Corporate Officers May be Personally Liable For Unpaid Wages

Photo of Linda Johnson
Linda S. Johnson
Director, Litigation Department and Vice Chair of Education Law Group
October 1, 2003

On August 18, 2003, the New Hampshire Supreme Court affirmed an order that a chief operating officer was personally liable for $3,615.98 of unpaid wages owed to an ex-employee. The company was also ordered to pay liquidated damages of an equal amount, and the employee was awarded attorney’s fees. On October 14, 2003, the New Hampshire Supreme Court once again found the president of a company liable for $36,058 in liquidated damages and the company liable for the same amount in unpaid wages. Many an unsuspecting corporate officer is totally unaware of this potential for personal liability for unpaid wages under New Hampshire’s wage and hour laws. If the threat of liquidated damages (of up to double the amount owed) doesn’t work to catch the company’s attention, employees are invoking this once little known law to aid in their efforts to recover unpaid wages.

Under New Hampshire law, the officers of a corporation as well as any agents who manage the corporation are deemed to be the “employer” and thus personally liable if they “knowingly permit” the corporation to violate New Hampshire’s wage payment statute. The issue of personal liability turns on whether the corporate officer or agent knowingly permitted a violation to occur. In the August 2003 decision of Richmond v. Hutchinson, the court pointed out that the officer had responsibility for the day-to-day operations of the business, knew that the company had some assets worth monetary value, yet directed the company to repay a personal loan to himself rather than pay the wages owed to the employee.

As to liquidated damages, New Hampshire law provides that “if an employer willfully and without good cause fails to pay an employee wages as required under . . . this section, such employer shall be additionally liable to the employee for liquidated damages. Liquidated damages may be in an amount of 10 percent of the unpaid wages for each day except Sunday and legal holidays following the day that payment was required, or an amount equal to the unpaid wages, whichever is smaller. The New Hampshire Supreme Court has defined “willfully” in the context of an action for unpaid wages due under employment contracts, “to mean voluntarily, with knowledge of the obligation and despite the financial ability to pay it.” The court has further explained that a “willful” act does not include an accident or an act committed on the basis of a mistake of fact. Therefore, no liquidated damages will be due when an employer’s refusal to pay wages is based on a bona fide belief that the wages are not owed.

In the August 2003 Richmond v. Hutchinson case, the company argued that it didn’t willfully fail to pay wages because it had a bona fide belief that it did not have the financial ability to pay. The company stated that it only had minimal illiquid assets. The court, however, did not accept this argument and pointed out that these illiquid assets had monetary value which the company knew about since the COO ordered the repayment of a loan to himself from these assets. Likewise, in the October decision of Chisholm v. Ultima Nashua Industrial Corporation, the company and its president argued that they did not willfully fail to pay wages. Rather, they claimed that the non-payment stemmed from their good faith belief that the employment contract under which the employee sought his rights was entered into by a former business partner who lacked authority to enter into the contract on behalf of the company. Once again, the court rejected this position and pointed out that the president admitted that this business partner was, at the relevant time, the acting president of the company and was authorized to sign documents on behalf of the company. The court concluded that there was sufficient evidence to determine that the president acted willfully and without a good faith belief that the document was unenforceable. The court also considered that there was no issue of a financial inability to pay.

These recent New Hampshire cases point out that a company’s exposure in claims for unpaid wages go well beyond the basic amount owed and includes awards of liquidated damages of up to double the amount owed, personal liability of corporate officers and management employees, as well as attorney’s fees.