Expect mass layoffs later today, Monday at latest(twitter.com)
twitter.com
Expect mass layoffs later today, Monday at latest
https://twitter.com/bhargreaves/status/1634245897981665299
50 comments
Really. Companies are going to panic and lay off masses people, effectively destroying their company in the process. "Who do we fire? A don't know! Fire some people!" Well it's 4:30 on Friday and I haven't heard of any layoffs from this yet, so I call B.S.
"Unpaid wages pierce the corporate veil, so boards are incredibly sensitive to employing workers they may not be able to pay."
This is the key point in my opinion, and one I was not aware existed. Personal liability changes everything. You can't tell employees to sit tight while funds eventually get unlocked if you're going to find yourself getting sued.
This is the key point in my opinion, and one I was not aware existed. Personal liability changes everything. You can't tell employees to sit tight while funds eventually get unlocked if you're going to find yourself getting sued.
it’s not as simple as is being suggested. The corporate veil can be pierced in cases of wage theft where the corporation has been used for nefarious means. There’s no evidence that being unable to make payroll because of a bank collapse comes close to qualifying as bad behaviour on behalf of those behind the corporate veil.
You could argue that an overly cautious founder might cut all their employees off immediately out of an abundance of caution, but that would be self-immolation.
As a non-lawyer with zero credibility, I’d be shocked if any founders of companies that can’t make payroll because of this are at risk of the corporate veil being pierced. SVB was based in California, subject itself to California law, it would require some extreme mental gymnastics from a judge to believe that a company that can’t make payroll because they used SVB behaved inappropriately in this situation.
Again, I have zero credibility, but I’d expect when the dust settles, the only companies we see get in any trouble will be the companies that do some insane illegal things in a panic because they get caught up in the tidal wave of fear. Founders withdrawing millions into their personal accounts and then losing it by buying crypto or going to vegas to do a fedex with their remaining cash or something equally insane feels much more likely an outcome.
You could argue that an overly cautious founder might cut all their employees off immediately out of an abundance of caution, but that would be self-immolation.
As a non-lawyer with zero credibility, I’d be shocked if any founders of companies that can’t make payroll because of this are at risk of the corporate veil being pierced. SVB was based in California, subject itself to California law, it would require some extreme mental gymnastics from a judge to believe that a company that can’t make payroll because they used SVB behaved inappropriately in this situation.
Again, I have zero credibility, but I’d expect when the dust settles, the only companies we see get in any trouble will be the companies that do some insane illegal things in a panic because they get caught up in the tidal wave of fear. Founders withdrawing millions into their personal accounts and then losing it by buying crypto or going to vegas to do a fedex with their remaining cash or something equally insane feels much more likely an outcome.
California labor laws are extremely powerful. "Not receiving agreed upon wages" is wage theft, full stop. They don't care if your bank collapsed or your great aunt ran off with contents of the cash register.
All you have to do is file a wage theft claim with the Labor Commissioner, who evaluates your claim and issue an ODA (Order Decision or Award). Once the ODA is filed it is considered a legal judgement against the employer. You can then use any legal means to collect.
Edit to add: the whole process so streamlined and employee friendly it happens entirely outside the court system. Once a claim is filed the employer has to pay you or appeal within 10 days.
All you have to do is file a wage theft claim with the Labor Commissioner, who evaluates your claim and issue an ODA (Order Decision or Award). Once the ODA is filed it is considered a legal judgement against the employer. You can then use any legal means to collect.
Edit to add: the whole process so streamlined and employee friendly it happens entirely outside the court system. Once a claim is filed the employer has to pay you or appeal within 10 days.
> California labor laws are extremely powerful. "Not receiving agreed upon wages" is wage theft, full stop. They don't care if your bank collapsed or your great aunt ran off with contents of the cash register.
You forget that thinking, rational, humans are ultimately charged with enforcing the law.
Also, you seem way too certain of something that has no precedent. Show me where a major bank has gone under, caused companies to miss payroll, and the corporate officers were held liable.
You forget that thinking, rational, humans are ultimately charged with enforcing the law.
Also, you seem way too certain of something that has no precedent. Show me where a major bank has gone under, caused companies to miss payroll, and the corporate officers were held liable.
The laws exist to protect employees, not to discourage employers from employing. Setting the precedent that a shareholder in a company is at risk of losing everything because a bank that their company uses fails would have a very negative impact on California as a place to employ people, which doesn’t help employees.
