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Do keep in mind that at least in California unpaid wages are one of the only things that pierces the corporate veil, so management and investors are on the hook

Do keep in mind that at least in California unpaid wages are one of the only things that pierces the corporate veil, so management and investors are on the hook for them personally. editing to add citation: California Labor Code Section 558.1

eddsh1994 4y ago
Does that work even if the companies incorporated in Delaware?
- stingrae 4y ago
  yes.
- xenospn 4y ago
  Wouldn’t be very effective if it didn’t.
  - eddsh1994 4y ago
    Well an amendment in 2017 to the General Corporation Law of the State of Delaware added Section 115 which explicitly permits Delaware startups to adopt in its certificate of incorporation a requirement that all internal corporate claims are exclusively held in front of a Judge in Delaware. Several cases in California have upheld this. So it's not exactly a crazy question to ask if this would work for YC startups employees.
    - deleted 4y ago
      [deleted]
    - dragonwriter 4y ago
      Internal corporate claims are claims by the corporation against officers and shareholders with regard to their duties to the corporation. It does not apply to claims by employees against the corporation under foreign state wage and hour laws, nor could it.
      - eddsh1994 4y ago
        Thanks!
  - dllthomas 4y ago
    On the one hand, of course in this case it applies. On the other hand, let's not pretend CA government doesn't sometimes pass things that aren't very effective.
- aaomidi 4y ago
  California fortunately doesn’t give a shit.
- bcrosby95 4y ago
  Labor law generally applies where the employee lives. Otherwise companies would just incorporate in <fucked country> and be able to do whatever they want.
- anon291 4y ago
  Yes, Delaware has no jurisdiction over events that take place in California, or vice versa. A delaware corporation hiring an employee in California means that it is subject to the laws of California solely when it comes to its relationship with that employee.
  - deleted 4y ago
    [deleted]
plonk 4y ago
Is it illegal to not be able to pay wages because the company's bank melted down?
- robbiet480 4y ago
  Reading the law with the strictest interpretation says to me (IANAL): yes
  - etothepii 4y ago
    Why wouldn't they just resign as a director in that case?
    - lovich 4y ago
      I was unaware that after having committed a crime, that you could merely resign and say it’s not your problem anymore.
      - kevin_thibedeau 4y ago
        But these are elites. Can't be prosecuted if no prosecutor will bother to apply the law fairly to everyone.
      - tedunangst 4y ago
        Resign on payday.
        lovich 4y ago
        I suppose if you were about to h it a pedestrian while driving your car you could always bail out and claim you weren’t in charge of the vehicle, although that might be a bad example given Tesla’s shenanigans. The government isn’t that simplistic that they’d accept that as a legal defense if they were going to enforce the law. Possibly if the executive could prove that they were defrauded by another exec or vendor with liability and they resigned as soon as they had information to that effect which coincidentally was on pay day, they could pull it off. Even then though as a corporate officer they have liability over how the company operates when they choose the people to do the job. As the other poster pointed out the liability for payroll pierces the corporate veil and that means they can’t just bail out and use the corporation as a legal shield.
julienb_sea 4y ago
Realistically this encourages immediate furloughs, layoffs, firing or bankruptcy proceedings. There isn't a world where the companies actually get to the stage of "unpaid wages", there are many steps they can take to avoid getting into that legal boondogle.
- sethev 4y ago
  Normally, yes. But in this case isn't it the upcoming payroll that's the problem? That work has already been done by employees, so the wage is already on the books. If they can't come up with the money, they'll have unpaid wages no matter how many people they fire. Right?
  - Me1000 4y ago
    Sure, but then they'll just furlough or lay off everyone. So employees get one payroll paid out, but then they don't get anymore, and the company and all the economic activity it produces are gone too.
    - zuminator 4y ago
      If your company is economically unviable, it's going to eventually fold anyway; that's not the workers' fault. But if it's profitable and just has fallen temporarily behind in payroll, then it's not like it has to pay back wages all at once, it can make arrangements to pay them back over a period of weeks or months. But what it can't do is just decide not to pay people for the work they have performed. People are acting like there's some set of circumstances that makes wage theft reasonable. Situations where management forces the employees to work for free under threat of being fired are exactly why the corporate veil should be pierced in these matters.
      - Me1000 4y ago
        Just because a company is unviable today doesn't mean it will be unviable a year from now, that's the whole idea behind investing. If this had happened to Google in 1999 (a year before they would eventually make money through advertisements) Google would likely not be able to make payroll, pay their server bills, or keep their office lights on. Second, even if the company is profitable, they might rely on income from other companies screwed over today. Those companies might not be able to pay their bills. If I'm Sentry, Render, Mongo, or any other number of companies that gets most of their revenue by providing services to startups, I'd be worried right now. Even big cloud providers like AWS and GCP will likely take revenue hits. Big companies can float resources while this debacle gets sorted out, but small companies cant. I'm sure there are a bunch of startups out there that had $2 million in the bank which would give them a good 18 months of runway, and are now trying to prioritize cost cutting measures to help make that initial $250k of insured deposits last as long as possible. And that's permanent lost revenue for those companies. Third, I'm not saying wage theft is reasonable (it's not), and I don't think anyone else is either. I'm simply trying to point out that piercing the veil isn't some magic bullet here. If a company has to close up shop that's probably the worst of all worlds. Employees lose their jobs with little notice and no severance, office owners need to find new tenants (in an already tough office real estate market), healthy companies seeing ripple effects start belt tightening as well. And in the event that the full (or majority of) deposits from SVB are eventually released to the bankrupt company, where do you think that money goes? Right back to the shareholders. Employees are still screwed. Piercing the veil makes sense in a typical situation where a company has gone bankrupt and they need to find a way to meet their final obligations, but it's a little more complicated in this situation. There are plenty of healthy companies that will be healthy again once the FDIC is able to release deposits.
Me1000 4y ago
If this happens the companies will immediately close up shop. So you get your last 2 weeks of pay then no more, no severance, nothing.
- muzz 4y ago
  If a company wants to shoot itself in the foot like that
  - Tuna-Fish 4y ago
    If you are a director of a company facing such a situation, it's what you want to do. Because if you don't, you become personally liable for the missed payroll. Do you want to close up shop and say "this startup died because of SVB, on to start another one", but keep your car and your house, or do you want to risk losing literally everything you own and then end up with loads of new debt on top of that.
    - muzz 4y ago
      Depends if you think the eventual outcome is worth more. People used to second-mortgage their house to start small businesses where the best-case payoff is much less than these tech companies-- some of which are apparently the next Google or Facebook according to the head of YC on CNBC yesterday
- Alex3917 4y ago
  > If this happens the companies will immediately close up shop. If their bank accounts get frozen for a week, they'll just lay everyone off and then hire them all back a week later with a signing bonus to cover their missed days. No one is going to permanently shut down their company because their bank is closed for a couple days. Maybe a few lucky executives will accidentally get their vesting accelerated, and a few startups that were on the brink of collapsing anyway might be pushed over the edge, but beyond that life will go on as usual.
- smugma 4y ago
  As Garry wrote, companies would furlough before closing up shop. You get your paycheck, and then you're told you're furloughed until FDIC does their thing. This protects the company and the founders. This may be better or worse for workers than being laid off.

