Entrepreneurs incorporate their businesses to shield their personal fortunes from claims against the firm. That shield is not absolute, but the U.S. Court of Appeals in Boston recently decided that it give more protection in pension cases than it does in similar wage-and-hour litigation.
The case, DeBreceni v. Graf Bros. Leasing, involves a trucking company that in the late 1970s ran into financial problems, filed for reorganization under the bankruptcy laws, and eventually closed.
When it shut its doors, the industry pension fund figured that the line owed more than $1 million to cover its liability; eventually the pension plan got $175,000 in the liquidation. The plan trustees tried to recover the rest of the withdrawal assessment from the trucking line's owner, who not only ended up holding all the stock but in the final years made all the day-to-day managerial decisions.
If workers have been paid less than the minimum wage or have overtime pay due, they can collect it from the person who was in control of the company, regardless of whether or not it is organized as a corporation.
Claims under the Fair Labor Standards Act are treated on the basis of "economic reality," and an executive who is effectively running a company will be held responsible for overdue salaries. The pension plan argued that the same standards should apply to claims under the Employee Retirement Income Security Act.
The Boston judges wouldn't buy it, saying that the idea of using incorporation as an alternative to personal liability is so long established that it must be considered the norm. Unless Congress specifically says that a law is to reach the person behind the incorporation, and it does not say that in ERISA, courts should not make exceptions, Judge Juan R. Torruella explained.
Besides, the Sept. 18 opinion suggests that to impose personal liability would work against the underlying purpose of the statute. ERISA tried to ensure that workers will have sound pension plans by encouraging companies to sign on to industry-wide plans. The fear that if a business goes under personal assets will be at risk would actually have just the opposite effect, goading owners to stay out of multi-employer plans and pension systems.
In other cases, courts ruled that:
Banks that reneg on business loan promises cannot be slapped with punitive damages.
The disappointed would-be borrower may be able to collect any actual losses suffered because the lender changed its mind, but that's the limit of the recovery, the Colorado Supreme Court decided. The justices said that for punitive damages to be imposed, the bank would have had to have violated a fiduciary relationship, and they looked on commercial loan negotiations as bargaining between two equal parties.
Mortgage Finance v. Podleski, Sept. 8. Workers with high levels of lead in their blood are guaranteed all employment perks.
The Labor Department has told companies using significant quantities of lead that they must protect workers whose tests show they are in danger by moving them to work sites with low lead exposure with no reduction in earnings.
Settling a clash between union and management over the meaning of "earnings," the U.S. Court of Appeals in Atlanta ruled that it includes not just base pay but also overtime, shift differentials and production bonuses workers would have earning in their old job slots.
Steelworkers v. Schuykill Metals, Oct. 2. Suits claiming violations of regulations implementing the Federal Surface Mining Control and Reclamation Act do not belong in federal courts.
The U.S. Court of Appeals in Philadelphia told land owners who believed that a coal company's exploratory drilling violated conservation standards to take the dispute into state court.
The federal law sets minimum environmental protections, but tells states that they can come up with their own regulatory plans as long as they are at least as tough as those minimums. Once the Interior Department has okayed the state plans, there's no more Washington role, the judges decided, and all damage suits based on the state plans have to be filed in state courts.
Haydo v. Amerikohl Mining, Oct. 5. A disgruntled employe can give government investigators corporate documents they could not get on their own.
Using material turned over to Internal Revenue Service by an administrative assistant who was angered at some personnel decisions made by her employer, the government won convictions against two company officers for income tax fraud.
The defendants argued that the administrative assistant had become so cozy with the IRS agents that she in effect became a government operative herself, who could not take the documents without a warrant.
But the U.S. Court of Appeals in Chicago said that she was working on her own, so the constitutional protections against government searches did not apply. A key point: The IRS agents never asked her to find for them any specific documents.U.S. v. Feffer, Sept. 22.Moskowitz covers legal affairs for McGraw-Hill World News.