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.
From time to time, I answer questions – typically about the law or about startups – on LinkedIn. Recently I answered the following question:
What is the best way [in a contract] to limit liability when you’re the party receiving payment?
I believe the answer will be helpful to any supplier of goods or services, so I am reproducing it here in slightly edited form.