BILL NUMBER:S2731

TITLE OF BILL:  An act to amend the business corporation law, in
relation to the applicability of provisions relating to liability of
shareholders for wages due to laborers, servants or employees for
certain foreign corporations

PURPOSE OR GENERAL IDEA OF BILL:

The bill ends discrimination against New York corporations and in
favor of foreign (out of state) corporations insofar as liability for
unpaid wages is concerned.

SUMMARY OF PROVISIONS:

The bill amends Business Corporation Law 630 to treat New York and
foreign corporations alike in terms of liability for unpaid wages of
employees. Currently liability is imposed only on New York
corporations.

JUSTIFICATION:

Business Corporation Law S 630 imposes liability for unpaid wages on
the 10 largest shareholders of a closely held corporation after a
judgment against the corporation has been returned unsatisfied. This
statute was part of an historic 19th century compromise in which New
              

York first gave all citizens the right to form corporations and
thereby insulate themselves from personal liability (previously use of
the corporate form was permitted only upon an act of the legislature
allowing the formation of a corporation to pursue a particular
endeavor). When the right to incorporate was established, some
objected that the rights of wage earners would be trampled by use of
the corporate form, so the exception for wages was created. In the
1930s, there was a split in the Appellate Divisions as to whether the
statute applied to foreign corporations or only to domestic
corporations. The Court of Appeals ultimately resolved the question by
deciding that the Stock Corporation Law of New York did not regulate
foreign corporations. In 1962, when the Business Corporation Law was
adopted, it explicitly applied to foreign corporations. But judicial
inertia prevented applying the law to foreign corporations, leading
one federal court to describe the r ule as an historical anachronism.
Under current law, a corporation, though it does all its business in
New York, has an incentive to escape liability for wages by
incorporating in a foreign state, thus causing NY to lose revenue.
Furthermore, there is an anomaly in which the wages of two employees
working side by side are treated differently with respect to their
remedies for unpaid wages depending on which corporation employs them
and whether the corporation is foreign or domestic. The bill ends this
disparity. It should be noted that this Legislature recently
recognized the problem revealed during the recent economic collapse in
which unscrupulous businesses opened and closed without paying wages
due their employees. The Legislature increased the penalty for failure
to pay wages to 100% of the wages owed. However, the penalty is
meaningless if the employee lacks an effective remedy for recovering
his or her unpaid wages. The amendment strengthens existing remedies.

LEGISLATIVE HISTORY:


2013-14: S. 7897 - Referred to Rules

FISCAL IMPLICATIONS:

It is expected that the bill will encourage more corporations to be
formed in New York rather than in foreign jurisdictions.

EFFECTIVE DATE:

On the sixtieth day after it shall have become law.