New Washington law exposes corporate officers to personal financial risk
September, 2007
Corporate officers may now be held personally liable for failure to pay unemployment insurance contributions.
What's new?
Previously, unemployment insurance taxes or payments were treated like any other business debt. Washington corporate officers were shielded from personal liability for such contributions owed by corporations or limited liability companies (LLCs). The new law essentially disregards the corporate entity in certain situations where a company evades paying unemployment insurance, putting an officer's personal assets at risk.
In the past, corporate officers were not held accountable for accrued unpaid unemployment taxes. Owed payments would be written off as uncollectible company debts. Under the new law, when a corporation or LLC goes out of business, any officer, manager, employee or consultant who controls or supervises the payment of unemployment insurance taxes or payments, or filing of unemployment insurance reports, may be personally liable for all unpaid unemployment insurance contributions as well as any interest and penalties.
Personal liability attaches when an officer, or someone under the officer's supervision willfully:
1) Evades contributions;
2) Destroys records; or
3) Fails to truthfully account for, or makes under oath, any false statement relating financial condition of the business.
If corporate officers are found personally liable, they must use their personal finances to pay for all unpaid amounts accrued while responsible for the payments.
Exceptions
The new law provides only two situations where a corporate officer can avoid personal liability:
1) The Employment Security Department determines the failure to pay unemployment insurance contributions was beyond the officer's control; or
2) All of the company's assets have been applied to its debts through bankruptcy or receivership.
What officers need to know
Now that the new law has taken effect, it is critical for corporations and LLCs to work with legal counsel to evaluate their unemployment insurance contributing and reporting procedures. Further, officers, managers, employees, and consultants should be aware of the personal liability they may be exposed to by assuming responsibilities for unemployment insurance payments or reporting. Please contact Bullivant's business attorneys if we can be of assistance with review of policies and procedures to protect your employees from personal liability.