> "Not receiving agreed upon wages" is wage theft, full stop. They don't care if your bank collapsed or your great aunt ran off with contents of the cash register
The wage theft section of the California Penal Code (section 487m) says it is the intentional deprivation of wages. The California Labor Code talks about it in section 216, which applies when the employer has the ability to pay and willfully refuses.
It is hard to see how failure to pay because your bank collapsed and you can't get the money would be either intentional or a willful refusal.
The wage theft section of the California Penal Code (section 487m) says it is the intentional deprivation of wages. The California Labor Code talks about it in section 216, which applies when the employer has the ability to pay and willfully refuses.
It is hard to see how failure to pay because your bank collapsed and you can't get the money would be either intentional or a willful refusal.
If the laws are so powerful then cite them.
Anyone who's been on the internet more than five minutes knows how much an uncited claim about the law is worth.
I find it very hard to believe they don't have some clause about employers acting in good faith but who can't make payroll because the payment processor had a truck number of 1, the bank was robbed that day and there was a police line or any of the other legitimate reasons processes have hiccups. And if they don't have that clause the labor commissioner almost certainly just ignores those claims until it's clear whether they're gonna shake themselves out or not.
The labor commissioner's office is almost certainly going to be slower at getting people the money than the company is (the latter is already set up to do so) in cases where the company is acting in good faith so in those cases the labor compssioner's office will best serve employees and also have the least work to do by just sitting back.
Anyone who's been on the internet more than five minutes knows how much an uncited claim about the law is worth.
I find it very hard to believe they don't have some clause about employers acting in good faith but who can't make payroll because the payment processor had a truck number of 1, the bank was robbed that day and there was a police line or any of the other legitimate reasons processes have hiccups. And if they don't have that clause the labor commissioner almost certainly just ignores those claims until it's clear whether they're gonna shake themselves out or not.
The labor commissioner's office is almost certainly going to be slower at getting people the money than the company is (the latter is already set up to do so) in cases where the company is acting in good faith so in those cases the labor compssioner's office will best serve employees and also have the least work to do by just sitting back.
> You can then use any legal means to collect
Sure, but if all but $250k of your funds are in limbo and you don't have revenue, there's nothing to collect.
Sure, but if all but $250k of your funds are in limbo and you don't have revenue, there's nothing to collect.
Collection can mean arrive with the sheriff and start taking things to sell at auction. Since it pierces the corporate veil, this can eventually include the executives' personal property and bank accounts.
Cut to a scene of fifty angry unpaid devs banding together to file their claim and then standing in the Atherton driveway of their VC and figuring out who gets his art collection, who gets the wine and how much, who gets his watches...
To me, as an employee, that seems like a slightly weird take.
If my employer knows they can't pay me, and they ask me to do work anyway that is causing me serious losses. The moment they know they can't pay me, they have to stop asking me to do work. I would expect someone to be accountable for those sort of serious lies.
If my employer knows they can't pay me, and they ask me to do work anyway that is causing me serious losses. The moment they know they can't pay me, they have to stop asking me to do work. I would expect someone to be accountable for those sort of serious lies.
A sane enoloyer would furlough pending stabilization. Layoffs would destroy the company. Who would work for a company that both can't manage its finances and also can't manage its staffing?
I am presuming the employers operate in good faith, that is, they are open with the employees about the situation — it would be hard to keep this a secret given it’s major news.
If your employer said to you, “we are caught up in this, we are working to resolve the situation“ it would be pretty fair and reasonable of them. You can choose to quit if you want, you’re under no obligation to work.
If your employer said to you, “we are caught up in this, we are working to resolve the situation“ it would be pretty fair and reasonable of them. You can choose to quit if you want, you’re under no obligation to work.
I am all in favour of getting rid of minimum wage laws. However, they are currently in play and I suspect that being open and direct about engaging in an illegal act to deal with a bankrupt bank is exactly the sort of situation that is likely to result in criminal prosecutions for executives if the company goes under.
Okay, I am not versed in US law, but wouldn't boards' liability be very limited given that the wages are unpaid due to failure of another entity holding their cash? Was there anything they could do about it? They had to hold their cash somewhere... Liability is for sins of commission or omission. Here they did neither.
I think the implication is that the board wouldn't want to continue not paying and would lay people off. As in, how long can the board continue to employ people who they can't pay?
