Legal Updates

Failure to transfer to a pension fund of funds deducted from employee wages will result in personal liability of employee shareholders

March 25, 2020

An architect was employed by a company but was terminated and his salary was not paid for several months due to financial difficulties of the employing company. The architect demanded payment from both the company and its shareholder.
The Labor Court held that the plaintiff is entitled to wages and compensation for belated payment and that the shareholder is personally liable to the employee. The conduct of employers who, instead of terminating employment and paying rights of employee prefer not to pay salaries until their situation improves, is a behavior which should be abolished. Allowing employees to continue working for a long period without pay and with uncertainty as to whether in the foreseeable future wages will be paid is not only illegal but also inconsistent with basic fairness and ethics. Conduct of this kind shows carelessness to the possibility that the employee will find himself without any ability to be paid for his work. For this reason the employer should pay the employee compensation for the belated payment in the amount of 150% of the unpaid salary. From the salary of the employee payments for pension were deducted, but the employer did not open a pension fund at all and did not transfer funds to the fund. In general, failure to pay an employee's rights is not grounds for piercing the corporate veil and attributing company debts to shareholders, but when an employer does not transfer funds to a pension fund while continuing to deduct amounts from the employee's salary, not only is it a criminal offense but it is a lack of good faith and fraud towards the employees and by itself is a cause for piercing the corporate veil. Therefore, not only must the employer pay the employee the amounts deducted, but the shareholder is personally liable for all the company's debts to the employee.