BILL NUMBER:S4476

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 Section 630(a) of the Business
Corporation Law 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: Section 630 of the Business Corporation Law currently
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, the
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 an exception regarding liability 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 rule
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 outside of New York State, thus causing New York 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. This bill
would end that 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: A.6932 of 2013-14 -- passed Assembly, referred to
Senate Rules

FISCAL IMPLICATIONS: There will be no costs to the State. Instead, it
is expected that the bill will encourage more corporations to be
formed in New York rather than in foreign jurisdictions by eliminating
a disincentive to be incorporated in New York.

EFFECTIVE DATE: The sixtieth day after it shall have become law.