Wednesday, February 24, 2016

Differential under New York Law in Liability for Unpaid Wages

Differential under New York Law in Liability for Unpaid Wages
       The New York statute governing corporations has a well-known provision, Section 630, which imposes liability for unpaid wages, which can include for example vacation pay and unpaid employee trust fund taxes, upon the 10 largest shareholders of a New York corporation. The New York LLC Act, at Section 609, a provision approved at the very end of 2014, likewise provides for personal liability for unpaid wages upon the 10 largest members of a New York LLC.
      Historically, in response to the application of Section 630 of the Business Corporation Code, it has been common for those organizing businesses that will have New York employees to organize in another jurisdiction such as Delaware. Such a foreign corporation would not, by its terms, be subject to Section 630.  In response to this arbitrage, last year Section 630 was amended to apply to foreign corporations with employees in New York. In consequence, organization of a corporation that will have New York employees outside of New York no longer provides a shield from liability for unpaid wages.
       There continues to exist, however, a differential with respect to LLCs. Section 609 of the New York LLC Act does not apply to LLCs organized outside of New York.  A proposal considered in 2015 to extend Section 609 of the LLC Act to foreign LLCs has not (to date) been approved.

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