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Ask HN: Why not more transparency (says the guy who was just laid off)?

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Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#11

Post by Spoom »

dangrossman wrote: post #10
Spoom wrote: post #9

Earlier quoted context omitted.

I don't think they can retroactively change your payroll to minimum wage, even over a single period. I think I would have lawyered up under those circumstances.

You can't collect money that doesn't exist. It is normal and legal for businesses to go out of business while owing people money, and for them to never get that money. This company couldn't make payroll and laid off all employees: it's broke and folding. They'll declare bankruptcy, liquidate the furniture and other assets, distribute whatever they get for it (probably entirely to secured creditors, not employees), an…

Missing payroll is one of the few items that can pierce the corporate veil. Laying off employees is one thing; saying that the work they've done over the last two weeks will now be paid at minimum wage is quite another.

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#12

Post by dangrossman »

Spoom wrote: post #11
dangrossman wrote: post #10

Earlier quoted context omitted.

You can't collect money that doesn't exist. It is normal and legal for businesses to go out of business while owing people money, and for them to never get that money. This company couldn't make payroll and laid off all employees: it's broke and folding. They'll declare bankruptcy, liquidate the furniture and other assets, distribute whatever they get for it (probably entirely to secured creditors, not employees), an…

Missing payroll is one of the few items that can pierce the corporate veil. Laying off employees is one thing; saying that the work they've done over the last two weeks will now be paid at minimum wage is quite another.

Actually, so long as you pay minimum wage before folding, there is virtually no chance a state or federal court would pierce the corporate veil and impose personal liability. This has been upheld in both California's supreme court and federal courts. FSLA for example is written broadly enough that a company officer may be considered an employer and personally liable for FLSA violations, but only liable to pay minimum wage, not contractual wages and benefits.

What mswen's employer did would shield them from any personal liability in California and most every other state.

Here's a good review of the relevant case law on this: http://www.latham.com/thoughtLeadership/officers-and-directo... [PDF]

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#13

Post by hippich »

startup i was part of was one of these transparent ones. founder told this he is doing for the first time and this is his 4th or may be 6th company (don't remember exactly.) Not sure about employee morale - some stayed, some were hit and left when financial problems came in. But most importantly found told he will never will do it again, because it cause way more stress than keeping everything closed..

So... there might be also personal stress management involved.

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#15

Post by Spoom »

dangrossman wrote: post #12
Spoom wrote: post #11

Earlier quoted context omitted.

Missing payroll is one of the few items that can pierce the corporate veil. Laying off employees is one thing; saying that the work they've done over the last two weeks will now be paid at minimum wage is quite another.

Actually, so long as you pay minimum wage before folding, there is virtually no chance a state or federal court would pierce the corporate veil and impose personal liability. This has been upheld in both California's supreme court and federal courts. FSLA for example is written broadly enough that a company officer may be considered an employer and personally liable for FLSA violations, but only liable to pay minimum…

Fair enough. Well, fair enough in that you're probably right; it doesn't seem fair on an individual basis. I would still have consulted a lawyer in the case mentioned.

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#16

Post by brudgers »

Getting laid off sucks. And though it in no way lessens the suck for you, it also sucks for the people doing the layoffs...and since having to lay people off can be an admission of potential failure of the company, laying people off can profoundly suck. There's no "they had to do it to me" for an owner laying off staff. The owner is the doer-it-toer.

Imagine Friday morning, the Owner got the financials, made a decision, and laid people off in the afternoon. Or maybe they got the financials on Monday, couldn't close a deal all week, wrote paychecks and on Friday did what they had been dreading and trying to prevent all week [or month or year].

It's hard enough to be transparent with oneself, we all know that most startups fail. Sorry to hear about your misfortune.

Good luck.

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#17

Post by davismwfl »

onion2k wrote: post #8
davismwfl wrote: post #7

Earlier quoted context omitted.

Ignorance is likely a bigger cause when the company is not funded. Funded companies have people they have to report to with milestones, financial status etc. So they should not have an ignorance problem when it comes to cash flow etc. But I totally agree that most small businesses/startups without funding or outside assistance will likely not really know where they stand day to day which can cause the big uh oh. Fund…

My startup was funded. During the 18 month runway when we were spending the investment money we had a grand total of 2 meetings with the investors. We did a lot wrong, but so did the VCs in my opinion - we were a 'boring' business tools company from an accelerator full of exciting B2C, 3rd sector, big data and social media companies. They ignored us. If I did it again I'd absolutely insist on more oversight and input…

Ouch, sorry to hear that, but I believe everyone does a lot wrong, just hopefully we can outweigh the screw ups with enough successes to make it work.

To me the support from an institutional type investor (VC) is to help you dodge preventable mistakes and open doors, which is the bigger attraction than just cash (not that cash can be dismissed). It sucks to hear you didn't get that. Do you think your experience is more normal from what you know or that it was more an anomaly?

I ask because I have raised money for a couple of my own companies in the past, mostly from high net worth individuals and every time I was required to provide monthly/quarterly financial reports and projections. And they were reviewed and if stuff didn't line up or they saw something I didn't I would get a call to discuss it. I sometimes resented it right at the moment because I was knee deep in a customer issue or feature, but I learned a lot and it continues to help me now.

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#18

Post by andersthue »

I have slowly been more and more transparent to my employees during the last three to four years. Through this opening up process I have realised that the main reason for not being transparent was my fear of other seeing me as a failure and my fear of how other judge what I did and how I ran my business.

As my self confidence has grown so has my openess!

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#19

Post by fsk »

Actually, there's a competitive advantage to being dishonest if you're close to insolvency.

If you admit that you only have 2 months of runway left, your employees will start shopping around. You'll lose your best employees first.

If you keep it a secret, two things can happen:

1. You raise more money, problem solved! (or market conditions change)

2. In 2 months, you lay off everyone. Sucks to be them, but you got 2 more months to try and raise money.

In a nearly insolvent business, dishonesty is a better strategy, because that maximizes the value of the implied call option if you do turn things around.

There's usually no social penalty for being dishonest. You can always find new employees.

Re: Ask HN: Why not more transparency (says the guy who was just laid off)?

#20

Post by sf_angular_dude »

fsk wrote: post #19

Actually, there's a competitive advantage to being dishonest if you're close to insolvency. If you admit that you only have 2 months of runway left, your employees will start shopping around. You'll lose your best employees first. If you keep it a secret, two things can happen: 1. You raise more money, problem solved! (or market conditions change) 2. In 2 months, you lay off everyone. Sucks to be them, but you got 2…

fsk, thanks for voicing what may be an "unpopular" opinion. for the sake of debate, let me provide rebuttal.

in game theory terms, I think you're arguing that the founder's assume all parties will act only in their self interests, and if they disclose their financial difficulties, the result will be "Option A", as a result, they choose to go the "Option B" route, where the founder gets off "free" and the employees get screwed.

However, I would argue that "Option C" is possible too, where all parties work together to try to save the ship. I've heard stories of employee's willingly reducing their salaries to extend runway. I personally am in a financial situation to do such a thing and would have. For other reasons, I also could have helped out in a meaningful way with fundraising but wasn't even aware that such a thing was needed until the day I was fired.

Again, this might be naive, but I do think it's possible in situations where there is mutual trust and respect amongst employees. I wouldn't be surprised if there are many stories out there where founders and employees all make sacrifices to extend runway.

--

Option A: If A and B each betray the other, each of them serves 2 years in prison

Option B: If A betrays B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa)

Option C: If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge)

http://en.wikipedia.org/wiki/Prisoner%27s_dilemma

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