Lessons learned from the demise of Paseo

Social media lit up today at news that highly-rated Caribbean sandwich shop Paseo had closed.  This comes a few months after several former employees sued Paseo and its president for wrongful termination and unlawful withholding of wages.  The defendants deny much of the allegations.  While ELM does not represent anyone in the lawsuit and has no knowledge as to the merits or lack thereof, even a frivolous employee lawsuit can spell death to a small business.

There are two simple, but important, lessons to be drawn from the demise of Paseo.

First, pay employees what they are owed.  Not only is it the right thing to do, but the consequences for improper withholding of wages are severe.  In addition to the unpaid wages, Washington employers are routinely ordered to reimburse the employees for attorney’s fees.  If the withholding is considered willful, the employers can face double damages and personal liability.  Individual agents of the employer can also be personally liable for failure to pay minimum wage or overtime for under the federal Fair Labor Standards Act.  Although the new Seattle minimum wage ordinance does not explicitly create a private right of action, it is nevertheless inevitable that employers will face civil suits from employees based upon the Seattle minimum wage.

Second, employers should have adequate employment practices liability (EPLI) insurance.  A typical EPLI policy excludes coverage for wage and hour or breach of contract claims, meaning that even employers with EPLI may be surprised to learn that they are uninsured against claims for unpaid wages.  Coverage endorsements may be available to pay for defense costs of such claims, but even then the endorsement does not typically cover actual damages if the employer is held liable.  Employers should check with their broker about the scope of coverage and understand the exclusions.

At this point we don’t know exactly why Paseo closed.  But regardless, it serves as a good reminder for employers to check their employment practices.