(I have no idea what I'm talking about legally, I'm just trying to interpret what I'm reading).
(I have no idea what I'm talking about legally, I'm just trying to interpret what I'm reading).
So you are suggesting that they might get away with one payment (because the money went missing) but not with more?
What if they relied on cash for multiple payments (think startup that got funding)?
It is also unlikely that people wouldn't notice they are not getting paid so it is hard to argue they won't know about further non-payments.
I would say if they don't have money to pay people they have nothing else to do than fire them or shut down/go bankrupt if it means the company cannot continue.
What if they have a chance to get funded/bailed out or if they expect money to come soon (from expected cash flow)?
I think the danger for the board should be if they promise people get paid and then they can't do good on that promise. Or if they actually have money but use it for something else instead of paying people.
What if they relied on cash for multiple payments (think startup that got funding)?
It is also unlikely that people wouldn't notice they are not getting paid so it is hard to argue they won't know about further non-payments.
I would say if they don't have money to pay people they have nothing else to do than fire them or shut down/go bankrupt if it means the company cannot continue.
What if they have a chance to get funded/bailed out or if they expect money to come soon (from expected cash flow)?
I think the danger for the board should be if they promise people get paid and then they can't do good on that promise. Or if they actually have money but use it for something else instead of paying people.
I don't this is an area of corporate law that has been super thoroughly tested? But I think the theory is -
Look, we had $X in our account on Wednesday and did a payroll run that was more than covered, but then our bank went under and the payments never got there. That's not our fault, nothing we can do about it!
But as time goes on and you're still employing people while having no bank account, you become more culpable for their unpaid wages after you find out you have no money.
The tricky thing here, I think, is that it still isn't very clear what is going to happen and it'd be silly to immediately fire a bunch of people because of it. There is a good chance some other bank acquires SVBs accounts and things are back to normal pretty quickly. If that doesn't happen, there is still a lot of money to go around, so you aren't losing 100% of what is in there.
I think there is a good argument that it is prudent and legally defensible to wait a day or two to figure out what is going on before you go nuts and shut the business down.
Look, we had $X in our account on Wednesday and did a payroll run that was more than covered, but then our bank went under and the payments never got there. That's not our fault, nothing we can do about it!
But as time goes on and you're still employing people while having no bank account, you become more culpable for their unpaid wages after you find out you have no money.
The tricky thing here, I think, is that it still isn't very clear what is going to happen and it'd be silly to immediately fire a bunch of people because of it. There is a good chance some other bank acquires SVBs accounts and things are back to normal pretty quickly. If that doesn't happen, there is still a lot of money to go around, so you aren't losing 100% of what is in there.
I think there is a good argument that it is prudent and legally defensible to wait a day or two to figure out what is going on before you go nuts and shut the business down.
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> Unpaid wages pierce the corporate veil
I didn't know this! Can anyone direct me to the relevant law?
I didn't know this! Can anyone direct me to the relevant law?
Looks like the Fair Labor Standards Act at the federal level and there are also state-by-state statutes which add variety.
With the disclaimer that I am not the expert we all hoped would show up to explain, I think the intent is to provide statutes to back up the social contract around wages. Any inkling of the possibility that an employer can wiggle out of paying wages it promised to pay is going to have an outsized effect on an employee’s trust. And businesses do not want (and in the case of a small business or startup cannot) to pay wages up front. Incentivizing a business to lay people off rather than promising them wages that may or may actually appear actually seems like an okay outcome in the degenerate case since the employee has various rights and protections that are triggered by a layoff while unpaid wages could pile up endlessly until the employee initiates action themselves.
With the disclaimer that I am not the expert we all hoped would show up to explain, I think the intent is to provide statutes to back up the social contract around wages. Any inkling of the possibility that an employer can wiggle out of paying wages it promised to pay is going to have an outsized effect on an employee’s trust. And businesses do not want (and in the case of a small business or startup cannot) to pay wages up front. Incentivizing a business to lay people off rather than promising them wages that may or may actually appear actually seems like an okay outcome in the degenerate case since the employee has various rights and protections that are triggered by a layoff while unpaid wages could pile up endlessly until the employee initiates action themselves.
Atempa v. Pedrazzani is what you want to Google for.
