaid severance claims.
A company’s failure to pay earned wages, regardless of circumstances, will likely trigger civil or criminal liability under state wage and hour laws. Wage laws vary from state to state, but typically include provisions requiring the immediate payment of wages when an employee is terminated for any reason. Many states have enacted wage and hour laws that provide for severe penalties in successful actions to recover unpaid wages. Most of these laws state that the company’s “responsible officer” may also be personally subject to civil liability and even criminal prosecution for the company’s nonpayment of wages.
