Legal Updates

Deduction of employee pension funds without depositing such does not by itself justify piercing the corporate veil towards all officers of an NGO

August 7, 2020

An employee in an NGO had funds deducted from her salary but not transferred to the pension fund and for this she sought to personally obligate the NGO’s board members for the debts of the NGO to her.
The National Labor Court held that the corporate veil should not be completely ignored but be pierced ad hoc for a particular cause of actions and only towards one of the board members that should be partially held liable. When it comes to NGOs the corporate veil should be pierced towards members of the NGO who were aware - or should have been aware - of the wrongful use of the corporate veil. Pension fund payments deducted from an employee's salary and not deposited to their designated destination, by itself, do not justify piercing the corporate veil in a wide manner. An association is not immune from piercing the corporate veil, but it is not a trivial procedure. In the case of an employment relationship, one cannot assume that there are "causes that justify or do not justify" piercing the corporate veil, but rather individual discretion must be exercised depending on the circumstances of each case. Here, the deductions did not reach their destination mainly due to lack of financial resources and a huge amount of debts to many entities, most of which were created before any of the officers joined the association's management. In addition, they were not the only members of the and, in fact, only one of the three was aware in real time of the non-transfer of the deductions and was more involved in the management of the association, so a partial piercing the corporate veil was carried out just only in his case.