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Individual liability possible for wage claims, in Colorado

In a 2003 decision, Leonard v. McMorris, the Colorado Supreme Court ruled that the Colorado Wage Claim Act does not itself create statutory liability for individuals who own or manage a company. But what about other theories?

In a recent decision, Paradine v. Goei, the Colorado Court of Appeals held that Leonard does not foreclose personal liability. Rather, it simply held that the Colorado Wage Claim Act itself cannot be a vehicle for imposing personal liability. The Colorado Court of Appeals held in this case that there are, at least, two other “well-established” theories for holding an individual liable for the acts of a company: “peircing the corporate veil, and when an officer acts on behalf of an undisclosed principal.” Oversimplifying these two principles, (1) the first allows a person to be held liable for the acts of his entity if, in running that entity, he has not obeyed corporate formalities and ignored the distinction between the entity and himself; (2) the latter allows a person to be held liable when he seems to have acted on his own behalf but later wishes to claim, unbeknownst to the plaintiff, that he was actually acting behind an entity.

In this case the Court of Appeals held the plaintiff had adequately pled a case to pierce the corporate veil and was, therefore, entitled to seek discovery in pursuit of his allegations. In particular the court noted the plaintiff alleged that the individual collected the company’s money to be used to pay wages, used the company’s revenues for “his own personal use” and “diverted corporate funds” to pay his own expenses, including his “apartment lease” and “vehicle payments,” treating the company as his “alter ego” while commingling bank accounts and credit cards.”

Paradine will no doubt stimulate the filing of individual liability claims in Colorado wage cases.

Source: Paradine v. Goei, case no. 16CA1909 (Colo.App. 4/19/18).