Binding Employment Contract

rk

My Company has a LLC. One of our employees signed a contract which states we must give him 6 weeks notification before termination (pay included). The LLC has not generated any income in the last 6 months and is considering closing its doors. Is the contact still binding if the company no longer exists?

HRCalico

Hi, RK. Have to be honest, I'm assuming that an LLC is the obvious - Limited Liability Corp? I'm not familiar with the ins and outs of that type of law, and it's pretty specific. I'd recommend consulting an attorney, preferably the one that drew the contract up in the first place. Good luck.

Orlaw

First off, make sure there are no contractual exceptions to the 6-weeks' pay requirement. If there are none, keep that fact in mind next time you have someone prepare a contract.

If there are no exceptions, the contract would likely be binding regardless of whether you closed the doors. Even if the owners of the LLC dissolved the entity it compliance with your state's LLC statute, the business would not be able to simply dump the liability. Rather, the contract liability would become one of the debts that the business would be required to pay off before distributing any $$ to its members. Depending on the specific facts, there could also be some exposure for the members of the LLC.

You can always renegotiate the deal with the employee, which might be a realistic option if he learns there are no funds to pay him otherwise (if that's the case), or if he learned that he would end up at the back of the line of creditors looking for payments.

Bankrupting the LLC is certainly an option, but it is frought with a number of complicated issues, not the least of which is personal liability for LLC members, particularly if they've personally guaranteed any other debts.

I'd certainly suggest that the owners of the company consult with an attorney on the specific facts of the situation, particularly before they terminate the employee and trigger the payment obligation. At that point, the company would have less of a chance to alter the terms of the deal, and might also be exposed to a wage claim by the employee (depending on your state's law). In short, get some professional legal guidance before acting.