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Should I pay employees or vendors first?

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.