senate Bill S5888

Relates to the applicability of provisions relating to liability of shareholders for wages due to laborers, servants or employees for certain foreign corporations

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 19 / Jun / 2013
    • REFERRED TO RULES

Summary

Relates to the applicability of provisions relating to liability of shareholders for wages due to laborers, servants or employees for certain foreign corporations.

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Bill Details

See Assembly Version of this Bill:
A6932
Versions:
S5888
Legislative Cycle:
2013-2014
Current Committee:
Senate Rules
Law Section:
Business Corporation Law
Laws Affected:
Amd §630, BC L

Sponsor Memo

BILL NUMBER:S5888

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 § 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 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 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: None.

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 a law.


view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5888

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                              June 19, 2013
                               ___________

Introduced  by  Sen.  ADAMS  -- read twice and ordered printed, and when
  printed to be committed to the Committee on Rules

AN ACT to amend the business corporation law, in relation to the  appli-
  cability of provisions relating to liability of shareholders for wages
  due  to  laborers,  servants  or  employees for certain foreign corpo-
  rations

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Paragraph  (a) of section 630 of the business corporation
law, as amended by chapter 212 of the laws of 1984, is amended  to  read
as follows:
  (a) The  ten  largest shareholders, as determined by the fair value of
their beneficial interest as of the beginning of the period during which
the unpaid services referred to in this section are performed, of  every
DOMESTIC  corporation  (other  than  an investment company registered as
such under an act  of  congress  entitled  "Investment  Company  Act  of
1940"),  OR  OF  ANY  FOREIGN CORPORATION, WHEN THE UNPAID SERVICES WERE
PERFORMED IN THE STATE, no shares of which  are  listed  on  a  national
securities exchange or regularly quoted in an over-the-counter market by
one  or  more  members of a national or an affiliated securities associ-
ation, shall jointly and severally be personally liable for  all  debts,
wages  or  salaries  due  and  owing to any of its laborers, servants or
employees other than contractors, for services  performed  by  them  for
such  corporation. Before such laborer, servant or employee shall charge
such shareholder for such services, he shall give notice in  writing  to
such  shareholder that he intends to hold him liable under this section.
Such notice shall be given within one  hundred  and  eighty  days  after
termination  of  such  services, except that if, within such period, the
laborer, servant or employee demands an examination  of  the  record  of
shareholders  under  paragraph  (b)  of  section 624 (Books and records;
right of inspection, prima facie evidence), such  notice  may  be  given

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD09651-01-3

S. 5888                             2

within sixty days after he has been given the opportunity to examine the
record  of  shareholders.   An action to enforce such liability shall be
commenced within ninety days after the return of an  execution  unsatis-
fied  against  the  corporation upon a judgment recovered against it for
such services.
  S 2. This act shall take effect on the sixtieth  day  after  it  shall
have become a law.

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