Failing to pay employees should be considered theft of services which corporations and their officers should be held criminally liable for, according to Sen. April Fairfield, D-Eldridge.

Sponsors of Senate Bill 2313 want businesses and their officers to be guilty of theft of services if they don't pay their employees. The bill received a public hearing in the Senate Judiciary Committee on Tuesday.

Fairfield said the bill was drafted in response to WebSmart Interactive Inc., a Minot-based company that shut down in April 2003, leaving about 600 people without jobs and paychecks in Minot, Grand Forks and Saskatoon, Saskatchewan.

Fairfield said the principal owners of WebSmart were not charged with theft because state law doesn't consider employees' loss of pay as theft of services.

Attorney General Wayne Stenehjem, however, said businesses can be charged with theft under current law if prosecutors can prove intent, which can be very difficult.

"It is not necessarily theft if a business goes under," Stenehjem said. "If we could have proved they didn't intend to pay them, it would have been a slam dunk."

The bill would require prosecutors to prove that a business had intent to withhold pay. Fairfield said intent could be proved by showing that company officials wrote a series of bad checks or had a history of financial difficulty.

Some lawmakers are worried that the bill would scare companies away because it would eliminate some of the legal protections of incorporation.

Sen. John Traynor, R-Devils Lake, who is the chairman of the committee, said the Legislature has to be careful because corporations are specifically set up to protect their directors and employees from liability.

Traynor said when a company's employees break the law, authorities can "pierce the corporate veil" and go after them in certain cases. "It can be done in proper cases and maybe we should leave that alone," Traynor said.

Sen. Tom Trenbeath, R-Cavalier, was concerned that the law would discourage businesses from coming to the state.

Trenbeath said if one business partner breaks the law, an innocent business partner also might get into trouble because of the bill.

"Those will be the types of questions raised in the minds of businesses moving to North Dakota," Trenbeath said.

Supporters of the bill disagreed that current law would make corporations criminally liable for not paying employees.

Don Morrison, executive director of the North Dakota Progressive Coalition, said WebSmart workers went to the Minot Police Department to file theft of services charges, but the police couldn't do anything about it.

"Current North Dakota law did not work in the case of WebSmart," Morrison said.

Fairfield said the bill also would enhance economic development accountability.

WebSmart received thousands of dollars in state and local economic development grants, loans and property tax exemptions before it went belly up.

"If a project that receives public money fails and that is coupled with theft of services, it could jeopardize the most important aspect of economic development: public confidence," Fairfield said.

Although WebSmart and its principal officers, John Skowronek, Bob Lamont and Marius "Buzz" Stitzer, were not charged with any crimes, they were involved in various civil lawsuits, including one filed by the state seeking $206,000 for 206 employees that had filed claims with the Labor Department.

Labor Commissioner Leann Bertsch said there was a judgment issued against all three principal owners and the company for the wage claims, but because they declared bankruptcy, no money could be collected.

WebSmart also was sued by the state for allegedly violating consumer protection laws because of the company's telemarketing sales tactics.

The state has filed adversary actions in the bankruptcy cases of the three principal officers seeking personal liability for consumer protection violations in the sum of $5,000 per violation. That trial is scheduled for the week of April 25 in federal bankruptcy court in Fargo.

The committee didn't make a recommendation on the bill.

(Reach reporter Tom Rafferty at 223-8482 or tom.rafferty@bismarcktribune.com.)