The recent destructive collapse of the Silicon Valley Bank (SVB), one of the largest financial services providers to startups and venture capitalists, delivered unsettling and far-reaching shockwaves into and beyond the tech industry, setting off alarms at countless corporations. The collapse of SVB ranks second among the largest bank failures in US history. Over $200 billion in assets were held by the bank, with $42 billion withdrawn last Thursday alone. Many startups and the broader tech scene could suffer tremendous effects if the bank is not rescued quickly.
The fallout from the collapse thus far has included a lack of access to startup funds and barriers to the payment of employees. The Securities and Exchange Commission (SEC) and the Justice Department are currently in preliminary investigative stages, with many moving parts and interlaced components. The situation has stressed the importance of staying on top of current events, keeping an eye on budding policy changes, and, most notably, comprehending fundamental employment law and employee and employer rights. SVB’s responsibilities to its employees and clients need to be carefully examined.
The Legal Burden of Responsibility to Employees
Under California law, SVB had specific legal duties to its employees, which it was required to fulfill even in bankruptcy or liquidation. Specifically, SVB was committed to paying its employees for all hours worked and money already owed. California is an “at-will” employment state, meaning employers can lay off employees at any time for any reason (with some exceptions for discrimination and retaliation). However, employers must still pay employees for all work performed until the termination date, including any accrued vacation time or other benefits.
If SVB had been liquidated, this would have been done by selling the bank’s assets, which would have been used to pay off its debts and accounts. However, if the bank had filed for bankruptcy, its employees would have been treated as unsecured creditors and may have received only a portion of the wages owed to them.
One of the key legal obligations of the Silicon Valley Bank is to protect the funds deposited by its clients. However, in the case of the bank’s collapse, it was unable to fulfill this responsibility, resulting in many startups being unable to pay their employees. While the situation itself is unfortunate, it does not absolve employers of these legal obligations to their employees.
California employers are legally responsible for paying their employees on time and in full for all work accomplished, including overtime. Failure to do so can result in legal action against that employer. In the case of the Silicon Valley Bank collapse, many employers were unable to pay their employees due to a lack of access to their funds. However, the employer, the bank, still must pay their employees.
Legal Obligations to Customers
As a bank, SVB was required to comply with a range of federal and state regulations, including regulations governing the handling of customer deposits, reporting suspicious activity, and the protection of customer information. However, SVB was not a traditional bank, so it was not insured by the Federal Deposit Insurance Corporation (FDIC). Its customers did not have the same protections as customers of other banks.
Instead, SVB was required to comply with state and federal regulations governing the handling of customer deposits. Under these regulations, SVB was needed to maintain specific capital and liquidity levels and keep customer deposits separate from the bank’s assets. If the bank had failed to meet these requirements, it could have faced fines or penalties from state and federal regulators.
Note: In addition to their legal obligations to their employees, employers must also comply with state and federal employment laws, such as the Fair Labor Standards Act (FLSA), which sets standards for minimum wage, overtime pay, and other issues related to payment and compensation. Employers who violate these laws can face legal action and significant financial penalties.
Lessons Learned
The collapse of SVB has raised questions about whether the bank was doing enough to protect its customers and employees. Many critics voiced concern and contended that the bank’s leadership should have seen the earlier signs of potential collapse and taken steps to mitigate the risks.
Others have questioned whether the bank’s business model was sustainable in the long term. SVB had built its business by providing financial services to high-risk startups and venture capitalists, many operating in a highly volatile and unpredictable market. Some have argued that the bank should have diversified its business or taken steps to reduce its exposure to these high-risk customers.
Regardless of the reasons for its collapse, the failure of SVB highlights the importance of legal obligations in the tech industry. As startups and venture capitalists continue to operate in a fast-paced and rapidly changing market, it is essential that they understand and comply with their legal obligations to their employees and customers, including not only the legal obligations imposed by state and federal laws but also the ethical obligations to act in the best interests of all stakeholders involved.
The Benefits of Consulting with a California Employment Law Attorney
The SVB collapse underscores the value of understanding and complying with legal commitments in the tech industry. If you are an employee or customer affected by SVB’s collapse, it is best to seek the guidance of a qualified California attorney specializing in employment law. The above statement is especially true if you believe that SVB has failed to fulfill its legal obligations to you or if you have suffered financial losses due to the bank’s collapse.
Employees who SVB has laid off may have questions about their rights and whether they are entitled to any additional compensation. Similarly, customers who had deposited with the bank may want to explore their legal options for recovering their money. Many businesses could not process and distribute employee payments after SVB failed.
Conferring with an employment law attorney can help you understand your legal rights and opportunities and may help you recover the compensation you deserve. The collapse of SVB serves as a reminder that businesses must take their legal obligations seriously. Contact an experienced San Francisco Bay Area employment law attorney to schedule a confidential consultation.
