Relates to the applicability of provisions relating to liability of shareholders for wages due to laborers, servants or employees for certain foreign corporations.
TITLE OF BILL: An act to amend the business corporation law, in relation to the applicability of provisions relating to liability of shareholders for wages due to laborers, servants or employees for certain foreign corporations
PURPOSE OR GENERAL IDEA OF BILL: The bill ends discrimination against New York corporations and in favor of foreign (out of state) corporations insofar as liability for unpaid wages is concerned.
SUMMARY OF PROVISIONS: The bill amends Section 630(a) of the Business Corporation Law to treat New York and foreign corporations alike in terms of liability for unpaid wages of employees. Currently, liability is imposed only on New York corporations.
JUSTIFICATION: Section 630 of the Business Corporation Law currently imposes liability for unpaid wages on the 10 largest shareholders of a closely held corporation after a judgment against the corporation has been returned unsatisfied.
This statute was part of an historic 19th century compromise in which New York first gave all citizens the right to form corporations and thereby insulate themselves from personal liability (previously, the use of the corporate form was permitted only upon an act of the legislature allowing the formation of a corporation to pursue a particular endeavor). When the right to incorporate was established, some objected that the rights of wage earners would be trampled by use of the corporate form, so an exception regarding liability for wages was created.
In the 1930s, there was a split in the Appellate Divisions as to whether the statute applied to foreign corporations or only to domestic corporations. The Court of Appeals ultimately resolved the question by deciding that the Stock Corporation Law of New York did not regulate foreign corporations. In 1962, when the Business Corporation Law was adopted, it explicitly applied to foreign corporations. But judicial inertia prevented applying the law to foreign corporations, leading one federal court to describe the rule as an historical anachronism.
Under current law, a corporation, though it does all its business in New York, has an incentive to escape liability for wages by incorporating outside of New York State, thus causing New York to lose revenue. Furthermore, there is an anomaly in which the wages of two employees working side by side are treated differently with respect to their remedies for unpaid wages depending on which corporation employs them and whether the corporation is foreign or domestic. This bill would end that disparity. It should be noted that this Legislature recently recognized the problem revealed during the recent economic collapse in which unscrupulous businesses opened and closed without paying wages due their employees. The Legislature increased the penalty for failure to pay wages to 100% of the wages owed. However, the penalty is meaningless if the employee lacks an effective remedy for recovering his or her unpaid wages. The amendment strengthens existing remedies.
LEGISLATIVE HISTORY: A.6932 of 2013-14 -- passed Assembly, referred to Senate Rules
FISCAL IMPLICATIONS: There will be no costs to the State. Instead, it is expected that the bill will encourage more corporations to be formed in New York rather than in foreign jurisdictions by eliminating a disincentive to be incorporated in New York.
EFFECTIVE DATE: The sixtieth day after it shall have become law.
STATE OF NEW YORK ________________________________________________________________________ 4476 2015-2016 Regular Sessions IN SENATE March 23, 2015 ___________Introduced by Sen. FARLEY -- read twice and ordered printed, and when printed to be committed to the Committee on Corporations, Authorities and Commissions AN ACT to amend the business corporation law, in relation to the appli- cability of provisions relating to liability of shareholders for wages due to laborers, servants or employees for certain foreign corpo- rations THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Paragraph (a) of section 630 of the business corporation law, as amended by chapter 212 of the laws of 1984, is amended to read as follows: (a) The ten largest shareholders, as determined by the fair value of their beneficial interest as of the beginning of the period during which the unpaid services referred to in this section are performed, of every DOMESTIC corporation (other than an investment company registered as such under an act of congress entitled "Investment Company Act of 1940"), OR OF ANY FOREIGN CORPORATION, WHEN THE UNPAID SERVICES WERE PERFORMED IN THE STATE, no shares of which are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities associ- ation, shall jointly and severally be personally liable for all debts, wages or salaries due and owing to any of its laborers, servants or employees other than contractors, for services performed by them for such corporation. Before such laborer, servant or employee shall charge such shareholder for such services, he shall give notice in writing to such shareholder that he intends to hold him liable under this section. Such notice shall be given within one hundred and eighty days after termination of such services, except that if, within such period, the laborer, servant or employee demands an examination of the record of shareholders under paragraph (b) of section 624 (Books and records;EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD04400-01-5 S. 4476 2
right of inspection, prima facie evidence) OF THIS ARTICLE, such notice may be given within sixty days after he has been given the opportunity to examine the record of shareholders. An action to enforce such liability shall be commenced within ninety days after the return of an execution unsatisfied against the corporation upon a judgment recovered against it for such services. S 2. This act shall take effect on the sixtieth day after it shall have become a law.