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Zirtual Fired 400 Employees Right Before It Was Acquired. Now They’re Suing
- pbreit 11y agoWho needs paid timeoff and healthcare when you can work 20 hours/week and get free Obamacare?
- harryh 11y agoI feel like I remember reading that startups.co acquired Zirtual's assets and not Zirtual the company. Possibly they did this so they wouldn't be liable for anything like this? As is, whatever is left of Zirtual presumably doesn't have any assets worth suing over.
- subliminalzen 11y agoWould Zirtual's investors be on the hook?
- harryh 11y agoIANAL but almost certainly not. This is one of the primary purposes of corporations: to limit liability.
- davidu 11y agoActually, an exception often exists for owed or unpaid employee wages -- then directors can be held responsible for those. But I don't think that's the case here.
- greenyoda 11y agoIt looks like the employees were indeed owed some unpaid wages. The article says: "Moreover, employees were only paid through August 7—but they didn't know this until the email arrived in the early morning of August 11."
- Gibbon1 11y agoI think that only applied ever to hourly, and even that I think was changed during the Reagan Admin. I think creditors with unpaid wages aren't even senior anymore.
- greenyoda 11y agoBeing a corporation doesn't limit liability from criminal prosecution, however. The company fraudulently let the employees work for their last week, presumably knowing that it didn't have the money to pay them. And they defrauded the employees by canceling their insurance after having taken their insurance payments. The article said: "The company's HR chief had quit abruptly a week before, allegedly posting in a Facebook group that she didn't want to be party to doing anything illegal." I think that was a very smart move. The founders could end up facing criminal charges for their actions. (This, of course, wouldn't affect the investors, unless they conspired with the founders to defraud the employees.)
- harryh 11y agoYa. That's never going to happen.
- ken47 11y agoWhy are you so certain?
- scintill76 11y agoMight the HR chief still be in trouble for knowing something illegal/fraudulent was going on and not reporting/stopping it? At least ethically that's a grey area, and legally I'd guess it was not smart to allegedly document that she knew it with an FB post.
- rayiner 11y agoYes, in general an asset purchaser is not liable for judgments against the seller. But there is the potential for a buyer to have "successor liability" under certain circumstances. Usually, it's when the sale is really a de facto merger, with continuity in the identities of shareholders. If this was a cash sale of assets, that would not apply here. In some states there are ways to get successor liability when the buyer continues the business of the seller, not in Delaware. Of course the assets were sold for cash, so that's in the husk of the company. If that money exists, it'll be hard for shareholders and insiders to get it out of the remnant company without running into trouble in the inevitable bankruptcy. But even if the employees win, they're judgment creditors and behind a few people in the line for that money.
- harryh 11y agoI'm also working under the assumption that the cash pile in question is pretty small. Small enough that the shareholders are very unlikely to care about getting it out.
- bradleyjg 11y agoI thought back pay had a very high priority in bankruptcy. Are WARN act payments considered ordinary judgments rather than back pay?
- rayiner 11y agoGood point. I think unpaid wage judgments are given the same priority as unpaid wages. Either way they're behind secured creditors. If the company had bank loans secured by collateral, the banks may have dibs on the proceeds.
- harryh 11y agoVenture debt would be unsecured though right? Probably all (or nearly all) of their debt falls into that category.
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- sixQuarks 11y agoWow. What a mess. I feel bad for the founder, even though she handled the situation badly.
- subliminalzen 11y agoI feel bad for the hundreds of employees she essentially stole from and left in the lurch.