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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
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Experience:  Significant experience in all areas of employment law.
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Company may have trouble making full payroll. What are options?

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Company may have trouble making full payroll. What are options? Can we make a partial payment and defer the balance? If an employee chooses to leave and the company is unable to make full payment, is it OK to offer a note?
Submitted: 2 years ago.
Category: California Employment Law
Expert:  Michelle-Mod replied 2 years ago.

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Customer: replied 2 years ago.

absolutely need assistance! This is why I have the subscription. Thank you for moderating.

Expert:  Michelle-Mod replied 2 years ago.

Thank you, XXXXX XXXXX continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.


Expert:  Patrick, Esq. replied 2 years ago.

Hello and thank you for entrusting me to assist you. My name is XXXXX XXXXX I will do everything I can to answer your question.

Unfortunately, there is no good solution here. California law zealously protects an employee's right to be paid for all work performed and in most circumstances mandates that such work be paid in full no less than twice a month. (Labor Code 204) An employer who fails to comply with these wage payment obligations will be penalized in the amount of $200 per paycheck violation. (Labor Code 210) If the employer drafts a payroll check that bounces, they will be penalized in the amount of the employee's daily rate of pay for each day that the full wages go unpaid up to 30 days. (Labor Code 203.1)

In cases where it can be proven that an employer willfully failed to pay wages (meaning they knew in advance they couldn't pay but had the employee work anyway) they can be charged with a misdemeanor crime. (Labor Codes 215, 216)

The unfortunate answer to your question is simple: you need to figure out a way to make payroll--even if it means selling company assets or taking out a loan--or you need to layoff the employees you can't afford to keep. To do otherwise will risk catastrophic penalties and potentially even criminal charges.

I am truly sorry that I don't have more favorable information to provide you, but you are here for accurate information about the law and it would be a tremendous disservice if I were to mislead you for the sake of providing good news.

Please do not hesitate to contact me with followup question if you have any. I am not done assisting you until you are absolutely satisfied with my service.

Customer: replied 2 years ago.

Patrick, Thank you for making the penalty clear. Would love to sell assets or take a loan; bank won't allow it. We'll have to muddle through. Penalties are civil to the company? Officers? I'm a contractor who doesn't sign anything; my company provides "CFO Services" to this company. Hoping to be part of the solution. Do I have liability?

Expert:  Patrick, Esq. replied 2 years ago.
Thank you very much for your reply. Whether the penalties would apply to you or the company depends on the business structure and your relationship to the business.

If the business is simply a "DBA" ("doing business as"), all owners/partners will be personally liable. If you are employing any formal business structure such as an LLC, LLP, Corporation, etc., the business entity and its assets are the only things exposed UNLESS personal annd business funds are so intermingled that a court would be willing to "pierce the veil" and hold the owners personally responsible.

In order to "pierce the viel" of the formal business structure and hold its owners liable, a court must find: (1) that there was such unity of interest and ownership that the separate personalities of the business and the owner (you) no longer existed, and (2) that, if the acts giving rise to legal action are treated as those of the buisness alone, an inequitable result will follow.

Courts are very hesitatant to "pierce the veil," and will generally only do so where the business structure has been abused in some substantial way. For a great summary of the factors courts will consider in determiing whether to "pierce the veil," see the seminal California case on that topic here:,5

Most notably the Associated Vendors opinion states as follows:

"A review of the cases which have discussed the problem discloses the consideration of a variety of factors which were pertinent to the trial court's determination under the particular circumstances of each case. Among these are the following: Commingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses; the treatment by an individual of the assets of the corporation as his own; the failure to obtain authority to issue stock or to subscribe to or issue the same; the holding out by an individual that he is personally liable for the debts of the corporation; the failure to maintain minutes or adequate corporate records, and the confusion of the records of the separate entities; the identical equitable ownership in the two entities; the identification of the equitable owners thereof with the domination and control of the two entities; identification of the directors and officers of the two entities in the responsible supervision and management; sole ownership of all of the stock in a corporation by one individual or the members of a family; the use of the same office or business location; the employment of the same employees and/or attorney; the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization; the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation; the concealment and 840*840 misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities; the disregard of legal formalities and the failure to maintain arm's length relationships among related entities; the use of the corporate entity to procure labor, services or merchandise for another person or entity; the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another; the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions; and the formation and use of a corporation to transfer to it the existing liability of another person or entity."

There are no black and white answers as to what satisfies the legal standard for piercing the veil. Each case is evaluated on its unique facts and the assessment ultimately has a subejctive element. This, nonetheless, is what unpaid employees will need to argue in order to collect their judgments against your personal assets. The odds of them being able to do so are not high.

Of course, all the above about piercing the veil assumes you have an ownership interest in the company. That in itself seems questionable, and if you don't (i.e. if you yourself are simply a "contractor" for this business with no direct ownership stake or interest), then you likely have no personal exposure either way.

Again, please feel free to let me know if you have any further concerns. If I have answered your question, I would be very grateful for a positive rating of my service so that I may receive credit for assisting you.

Kindest regards.
Patrick, Esq., Lawyer
Satisfied Customers: 10252
Experience: Significant experience in all areas of employment law.
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