DELAWARE’S WAGE PAYMENT AND COLLECTION ACT AND LIMITED LIABILITY COMPANIES: NO PERSONAL LIABILITY FOR MEMBERS

sealx_2010In a case defended by Cooch and Taylor, the Delaware Superior Court recently ruled on the question of a Limited Liability Company (“LLC”) member’s individual liability for alleged LLC wage debts under Delaware’s Wage Payment and Collection Act (“Act”), 19 Del. C. §§ 1101-1115.  Pursuant to Section 1101(b) of the Act, “the officers of a corporation and any agents having the management thereof who knowingly permit the corporation to violate this chapter shall be deemed to be the employers of the employees of the corporation.”  In effect, the Act allows for a piercing of the corporate form to secure liability for wage debts (and associated penalties, damages, costs and attorney’s fees) against corporate officers and agents who knowingly allow the corporation to violate the Act.

In 2010 the Delaware Court of Common Pleas held that the Act did not allow for individual liability of members, even managing members, of an LLC.  Department of Labor ex rel. Chasanov v. Brady, C.A. No. CPU4-09-8966.  In a detailed opinion, Chief Judge Alex J. Smalls held that Section 1101(b) was unambiguous, and does not refer to LLC’s, which are legally distinguishable from corporations.  Accordingly, the LLC’s debts and obligations are not that of members or managers.

It is interesting to note that the Chasanov case was brought on the plaintiff’s behalf by the Delaware Department of Labor, the state agency tasked with enforcement of the Act (Section 1111).  Despite this adverse ruling, no effort was made to address the issue with the Delaware General Assembly to seek to amend the Act to include LLCs (or any other type of non-corporate entity) within the scope of Section 1101(b).

The Court of Common Pleas decision had limited precedential weight; therefore employment attorneys have been in a quandary as to how the Superior Court, or the Delaware Supreme Court, would rule on this issue.  While the latter question as to the State’s highest court remains unresolved, a recent decision by the Superior Court resolves the initial inquiry.  In Giroux v. Downing Partners, LLC, et al., C.A. No. N15C-11-183 MMJ, the Court was asked to address a situation virtually identical to Chasanov.  Finding the lower Court’s ruling persuasive, the Superior Court ruled that the individual member of the defendant LLCs could not be named as a party under Section 1101(b) and dismissed him as a party to that action.

This decision currently remains subject to possible appeal, and the Delaware Supreme Court has yet to address this issue.  Additionally, it remains to be seen what action, if any, the Delaware General Assembly will take to address this issue.  For the time being, however, members of LLCs cannot be held individually liable for alleged wage debts under the Act.

G. Kevin Fasic, Esquire and Katherine Randolph Witherspoon, Esquire

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