As state legislators go forward with a hearing today on the AIG issues (you can view the hearing on CT-N, here), one of the recurring themes suggested in various newspapers articles and by state leaders is that there were lots of ways that the employer could have avoided paying these retention payments.

Perhaps.

But suppose you were an employer that was going through financial difficulties arising from the subprime mess and decided to avoid paying some commissions to salespeople involved with these mortgages — even if just for a short while.  Under such circumstances, what would the State of Connecticut do then? Give you a free pass, particularly if those employees who got you into the mess may be the same employees to whom you owed wages?

Well, it turns out you don’t have to theorize about it .  There continues to be a case that I first reported on in September 2007 about an employer who failed to pay some commissions due to executives and salespeople, a company named Mortgage Lenders Network  

That case illustrates that, for much less money than was paid to the AIG employees, an employer could get into a heap of trouble. So much trouble, in fact, that the State might go beyond just requesting double damages for failure to pay wages, but might issue an arrest warrant to the company President for such a failure.

You remember that company, right? The company had built a nationwide presence by making subprime loans and was in the midst of building a big new headquarters in the state. But by late 2006, it was going through some financial difficulties as credit lines came to a halt and then it allegedly failed to pay some employees commissions — at least $1.6 million total. (These were, after all, the same employees, who participated in the company’s subprime lending practices.)

Ultimately, MLN filed for bankruptcy.  What did the state do then? It had an investigator from the Department of Labor look into the situation and ultimately issued an arrest warrant for the Company’s president back in March 2007 for failure to pay wages and sales commissions on time. 

That arrest has been stayed and delayed for nearly two years as the MLN President has pursued various appeals and motions in the bankruptcy court and federal court in Delaware.  Recently, in January 2009, the District Court of Delaware denied latest Mr. Heffernan’s appeal; he has since filed appeal papers with the Third Circuit. 

In one of the motions filed by the State of Connecticut in December 2007, the State reiterated its strong stance against employers who fail to pay wages and commissions on time, even if the employer was going to pay the employees later because of financial difficulties: 

Under Connecticut law, any employer or any officer or agent of an employer or any other person authorized by an employer to pay wages who violates any provision of the Connecticut statutes governing the payment of wages may be fined not less than $2000.00 nor more than $5,000.00 or imprisoned not more than five years for each offense if the total amount of all unpaid wages owed to an employee is more than $2000.00. Conn. Gen. Stat. Sec. 31-71g(1)…Under Connecticut’s wage laws, it is no defense that the malfeasor later made restitution to the employees by paying the wages after they were due under state law. Under the law, late payment of wages incurs the same penalties as non-payment. 

A separate civil wage action was also announced by the state in a press release  back in February 2008. 

There is no doubt that the MLN and AIG cases are quite different and that using the MLN case as an analogy is not perfect. (The MLN case concerns sales commissions primarily, for example, while the AIG concerns retention or "stay" bonuses — which may or may not be "wages".)

But if the State was willing to go after an employer for failing to pay just $1.6M in wages and sales commissions, is it fair now to suggest to employers in Connecticut, like AIG, that they can now simply ignore obligations they make to their employees because they are going through financial difficulties and can’t really afford to pay them?

I look back on my September 2007 post about the MLN prosecution and can’t help but think of the irony of my last paragraph:

[T]he state’s continued pursuit of this employer demonstrates that failing to pay wages is one type of action that the state won’t tolerate. For employers in the state, its a good lesson and one that more employers would be wise to follow.

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