The SVB Payroll Predicament

Employers with SVB accounts face a serious predicament with an imminent and urgent need to make payroll. Given the potential liabilities that result from missed wage payments, there are some steps employers can take now to better navigate this crisis. 

First, and most obviously, employers locked out of SVB accounts should try to access cash for payroll elsewhere. Investors and others who offer to finance their organizations to bridge the crisis should first consult counsel to document repayment. If cash cannot be secured, employers should communicate this fact to employees right away. Payroll cannot be met through promises (or promissory notes) but open communication about what the employer is doing or will do is key. If cash cannot be raised, a temporary furlough of employees might be best. But furloughs could trigger other legal consequences (such as WARN and termination payments). Employers should not, however, permit an employee to work “for free” or ask employees to waive the right to wages they already earned. Keep in mind that permitting employees to work in the face of no known source of payment could expose managers, officers and directors to potential personal liability (which depends largely on state law). 

Another route to pursue might be a prospective and (hopefully) temporary reduction of wages until the crisis is over, with a future true up. If this path is taken, it should be documented in a writing in partnership with counsel (who will know the legal and financial limits for such modifications). And if an employee refuses to agree to a reduction – or if the employee raises an objection as a result of a missed paycheck – employers should ensure that no adverse consequences to the employee result. Many state laws prohibit retaliation against employees who voice concerns about wage payment issues. Responding appropriately to employee concerns about these concerns is an important way to mitigate additional liability. 

The timing of this crisis is particularly cruel because March is bonus season for many employers, and March 15 is a popular payment date. Check with counsel regarding whether those bonuses may be deferred (or if not, understand the consequences). 

Finally, what not to do? Employers should never access monies escrowed for payroll taxes or for which an employer acts as a trustee (such as for 401k plans).  Likewise employers should avoid making oral or undocumented promises. The goal after all is to weather the short-term crisis – not create additional liability because of lax documentation. These proactive and liability-avoidance suggestions are starting points. They may also provide a good framework for navigating similar situations. 

It remains to be seen if Federal and state regulators provide emergency relief from some state laws that might help employers avoid furloughs or layoffs. In the meantime, the Mintz employment group will continue to monitor these issues as they develop. 

Click here to view our recent advisory: Frequently Asked Questions Related to Silicon Valley Bank Receivership