Managers in Colorado could be personally liable for unpaid wage claims brought by current or former employees. A recent ruling by the Colorado Court of Appeals held that the Colorado Wage Claim Act does not protect managers under all circumstances from individual liability for employees’ unpaid wages.
In the case, Paradine v. Goei, the plaintiff, Robert Paradine, worked as CFO for Aspect Technologies, Inc. He brought an action under the Colorado Wage Claim Act claiming Aspect owed him approximately $8,100 in back wages. He also brought claims for fraud and breach of contract. In addition to suing Aspect, Paradine also named Aspect’s CEO, Esmond Goei, as an individual defendant. Specifically, Paradine claimed Goei had improperly diverted corporate funds for personal use instead of paying employees. Paradine also claimed Goei had not followed the terms of an employment contract.
The trial court dismissed the claims against Goei. Paradine appealed. On appeal, the Court of Appeals indicated a plaintiff seeking recovery from an individual corporate executive can in some cases “pierce the corporate veil” and hold an individual liable. Generally speaking, officers and directors of corporations are not personally liable for the debts of the corporation. However, and individual could pierce the corporate veil of the corporation to impose personal liability on management level employees under certain circumstances.
In this case, the court noted three conditions needed to be met to pierce and hold an individual liable:
· (1) the corporation is the “alter ego” of the officer;
· (2) the officer used the corporation to perpetuate a fraud; and
· (3) an equitable result will be achieved by disregarding the corporate form and holding the officer personally liable.
Paradine argued Goei had used corporate income for personal purposes such as housing and vehicle expenses, and that Goei had comingled business and personal accounts. Paradine also claimed Goei had breached an employment agreement regarding payment of wages.
Based on Paradine’s arguments, the court of appeals reversed the earlier ruling and sent the case back to the trial court for new proceedings.
While this case is venued in Colorado, it’s a good reminder overall for corporate officers and directors to keep company and personal business separate. Management level personnel should be reminded to not mix company and personal funds and expenses. Periodic audits for compliance with corporate ethics policies is recommended. Companies must also be sure to follow wage and hour laws and any contract terms in payment of employees.