Business losses do not justify not paying employees; personal liability possible

A corporation’s failure to pay employees’ wages could result in the corporate officer or its representative that makes decisions personally liable even if a corporation can show that it is suffering from serious cash flow problems.

New Hampshire’s Wage Statute makes a corporate officer or agent of the corporation that knowingly permits the corporation to fail to pay wages just as liable as the corporation to the employee. This could mean that individual may have to not only pay the wages, but also liquidated damages doubling the wages owed plus reimbursing the employee for his attorney fees and costs. For example: A president of a corporation does not pay an employee for several months and promises that if he stays working the salary will be made up when the business turns around and that he appreciates the employee’s loyalty. After several months when the president realizes that the business is not turning around and he lays off the employee, the employee files a wage claim either in the New Hampshire Superior Court or the Department of Labor against both the corporation and the president. If the president responds back that the corporation did not have the cash flow to make the payments when he discharged the employee and that he should not be held personally liable under those circumstances, it is quite possible that not only is the president personally liable, but the corporation and the president both may be obligated to pay not only the wages owed, but also liquidated damages of up to doubling the wages owed plus attorney’s fees.

The New Hampshire Wage Statute entitles the employee an award of damages up to doubling the amount of wages if the employer willfully and without good cause fails to pay his wages due. In the above example wherein the president acknowledged the wages were owed, the question is whether or not the corporation had the financial ability to pay.

The president himself may be found by a Superior Court judge or a New Hampshire Department of Labor hearing officer to have the ability to pay the wages out of his own pocket as an “employer” or that both the corporation and president have the financial wherewithal to pay the wages because they have assets that they could borrow against, yet chose not to pay the wages. Further, as to the above example, the judge or hearing officer may also look at the operations of the corporation and come to the conclusion that the corporation had the ability to pay some of its creditors to keep the lights on and continue operation, yet did so while making the employee its involuntary lender by having him perform work, yet not timely pay him. As a result, the president of a corporation that is having cash-flow problems, in deciding to allow the employee to continue to work without paying him rather than laying the employee off, could very well find that choice was much more expensive than the company paying any unemployment benefits that are charged back to the employer due to the layoff. Employees should also realize that resigning employment because of not getting paid should be treated the same for unemployment benefits as being laid off.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Marr is licensed and practices in both New Hampshire and Massachusetts. Marr can be reached at dmarr@nashualaw.com.