Question

ABC has been in business for over fifty years. It manufactures specialty items. The raw material needed, for the manufacturing process, once produced in the United States, now must be purchased from other countries. Due to changes in the U.S. trade laws, the prices to obtain such raw materials necessary for ABC’s manufacturing process has skyrocketed. The corporate officers, consisting of Ann, Bob and Clyde, have decided they have no choice but the wind down operations and close the company for economic reasons. In fact, the company has fallen into such severe economic distress that it has been unable to pay compensation to upper and mid-level managers. Hourly-wage paid employees, however, have been fully paid. Management employees were asked, and agreed, to take reductions in their salaries and to defer receipt of earned compensation given the company’s financial condition.

Ann, Bob and Clyde have told those management-level employees they are “sorry” for the non-payment of compensation. They have told those employees there is “simply no money left”. They have not taken any money, in the form of salary, for months, as well.

Those management-level employees who were not paid compensation have sued Ann, Bob and Clyde, in their individual capacities, for failing to pay earned compensation. Ann, Bob and Clyde fear they will lose everything they own, including personal residences, summer homes, luxury cars, etc., to satisfy judgments obtained against them. Will they be individually liable under these circumstances? What are their arguments against liability? What are the employees’ arguments in favor of imposing liability against them?

Answer 1

Ann, Bob and Clyde will not be personally responsible for the loss of compensation of management level employees as they have taken decisions in their corporate officer’s position of the company and in the best interest of the company. The best interest decision of the company is to make company run somehow even when it is not doing good business because of the increase in cost of raw materials and that there are no other alternative business decisions given the fact that government trade laws make it necessary to import raw materials from other countries.

However, the employees could well argue that it was Ann, Bob and Clyde personal biased and bad decision to hold or not pay compensation to management level employees. They could have taken other decisions otherwise which could have not led the situation of non-payment of the compensation. Also that Ann, Bob and Clyde took a biased decision by paying some employees and not paying others and shall therefore pay from their personal property to clear the dues which otherwise they would have received from the company.