The High-touch Legal Services® Blog • For Startup Companies

I answer questions on Avvo pretty regularly. From time to time, I will reproduce (perhaps with modest editing) some of the questions and answers here on my blog.

Question: If an employer has cash flow problems, who should be paid first: employees or vendors?

Answer: I see this situation as requiring analysis from both the business and the legal perspectives.

Business: I believe that employees are more important, and are less able to do without the money to which they are entitled, than (most) vendors, so I would pay employees first.

Legal: While either employees or vendors could bring suit against the employer, employees also would have the ability to file, at no cost, a wage claim with the Division of Labor Standards Enforcement. In my opinion, DLSE investigation of a wage claim is worse than a lawsuit, so for this reason, too, I would pay employees first.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Recently I have seen an increase in the number of current or former employees filing wage claims against their employers nere in California. There often is a good reason for the filing – in my experience, employees typically do not spend time and effort on the wage claim process unless they have some basis for concluding they have been underpaid, such as:

• Unpaid wages, including commissions or bonuses
• Accrued but unused vacation time not paid at the time of termination
• Unauthorized deductions from paychecks

Wage claim procedures can be nasty from the employer’s perspective, because the employee – who need not be represented by counsel – can have the Labor Commissioner issue subpoenas for documents, records or witnesses. (The employee needs to pay associated out-of-pocket expenses.) Few employers want to be subjected to Labor Commissioner subpoenas, much less the hearing at which the subpoenaed evidence will be presented.

The bottom line for employers: Pay employees what they are owed throughout their employment and upon termination. Complying with law usually is more cost-effective than defending a wage claim.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.