Utah Supreme Court Clarifies Scope of Utah Payment of Wages Act by Holding LLC Managers are not Personally Liable for Unpaid Wages

In a much anticipated decision for Utah employers and employees, the Utah Supreme Court in Heaps v. Nuriche 2015 UT 26, held that the Utah Payment of Wages Act (UPWA) does not include LLC managers as "employers" who are liable for the non-payment of wages under the UPWA. As noted earlier, this ruling is contrary to the Labor Commission's long-standing interpretation of the scope of the UPWA, and its practice of holding officers liable for wage claim violations.

At issue in Heaps was whether the UPWA imposed personal liability on managers of a limited liability company for unpaid wages of employees.  The Plaintiffs, Ron Heaps and Phillip Sykes, along with other individuals, founded Nuriche, LLC, a limited liability company formed in Nevada which conducted business in Utah.  Heaps and Sykes brought suit alleging that the other founding members of Nuriche promised them compensation and other benefits in connection with their employment by Nuriche, but that Nuriche and the remaining managers refused to provide the promised compensation upon their termination of employment.

The District Court granted summary judgment for Nuriche on the Plaintiffs' claims under the UPWA, and the Plaintiffs appealed. On appeal, the Plaintiffs argued that the plain language of the UPWA imposes personal liability on LLC managers for unpaid wages. In contrast, Nuriche argued, among other things, that the UPWA did not hold LLC managers personally liable.

The UPWA provides that an “employer shall pay [unpaid] wages to [an] employee within 24 hours
of the time of separation.” U.C.A. § 34-28-5(1)(a). Under the UPWA, the term "employer"
includes every person, firm, partnership, association, corporation, receiver or other officer of a court of this state, and any agent or officer of any of the above mentioned classes, employing any person in this state." Id. § 34-28-2(1)(c) (emphasis added). Plaintiffs argued that the LLC managers were agents and officers of Nuriche, who were thus employers under Section 34-28-2(1)(c). The Court, however, looked at the statutory language and found that "while the phrase 'agent or officer of any of the above-mentioned classes' encompasses a large group of individuals, that phrase is narrowed by the last clause of the definition." Id. at ¶14.  Further, "[t]he last clause—'employing any person in this
state'—modifies each of the terms in the preceding list. Thus, the statute limits the definition of employer to one who employs."  Id.  Because the Plaintiffs were employed directly by Nuriche, and not the LLC managers, the Court found the managers were not personally liable for unpaid wages.

The Court went on to explain that its holding was supported by principals of corporate law, including the limited liability of officers, shareholders and directors, and other situations where the Utah legislature has expressly imposed personal liability (in contrast with the UPWA). The Court emphasized that "[h]ad the Legislature intended to impose personal liability in contravention of long-standing principles of corporate law, it would have done so expressly as it has in other sections of the code." Id. at ¶16.

It further rejected the Plaintiffs' argument to restrict the liability of agents and officers to those who have the ability to remove employees from the payroll. In rejecting this argument, the Court held it was not supported by the language of the UPWA. And, to allow liability for all officers and employees would cause an absurd result the Legislature could not have intended.  Id. at ¶17-20.  Of course, as a practical matter, no officer or agent ever directly employs any employee, and the legislature's inclusion of the language "any agent or officer of any of the above-mentioned classes"  in Section 34-28-2(1)(c) is essentially rendered meaningless by the Court's reading of this Section. Nonetheless, the Court was clearly concerned with the scope of this language, and thus decided to read this Section out of the statute by use of the modifying clause.

Moving forward, while the decision was limited to LLC manages it is clear that any agents or officers who do not actually employ an employee are not subject to liability of the UPWA. However, there may be other grounds to hold such agents and officers liability, including for unjust enrichment, promissory estoppel and potentially negligent misrepresentation and fraud.

For additional information about the Court's decision, or the payment of wages to employees in Utah, please contact Stavros Law P.C. at 801-758-7604, or visit www.stavroslaw.com.