The sudden closure of a bank can create a host of ripple effects. It is important that employers stay alert and vigilant in managing their employment practices when faced with liquidity concerns that inevitably arise from such events. For example, the closure of a company’s bank (or its payroll provider’s bank) does not suspend the company’s legal obligations to timely pay employees and operate its payroll systems.

Below is a summary of key considerations for employers that are faced with this circumstance:

• Prioritize Payroll to Avoid Substantial Penalties. Employers impacted by a bank’s closure may have difficulty timely paying employees’ earned wages. In California and many other states, employers will be subject to penalties not only for the failure to timely pay wages upon termination of employment but also for the failure to pay employees on time during the course of employment. Federal and state law also impose interest on wages that are not paid on time.
• Decisionmakers May Have Personal Liability for Failing to Pay Wages. Federal law and many state laws impose personal liability on certain individuals for the failure to timely pay wages and for other wage and hour violations. In California, for example, Labor Code Section 558.1 holds owners, directors and managing agents of a company personally liable if they violate, or cause to be violated, the state’s wage and hour laws. As a result, decisionmakers may find themselves personally on the hook if they...

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