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Top 10 Largest Shareholders of a Non-Publicly Traded Foreign Corporation May be Held Liable for Unpaid Wages for Services Performed in New York State

New York has amended its Business Corporation Law (BCL) to make the top ten largest shareholders of a non-publicly traded foreign corporation liable for unpaid wages. The change will go into effect in the middle of next month.

The New York Business Corporation Law has a little-known provision that allows employees to hold the top ten largest shareholders of a company jointly and severally liable for unpaid wages.  This provision has remained little-known for at least three reasons.  First, it previously applied only to domestic corporations.  Second, it does not apply to publicly-traded companies.  And third, it generally requires an employee no later than 180 days after his or her termination to notify some or all of the shareholders in writing of his or her intention to hold them liable for unpaid wages.  Claims under this provision are seldom seen or quickly dispatched, because employees often realize that their employer either isn't  incorporated in New York, or even if it is, that they missed the notification deadline.

But Governor Cuomo has taken steps over the last couple of years to expand the reach of this law.  First, last year, New York amended its Limited Liability Company Law to include a provision that mirrored the one in the Business Corporation law, so that employees could go after not just shareholders of a domestic corporation, but also the top ten largest members of domestic LLCs.  Then, last month, New York amended its Business Corporation Law to remove the domestic incorporation limitation – employees may now pursue the top ten largest shareholders of a foreign corporation for unpaid wages for services performed in New York State.  (No similar amendment was made to the LLC law, however).

In his signing statement, Governor Cuomo recognized that the law contained several “technical flaws” that makes it “constitutionally infirm,” but he signed it anyway with the expectation that the legislature would correct those deficiencies in the coming legislative session.  The amendment goes into effect on January 19, 2016.

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