eddsh1994 4y ago

Does that work even if the companies incorporated in Delaware?

stingrae 4y ago
yes.
xenospn 4y ago
Wouldn’t be very effective if it didn’t.
- eddsh1994 4y ago
  Well an amendment in 2017 to the General Corporation Law of the State of Delaware added Section 115 which explicitly permits Delaware startups to adopt in its certificate of incorporation a requirement that all internal corporate claims are exclusively held in front of a Judge in Delaware. Several cases in California have upheld this. So it's not exactly a crazy question to ask if this would work for YC startups employees.
  - deleted 4y ago
    [deleted]
  - dragonwriter 4y ago
    Internal corporate claims are claims by the corporation against officers and shareholders with regard to their duties to the corporation. It does not apply to claims by employees against the corporation under foreign state wage and hour laws, nor could it.
    - eddsh1994 4y ago
      Thanks!
- dllthomas 4y ago
  On the one hand, of course in this case it applies. On the other hand, let's not pretend CA government doesn't sometimes pass things that aren't very effective.
aaomidi 4y ago
California fortunately doesn’t give a shit.
bcrosby95 4y ago
Labor law generally applies where the employee lives. Otherwise companies would just incorporate in <fucked country> and be able to do whatever they want.
anon291 4y ago
Yes, Delaware has no jurisdiction over events that take place in California, or vice versa. A delaware corporation hiring an employee in California means that it is subject to the laws of California solely when it comes to its relationship with that employee.
- deleted 4y ago
  [deleted]

plonk 4y ago

Is it illegal to not be able to pay wages because the company's bank melted down?

robbiet480 4y ago
Reading the law with the strictest interpretation says to me (IANAL): yes
- etothepii 4y ago
  Why wouldn't they just resign as a director in that case?
  - lovich 4y ago
    I was unaware that after having committed a crime, that you could merely resign and say it’s not your problem anymore.
    - kevin_thibedeau 4y ago
      But these are elites. Can't be prosecuted if no prosecutor will bother to apply the law fairly to everyone.
    - tedunangst 4y ago
      Resign on payday.
      - lovich 4y ago
        I suppose if you were about to h it a pedestrian while driving your car you could always bail out and claim you weren’t in charge of the vehicle, although that might be a bad example given Tesla’s shenanigans. The government isn’t that simplistic that they’d accept that as a legal defense if they were going to enforce the law. Possibly if the executive could prove that they were defrauded by another exec or vendor with liability and they resigned as soon as they had information to that effect which coincidentally was on pay day, they could pull it off. Even then though as a corporate officer they have liability over how the company operates when they choose the people to do the job. As the other poster pointed out the liability for payroll pierces the corporate veil and that means they can’t just bail out and use the corporation as a legal shield.

