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Game maker's ex-staff seek pay

38 Studios target in unpaid-wages case

By Todd Wallack
Globe Staff / May 31, 2012
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Rhode Island is investigating complaints that former Red Sox ace Curt Schilling’s troubled video game company failed to pay hundreds of workers for several weeks in May before it shut down operations last week.

Workers said the company, which laid off its employees on May 24, stopped issuing paychecks after April 30. The firm had more than 400 full-time employees and contractors in Rhode Island and Maryland.

Laura Hart, spokeswoman for the Rhode Island Department of Labor and Training, said Wednesday that the agency was conducting “an active investigation” into the wage situation at 38 Studios. “If there are unpaid-wage complaints, we are going to pursue them,” she said.

A former manager at 38 Studios in Providence, who filed a complaint with the state about unpaid wages, said he was shocked the company did not take other measures, such as furloughing employees as soon as it realized it would not be able to pay them.

The former employee said workers found out about the missed paychecks only when they checked their bank accounts and saw they had not been paid. Some employees felt they had to continue working without pay for fear they would be fired and not qualify for unemployment benefits, said the former manager, who asked not to be named.

The employee said some former colleagues are also discussing the possibility of banding together in a legal action against 38 Studios or its officers.

Meanwhile, a handful of former workers may have a second problem: The company had offered some employees who moved to Rhode island a relocation package that included assistance selling their homes and paying their mortgages in the meantime.

But because of the slow housing market, 38 Studios has been unable to sell a few of the homes, according to another former employee. Now it is unclear who is on the hook for those remaining mortgage payments.

The head of MoveTrek Mobility LLC, the relocation firm hired by 38 Studios, declined to say how many homes have not been sold, but said he has not heard any complaints about missing mortgage payments.

“As far as we are concerned, they are current,’’ said MoveTrek chief executive Doug Mohns.

Schilling and 38 Studios’s public relations firm did not respond to requests for comment on Wednesday.

Also Wednesday, Governor Lincoln Chafee said the state has hired two accounting firms to conduct a forensic audit of 38 Studios, which received more than $49 million from loans backed by Rhode Island. Chafee also reiterated the state had no plans to approve the company’s request for more than $8 million in tax credits.

“The hope is an investor comes along and they get back into the business they were in,” Chafee said. “But the state has exhausted its participation.”

As for the wages case, Rhode Island could try to collect on behalf of the workers, and impose penalties of up to 25 percent of the amounts owed. 38 Studios and its officers and agents, including Schilling, its chairman, could also be liable for misdemeanor criminal charges that carry jail terms if convicted.

Other states also impose criminal penalties for not paying workers.

In Massachusetts, for instance, an employer or corporate officer who willfully fails to pay employees could face a criminal penalty of up to one year in prison and $25,000.

38 Studios also faces potential litigation in Maryland, where its Big Huge Games division had more than 90 employees, as well as liability under federal law. The Fair Labor Standards Act requires that employees be paid at least minimum wage, with both the company and its officers liable for double the amount owed, plus attorney’s fees.

Providence employment lawyer Andrew B. Prescott said this situation is rare in Rhode Island because most major employers either lay off or furlough workers before running up unpaid wages.

“In most cases, you don’t see a situation where a large number of employees have significant claims for unpaid wages,” said Prescott, a partner at Nixon Peabody.

Moreover, given 38 Studios’s financial condition, it is unclear whether there will be any funds left for employees to collect. Rhode Island also has claims to the company’s remaining assets, including its intellectual property, as part of the loan agreement with the firm.

“I have handled a number of cases in similar situations and it’s very difficult to get paid,” said Marc J. Smith, a partner with Smith, Lease & Goldstein, LLC in Rockville, Md.

Jenifer B. McKim of the Globe staff contributed to this report. Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.

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