If my employer went out of business and they owe me 4 paychecks, what are my options?

The job that I was working for went out of business about 2 weeks ago. I have 2 checks from them that were written before the eventual shutdown, and 2 more are due to me now. I called the bank from which the 2 checks that I currently possess are linked to and they have informed me that that account from which the money is to be drawn do not have the proper funds to cover them. My manager has also informed me that he is not sure when, or if, the 2 checks I am due will come.

Asked on June 2, 2012 under Employment Labor Law, North Carolina


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Legally you are entitled to the money, and may sue for both your missing pay and for any costs you incurred due to late payment--interest costs if you've had to borrow money, late fees from paying obligations late, etc.

Practically, if the company is a corporation or a limited liability company and is now out of business, with no money left in the account or assets, then you will almost certainly not be able to recover anything. When a company is a corporation or LLC, it is it's own legal entity and you can only sue the company, not the owner(s); therefore, if the company has no way to pay you, it doens't matter what your legal rights are.

If the company was not a corporation or LLC, you should be able to sue the owners personally, since there is no separate legal entity--the owners are the company and vice versa. That will give you a much better chance of recovery.

Also bear in mind that if whomever you sue (company and/or owners) files for bankruptcy, you are likely to recover only dimes, or even pennies, on the dollar (or possibly nothing).

The above said, it would be in your interest to file a lawsuit immediately--if there are financial problems, the sooner you file, the greater the chance of recovery (the longer you wait, the less chance there will be money). You may wish to file in small claims court, if the total amount is under the jurisidictional ceiling (maximum amount) for that court, since this a fairly straightforward matter, small claims cases move more quickly, and you can avoid the cost of an attorney.

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