Appellate Court Rules Employers Can Be Held Individually Liable For Unpaid Wages

Appellate Court Rules Employers Can Be Held Individually Liable For Unpaid Wages
21 May 2018

In a recent decision, the Colorado Court of Appeals ruled that the Colorado Wage Claim Act does not categorically bar a plaintiff from piercing the corporate veil to hold a company’s officers or directors individually liable for unpaid wages.

The background: Plaintiff Robert Paradine served as Aspect Technologies, Inc.’s Chief Financial Officer and Vice President of Administration. Paradine sued Aspect Technologies and the company’s CEO Esmond Goei, in Boulder County District Court asserting a claim under the Wage Claim Act, and claims for fraud and breach of contract. He alleged that Goei and Aspect Technologies owed him about $8,100 in unpaid wages. The district court dismissed all three claims against Goei (though claims against Aspect Technologies are still pending). Specifically, the district court held that the Goei was not individually liable for wages under the Colorado Wage Act, which has been the long-standing precedent since Leonard v. McMorris, 63 P.3d 323 (Colo. 2003). Paradine appealed the dismissal of claims against Goei to the Colorado Court of Appeals. On April 19, 2018, the appellate court reversed the district court’s dismissal, and resurrected Paradine’s claims against Goei individually. The appellate court remanded the matter back to the district court. Paradine may now attempt to prove the claims against Goei, individually, and if successful, collect unpaid wages directly from Goei.

The appellate court decision recognizes that officers and directors of a corporation are not personally responsible for the debits of a corporation merely because they are officers and directors, which is consistent with Leonard v. McMorris. However, the appellate court clarified that if an exception is established where it is plausible that the plaintiff could pierce the corporate veil, a plaintiff could get a judgment and collect unpaid wages directly from the officers and directors personally. As such, neither the Colorado Wage Act nor Leonard v. McMorris are a complete bar to finding individuals liable for unpaid wages. The test for piercing the corporate veil requires (1) evidence that the corporation was a mere alter ego of the officer; (2) evidence that the officer used the corporation to perpetuate fraud or to defeat a rightful claim; and (3) the trial court’s evaluation of whether “an equitable result will be achieved by disregarding the corporate form and holding the shareholder personally liable for the acts of the business entity.” (quoting In re Phillips, 139 P.3d 639, 644(Colo.2006)).

Though we have yet to see the final outcome in Paradine’s district court case, this ruling serves as a reminder of the importance, especially for small, closely held corporations in particular, to observe all legal requirements and formalities and otherwise meet the conditions for enforcement of their corporate status to avoid having their veils pierced and their owners exposed to individual liability. For information on how this decision might impact your company, contact Michelle B. Ferguson or your Ireland Stapleton attorney directly at 303-623-2700.

About the Author

Michelle B. Ferguson leads Ireland Stapleton Pryor & Pascoe, PC’s Employment Law practice group. Her practice focuses on preventative employment law finding ways to keep businesses out of court by being proactive in identifying and solving employment issues before a claim is filed. She can be reached at 303-628-3658 or mferguson@irelandstapleton.com.

This overview and review of a Colorado appellate court decision is for informational purposes only. What is written here is intended as general information, and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.