"Rejecting Pedrazzani’s argument, the Court of Appeal relied on language of the applicable California statutes: Cal. Labor Code § 558 (West 2018) and Cal. Labor Code § 1197.1 (West 2018). Section 558(a) subjects “[a]ny employer or other person acting on behalf of an employer” to civil penalties for overtime violations. Similarly, section 1197.1(a) subjects “[a]ny employer or other person acting either individually or as an officer, agent, or employee of another person” to civil penalties for minimum wage violations. The Court of Appeal held that Pedrazzani was responsible as an “other person” who caused the overtime pay and minimum wage violations."
"Rejecting Pedrazzani’s argument, the Court of Appeal relied on language of the applicable California statutes: Cal. Labor Code § 558 (West 2018) and Cal. Labor Code § 1197.1 (West 2018). Section 558(a) subjects “[a]ny employer or other person acting on behalf of an employer” to civil penalties for overtime violations. Similarly, section 1197.1(a) subjects “[a]ny employer or other person acting either individually or as an officer, agent, or employee of another person” to civil penalties for minimum wage violations. The Court of Appeal held that Pedrazzani was responsible as an “other person” who caused the overtime pay and minimum wage violations."
An interesting writeup of a case related to this has some info [1]. Key points are the quotes about half-way through the article.
[1] https://www.severino-law.com/blog/oqz4dx2ivdnzt7aqqrvbk9et11...
[1] https://www.severino-law.com/blog/oqz4dx2ivdnzt7aqqrvbk9et11...
ianal but this is pretty well known in my experience. If you are the management of an employer and you mess around with wages owed (payroll for work done in the past) and taxes (including payroll tax withheld) then you are personally in deep shit. Here's an article on the subject in the context of California: https://www.melmedlaw.com/guide-on-unpaid-wages-in-californi...
I had to look into it as well, believe it falls under [1] "undercapitalization"
More specifically [2]
EDIT: I am not a lawyer not legal advice
[1]: https://www.law.cornell.edu/wex/piercing_the_corporate_veil [2]: https://www.investopedia.com/terms/u/undercapitalization.asp
More specifically [2]
EDIT: I am not a lawyer not legal advice
[1]: https://www.law.cornell.edu/wex/piercing_the_corporate_veil [2]: https://www.investopedia.com/terms/u/undercapitalization.asp
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Also curious hearing from an expert on this one way or the other. Took the Tweet at face value without actually being able to confirm under what circumstances that would be true.
Like someone pointed out on here, SVB also provided personal banking to high net worth individuals in Silicon Valley. Such as...startup founders and VCs.
So in either case - payroll resumes normally or is paid from personal assets of company directors - some employees might have to wait for things to be sorted out at SVB.
So in either case - payroll resumes normally or is paid from personal assets of company directors - some employees might have to wait for things to be sorted out at SVB.
I also didn't know this and was surprised at the attention this subject got these past couple of days.
I don’t think firms would fire a lot of employees (!) before first trying to access credit markets to do something as basic as cover a short term low-risk obligation operation like payroll.
There is a well-established market for covering short term corporate obligations like this. Many firms large and small avail themselves of it. Take your audited financial statements and you can find lenders. While there may be a few firms who can’t make payroll in the short term, even then I would expect layoffs would be a last resort.
This tweet thread seems written for maximum drama with a minimum of supporting information.
There is a well-established market for covering short term corporate obligations like this. Many firms large and small avail themselves of it. Take your audited financial statements and you can find lenders. While there may be a few firms who can’t make payroll in the short term, even then I would expect layoffs would be a last resort.
This tweet thread seems written for maximum drama with a minimum of supporting information.
SVB was a large lender in that market, because most startups don't have much in the way of collateral to convince other banks to lend to them.
This guy is a NYC (self-described) entrepreneur, and if he has a serious background in law or even business, it's certainly not apparent. I take his flurry of tweets with a grain of salt. Obviously he's time-stamped his predictions (today or Monday, right?) but it's likely enough that he's an east coast elite with west coast envy, shouting at the "devil".
No one takes you seriously when you fling "elite" as a slur, especially while defending someone equally "elite".
I don't know who Brad Hargreaves is (or if his area of expertise makes him qualified to opine) but his previous tweet is interesting:
> CEOs yesterday faced a hard choice: Pull your deposits and go into default on your venture debt or risk losing everything if the bank failed. Many chose to hold tight as SVB's outright failure seemed outlandish.
> CEOs yesterday faced a hard choice: Pull your deposits and go into default on your venture debt or risk losing everything if the bank failed. Many chose to hold tight as SVB's outright failure seemed outlandish.
