On the Hook: Company Owners and Managers At Personal Risk for Unpaid Employee Wages

If a company does not timely pay all wages due to an employee,the South Carolina Payment of Wages Act (SCPWA) allows the employee tofile a lawsuit for three times the amount of unpaid wages, plus courtcosts and attorneys fees.  The lawsuit for unpaid wages can be filed not only against the company, but also against agents and officers whopermit the company to violate the SCPWA.

In Allen v. Pinnacle Healthcare Systems, LLC, neurologist Aaron Allen sued his employer, Pinnacle Healthcare, a member-managed limitedliability company that is now defunct, and four individuals affiliatedwith Pinnacle.  Allen sought $780,000 based on his employment contract.  Following a trial, three of the individuals were found to be jointlyand severally liable for Allen’s unpaid wages, prejudgment interest, and attorney’s fees.

On July 27, 2011, a three-judge panel of the South Carolina Court ofAppeals voted 2-1 to affirm judgment against two of the individuals.  One of the individuals was the executive manager who organized thecompany and owned 40 percent of it.  The other was a member of PinnacleHealthcare who owned 20 percent of the company.

Both were found to be personally liable because they handled thefinances and payroll for Pinnacle Healthcare.  And according to theCourt of Appeals, both knew Allen was not being paid his wages for thelast six months of his employment.  The court concluded that both “hadan obligation to advise the employees who were working and not gettingpaid that they may not get paid so they would not continue workingwithout the payment of wages.”

The Court of Appeals reversed the judgment against a third individualwho was a member and 15 percent owner of Pinnacle Healthcare because hehad no authority over the company’s finances.  The dissenting judgebelieved that only the executive manager of Pinnacle Healthcare shouldbe held personally liable because the member who owned 20 percent of the company “lacked the authority to make any decisions regarding thepayment of wages.”

The Allen decision illustrates the wisdom of company owners and managers making sure employees are paid properly.  While not allcompany owners and managers are necessarily personally liable forviolations of the SCPWA, the Allen case makes clear that anagent or officer who knows a company is unable to pay the wages of itsemployees and continues to employ them may be required to pay theemployees out of his or her pocket.

David Dubberly ([email protected]) chairs Nexsen Pruet’s Employment and Labor Law Practice Group.  He is certified by the SouthCarolina Supreme Court as a Specialist in Employment and Labor Law.