Seyfarth Synopsis: A newly enacted New York State law will hold the top ten members of out-of-state LLCs personally liable for unpaid wages. This new law is one of several key wage and hour proposals originally advanced by Governor Cuomo during his 2017 State of the State Address.
On December 12, 2019, Governor Cuomo signed legislation that will hold the ten members with the largest percentage ownership interest in an out-of-state LLC personally liable for unpaid wages, where the work was performed in New York State.
The measure, announced in Governor Cuomo’s 2017 State of the State address, expands on an existing law that applied only to New York State LLCs. The stated purpose of the law is to dis-incentivize LLCs that do business in New York State from forming under the laws of a foreign state in order to avoid personal liability.
Previously, the New York Labor Law did not allow the New York State Department of Labor to pursue judgments against the top 10 owners of any corporations or LLCs, foreign or domestic. According to the Governor, this “loophole” resulted in 5,306 individuals owed $67.8 million in stolen wages between 2014 - 2016 who were unable to collect owed wages.
The “top ten” LLC members are determined by assessing the percentage ownership of each member at the beginning of the period during which the unpaid services were performed. For example, if an employee asserts that he and his fellow employees suffered wage violations beginning on January 15, 2018, then the ten LLC members with the largest percentage ownership interest on that date are potentially personally liable.
The law imposes “joint and several” liability among the ten LLC members, meaning that any one member could be held liable for the entire amount. The law does, however, permit an LLC member who has paid more than his or her pro rata share to seek contribution from the other members in a separate lawsuit.
The law provides LLC members with advance notice of potential liability. Specifically, an employee intending to hold an LLC member personally liable for unpaid wages must give written notice of his intention to that member. Moreover, personal liability is available only after a judgment against the LLC itself has been returned unsatisfied.
The law is effective February 11, 2020.
Employer Takeaways
Out-of-state LLCs with New York State employees would be well-served by reviewing their pay practices to ensure that individual members of the LLC are not held personally liable for any violations.
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