I really really doubt that.
The author assumes that the assets behind SVB are unsalvageable - which doesn't appear to be the problem, it seems like its just the quintessential liquidity crunch that runs cause: there's plenty of assets they just can't be converted to cash fast enough to meet obligations. Because of that I'm sure some larger bank will be down for buying those assets at a steep discount.
The author also assumes that in the event that a payroll company has been given money but is unable to pass it on to employees that the employer will magically no longer have any money. Also, even if you do lay them off those employees are entitled to the pay checks the author seems to think are lost forever, so laying them off just destroys the company it doesn't actually do anything. The payroll companies themselves may have a rockier time if a significant part of their balance sheet is now cash tied up in SVB that they owe to either employees or the employer (as numerous posts have employers just paying their staff directly rather than deal with this). At least one of the larger payroll companies has already arranged payment with Morgan/Chase to have people paid only a day or so late and has said they'll cover overdraft fees or similar.
What utter nonsense.
The author assumes that the assets behind SVB are unsalvageable - which doesn't appear to be the problem, it seems like its just the quintessential liquidity crunch that runs cause: there's plenty of assets they just can't be converted to cash fast enough to meet obligations. Because of that I'm sure some larger bank will be down for buying those assets at a steep discount.
The author also assumes that in the event that a payroll company has been given money but is unable to pass it on to employees that the employer will magically no longer have any money. Also, even if you do lay them off those employees are entitled to the pay checks the author seems to think are lost forever, so laying them off just destroys the company it doesn't actually do anything. The payroll companies themselves may have a rockier time if a significant part of their balance sheet is now cash tied up in SVB that they owe to either employees or the employer (as numerous posts have employers just paying their staff directly rather than deal with this). At least one of the larger payroll companies has already arranged payment with Morgan/Chase to have people paid only a day or so late and has said they'll cover overdraft fees or similar.
What utter nonsense.
Here’s an update from the billing team at Datadog; surely the first of many such abrupt requests by panicked A/R teams:
“It is urgent that you do not remit any payments to our account with SVB today or in the future. Payments sent to SVB from today forward may not be credited to your account.”
My deeper question as a customer is: will Datadog be able to meet their payroll next week?
“It is urgent that you do not remit any payments to our account with SVB today or in the future. Payments sent to SVB from today forward may not be credited to your account.”
My deeper question as a customer is: will Datadog be able to meet their payroll next week?
Is there a list of prominent companies that might be affected here? I think it would be extremely unusual circumstances (for example a company that was already insolvent and living a fraud) for a company to actually have to shut down because their money is tied up here. At the bigger end, companies can find a compromise with their investors and lenders, at the smaller end, with their employees. I'd be interested to see who is really going to be screwed because of this (not just stressed, which of course anyone banking with svb will be) and why
Layoffs?! Whaaa?!
This take is absurd! I agree your fund being frozen is not ideal for any companies, but this cannot automatically mean layoffs.
You could easily find a line of credit. You could furlough employees. I am sure there are other levers you could use to bypass laws and I am sure the laws account for issues like this.
What happens when say for example, there is a massive outage at the company that handles your payroll or the bank that holds your money? The answer cannot be to shut down the shop and fold.
This take is absurd! I agree your fund being frozen is not ideal for any companies, but this cannot automatically mean layoffs.
You could easily find a line of credit. You could furlough employees. I am sure there are other levers you could use to bypass laws and I am sure the laws account for issues like this.
What happens when say for example, there is a massive outage at the company that handles your payroll or the bank that holds your money? The answer cannot be to shut down the shop and fold.
One of the comments on that was "no atheists in the foxhole no libertarians in a bank run". I'm still laughing.
With all the noise from the FDIC seizure it’s hard to find fundamentals right now of SVB (I’m on mobile at the moment which is rough to search for SEC filings from). How big are they?
How significant is exposure outside of startups and tech companies?
How significant is exposure outside of startups and tech companies?
absurd take
"I'm a founder with $12m in Silicon Valley Bank. We are not going to be able to make payroll today and our entire business is in severe jeopardy.
Reporters feel free to DM for a full interview."
https://twitter.com/growing_daniel/status/163427193598208409...
Reporters feel free to DM for a full interview."
https://twitter.com/growing_daniel/status/163427193598208409...
That is one of the people who did this stunt: https://www.wionews.com/world/ligma-johnson-two-pranksters-p...