New York’s Increasing Expansion of Member and Shareholder Liability for Unpaid Wages
Wage theft prevention remains a priority in New York so much so that, in recent years, the state has incrementally expanded the personal liability of LLC members and corporate shareholders for the unpaid wages due their organization’s employees.
Early last year, Section 609 of New York’s Limited Liability Company Law was amended with the addition of two new subsections that specified that the 10 members of a LLC with the largest percentage ownership interests will be held, jointly and severally, personally liable for any unpaid wages owed to their LLC’s employees. These new provisions in New York’s LLC Law echoed a similar obligation long embodied in New York’s Business Corporation Law, under which employees may recover unpaid wages from the 10 largest shareholders of a domestic corporation. This change took effect on February 25, 2015.
This month, however, the domestic incorporation limitation in Section 630 of New York’s Business Corporation Law was removed, in effect rendering the 10 largest shareholders of domestic and foreign corporations, jointly and severally, personally liable for any unpaid wages owed to their corporation’s employees so long as the unpaid services were performed in New York. This change took effect on January 19, 2016.
The definition of “wages” is broad under both statutes and includes all compensation and benefits, such as salaries, overtime, vacation, holiday and severance pay; employer contributions to or payments of insurance or welfare benefits; employer contributions to pension or annuity funds; and any other moneys properly due or payable for services rendered by an employee, including any related liquidated damages, penalties, interest, attorneys’ fees or costs.
Personal liability, however, is not automatic under New York’s LLC Law or Business Corporation Law. Before an employee can charge a member or shareholder for unpaid wages:
- The employee must first provide written notice to the member/shareholder that the employee intends to hold the member/shareholder liable for the employee’s unpaid wages under the LLC Law or Business Corporation Law. Employees must provide this notice within 180 days after termination of employment. However, if the employee demands and receives the opportunity to examine the corporation’s books and records (available only under the Business Corporation Law) during that 180-day time frame, then the notice can be made within 60 days of examination.
- The employee must also begin a lawsuit seeking a judgment against the LLC or corporation for unpaid wages, and attempt to execute the judgment. Once an execution is returned unsatisfied, the employee must commence a second lawsuit against the members/shareholders within 90 days.