Wage War! An Officer’s Personal Liability for Unpaid Wages - August 2018

Terry Jessop & Bitner Newsletter

Issue 53, August 2018

One of the most important reasons for setting up a corporation, LLC or other type of entity, is shielding personal assets from business liabilities. The "corporate veil" prevents creditors from accessing the personal assets of the company's owners, directors, officers or managers to satisfy company debts and obligations. This separation between business liabilities and its principals' assets goes back hundreds of years. But laws have been chipping away at it, so that wage earners aren't left with nothing if a company becomes insolvent.

Who Do You Work For?

Prior to 2017, managers and officers of an employer could not be held personally liable for unpaid wages under the Utah Payment of Wages Act ("UPWA"). In 2017, the legislature amended the definition of "employer" to include, "any person acting directly or indirectly in the interest of an employer in relation to an employee." Through this amendment, many company officers and even non-officer level employees could be held personally liable for an employee's unpaid wages. Although the UPWA was amended again this year to remove non-officers from personal liability for an employee's unpaid wages, each manager and officer should know that they may be held personally liable for unpaid wages.

Somebody Will Pay!

The UPWA is not the only law that pierces the corporate veil to make an officer of a company personally liable for unpaid wages. The Fair Labor Standard Act ("FLSA") also subjects officers to personal liability for unpaid wages. But there are key differences between this federal law and state law. The FLSA imposes personal liability on those who have "operational control" for minimum wages and overtime. If a person has the power to hire or fire, supervises work schedules, decides rate of payment or maintains employment records, they may have "operational control" under the FLSA. Thus, it's possible for a human resources employee, even if she is not an officer, to be held personally liable for unpaid wages, albeit just for minimum wages and overtime.

UPWA vs FLSA

The UPWA and FLSA are similar with respect to liability for unpaid wages, but they differ in other ways. Because of the amendment to the UPWA, a human resource employee who is not an officer will not have personal liability for unpaid wages. The Utah legislature specifically removed anyone, even if they have "operational control," from personal liability if they are not an officer (or equivalent) of the company. That's great news for the HR department! But for company officers, the UPWA has a much bigger downside than the FLSA. The UPWA does not limit an officer's personal liability to minimum wages and overtime. Under the UPWA, an officer may be personally liable for the unpaid salary of even a highly-paid sales representative. The FLSA has a broader scope of who may be subject to personal liability, but the UPWA has a broader scope for what the personal liability encompasses.

This Just Became Personal

To ensure that wage earners are protected from the principals of a company "gutting" it and leaving them high and dry for unpaid wages both federal and state laws pierce the corporate veil. If you are an officer or manager of a company and are concerned about your liability exposure for unpaid wages, please contact us.

© Terry Jessop & Bitner August 2018