Directors' Dilemma An Economic Evaluation of Directors' Liability for Environmental Damages and Unpaid Wages

MARCIA T.MOFFAT

ABSTRACT

In recent years, legislators have increasingly imposed statutory liability on corporate directors as a method of guarding against corporate misconduct and pursuing other societal goals. Since this trend has resulted in a dramatic growth in the responsibilities and potential liabilities associated with corporate directorships, a clear comprehension of the possible ramifications of director liability is vital. Accordingly, the author seeks to develop an economic framework within which to examine critically the motives for and effects of director liability. This framework is applied to specific legislation to illustrate its practical applications. The author focuses on director liability for corporate damage to the natural environment and for the unpaid wages of employees with a view to contrasting the structure and effectiveness of the two regimes. Whereas legislation in the environmental arena appears to be fairly well suited to fulfilling the legislature's goals, the same cannot be said with respect to legislation imposing liability for employees' wages. The effectiveness of the former is attributable largely to the flexibility inherent in the strict liability standard to which directors are held. Conversely, the latter regime, which is characterized by an absolute liability standard coupled with potentially enormous wage obligations, is too harsh and likely leads to overdeterrence. Moreover, director liability cannot, in and of itself, satisfy the varied aims of holding directors liable for unpaid wages.

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Citation: (1996) 54(2) U.T. Fac. L. Rev. 293.
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