julienb_sea 4y ago

Realistically this encourages immediate furloughs, layoffs, firing or bankruptcy proceedings. There isn't a world where the companies actually get to the stage of "unpaid wages", there are many steps they can take to avoid getting into that legal boondogle.

sethev 4y ago
Normally, yes. But in this case isn't it the upcoming payroll that's the problem? That work has already been done by employees, so the wage is already on the books. If they can't come up with the money, they'll have unpaid wages no matter how many people they fire. Right?
- Me1000 4y ago
  Sure, but then they'll just furlough or lay off everyone. So employees get one payroll paid out, but then they don't get anymore, and the company and all the economic activity it produces are gone too.
  - zuminator 4y ago
    If your company is economically unviable, it's going to eventually fold anyway; that's not the workers' fault. But if it's profitable and just has fallen temporarily behind in payroll, then it's not like it has to pay back wages all at once, it can make arrangements to pay them back over a period of weeks or months. But what it can't do is just decide not to pay people for the work they have performed. People are acting like there's some set of circumstances that makes wage theft reasonable. Situations where management forces the employees to work for free under threat of being fired are exactly why the corporate veil should be pierced in these matters.
    - Me1000 4y ago
      Just because a company is unviable today doesn't mean it will be unviable a year from now, that's the whole idea behind investing. If this had happened to Google in 1999 (a year before they would eventually make money through advertisements) Google would likely not be able to make payroll, pay their server bills, or keep their office lights on. Second, even if the company is profitable, they might rely on income from other companies screwed over today. Those companies might not be able to pay their bills. If I'm Sentry, Render, Mongo, or any other number of companies that gets most of their revenue by providing services to startups, I'd be worried right now. Even big cloud providers like AWS and GCP will likely take revenue hits. Big companies can float resources while this debacle gets sorted out, but small companies cant. I'm sure there are a bunch of startups out there that had $2 million in the bank which would give them a good 18 months of runway, and are now trying to prioritize cost cutting measures to help make that initial $250k of insured deposits last as long as possible. And that's permanent lost revenue for those companies. Third, I'm not saying wage theft is reasonable (it's not), and I don't think anyone else is either. I'm simply trying to point out that piercing the veil isn't some magic bullet here. If a company has to close up shop that's probably the worst of all worlds. Employees lose their jobs with little notice and no severance, office owners need to find new tenants (in an already tough office real estate market), healthy companies seeing ripple effects start belt tightening as well. And in the event that the full (or majority of) deposits from SVB are eventually released to the bankrupt company, where do you think that money goes? Right back to the shareholders. Employees are still screwed. Piercing the veil makes sense in a typical situation where a company has gone bankrupt and they need to find a way to meet their final obligations, but it's a little more complicated in this situation. There are plenty of healthy companies that will be healthy again once the FDIC is able to release deposits.

Me1000 4y ago

If this happens the companies will immediately close up shop. So you get your last 2 weeks of pay then no more, no severance, nothing.

muzz 4y ago
If a company wants to shoot itself in the foot like that
- Tuna-Fish 4y ago
  If you are a director of a company facing such a situation, it's what you want to do. Because if you don't, you become personally liable for the missed payroll. Do you want to close up shop and say "this startup died because of SVB, on to start another one", but keep your car and your house, or do you want to risk losing literally everything you own and then end up with loads of new debt on top of that.
  - muzz 4y ago
    Depends if you think the eventual outcome is worth more. People used to second-mortgage their house to start small businesses where the best-case payoff is much less than these tech companies-- some of which are apparently the next Google or Facebook according to the head of YC on CNBC yesterday
Alex3917 4y ago
> If this happens the companies will immediately close up shop. If their bank accounts get frozen for a week, they'll just lay everyone off and then hire them all back a week later with a signing bonus to cover their missed days. No one is going to permanently shut down their company because their bank is closed for a couple days. Maybe a few lucky executives will accidentally get their vesting accelerated, and a few startups that were on the brink of collapsing anyway might be pushed over the edge, but beyond that life will go on as usual.
smugma 4y ago
As Garry wrote, companies would furlough before closing up shop. You get your paycheck, and then you're told you're furloughed until FDIC does their thing. This protects the company and the founders. This may be better or worse for workers than being laid off.