South-Western Legal Studies in Business

Corporate Officers Not Liable for Unpaid Wages of Employees
Description Employees of a bankrupt company sued the directors of the company to recover their unpaid wages. The Colorado supreme court held that unless a director personally created a relationship with an employee, so as to be in a principal-agent relationship, there was no personal liability created by their role as principals in the corporation.
Topic Agency
Key Words Corporations; Officers; Agent; Liability; Bankruptcy; Wages
C A S E   S U M M A R Y
Facts NationsWay, a trucking company with more than 3,200 employees in 43 states declared bankruptcy in 1999. Employees in Colorado sued the officers of NationsWay, contending they should be held personally liable for $12 million in unpaid wages and benefits. The federal appeals court certified questions to the high court of Colorado to clarify Colorado law on this matter so that it could resolve the dispute. In particular, the court asked whether officers of a corporation arte individually liable for the wages of the corporation's former employees?

Answer: "General principles of corporate law provide that officers and agents acting in their representative capacity for a corporation are not personally liable" for unpaid wages. "First, a corporation is always a separate entity distinct from its officers, directors, or investors. Second, corporate officers occupy the position of agents in relation to third persons dealing with the corporation. Therefore, personal liability of officers is governed by principles of agency law." Unless otherwise agreed, a person making or purporting to make a contract with another as agent for a disclosed principal does not become party to the contract. A corporate officer is not the employer responsible for creating the contractual relationship between the employee and the corporation and is not personally responsible for a breach of that relationship, unless he created the relationship without disclosing the responsible principal corporation to which he answered as an agent.

Citation Leonard v. McMorris, --- P.3d --- (2003 WL 231233, Sup. Ct., Colo., 2003)

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