A Bridge Too Far – Individual Liability for Wage Act Violations

The Massachusetts Wage Act, G.L. c. 149, §148, has often been used as a particularly draconian weapon by employees who believed they have not been properly paid. In that arsenal, one of the most feared is the threat of personal liability against management personnel.  A recent decision by the Massachusetts Supreme Judicial Court, however, may allay some of those fears.

Historically, two major aspects of the Wage Act set it apart from other remedial employment statutes. First, treble damages are mandatory for any Wage Act violation regardless of an employer’s honest mistake or good faith.  Second, the Wage Act also provides for personal liability for certain officers of the employer, even if the employer is a corporation or limited liability company.  Specifically, the President and Treasurer of a corporation and any officers or agents having the management of such corporation can be held personally liable for Wage Act violations.

The reach of personal liability was addressed by the Court in Segal v. Genitrix, LLC, decided on December 28, 2017.  In that case, the plaintiff was employed by the defendant start-up biotech company, Genitrix.  In an unfortunately far too common story, Genitrix ran out of cash and ceased operations, leaving the plaintiff with two years of unpaid wages.

Recognizing that there was no blood left in the stone, the plaintiff sued two members of the company’s Board of Directors individually. The plaintiff’s theory was that the Directors voted to continue operations even though the plaintiff was not being paid.  The plaintiff also sued an investor in the company who had provided funds for the continued operations, but had conditioned his investment on those funds only being used for specific expenses, which did not include paying the plaintiff’s wages.

The case went to trial before a jury in Suffolk County. The jury found for the plaintiff and a judgment entered against the defendants individually, including punitive damages, totaling over $1.7 million.  Needless to say, the defendants were not pleased with this outcome and appealed.

In a somewhat surprising decision, the Supreme Judicial Court found on appeal that the Directors were not personally liable and reversed the jury’s finding. Critical to this reversal, the Court found that the Directors were neither corporate officers nor “agents having the management of the corporation.”  It wasn’t enough that the Directors held those positions nor even that they and the investor had actively participated in the decision-making that resulted in the non-payment of the wages to the plaintiff.

Despite that involvement, the Court found that they did not exercise the type of broader management powers that would permit individual liability. Specifically, those powers must be similar to those performed by a corporate president or treasurer, particularly in regard to the control of finances or the payment of wages.  Without that, the evidence was insufficient to find the Directors and the investor individually liable.

Does this decision signal a narrowing of employee’s rights? Or is it simply an isolated case based on its unique facts from which nothing more broadly can be read?

In this latter regard, the plaintiff was the company’s president and the one who had elected to keep the company operating. He also made the decision to forego taking his salary for that extended period, knowing full well that the company’s finances were declining precipitously.  Coupled with the similar financial bath that the individual defendants took on their respective investments, perhaps the Court did not feel it could add insult to injury by rewarding the plaintiff who had literally made his own bed.

Without rejecting those unique facts, it is hard not to view this decision as a significant one from a newly reconstituted Supreme Judicial Court. Since his election in 2014, Governor Baker has appointed five of the seven justices of the Court.  Could this decision portend an emerging direction in the employment arena?  Only time … and future cases walking the boundary between employee and employer rights … will provide us with an answer to this question.

About Rich Van Nostrand

Rich is a partner at the Firm. He has extensive experience in general civil trial work, with concentrations in business, commercial and employment litigation. He provides advice and representation in a variety of business and commercial litigation matters, including shareholder disputes, corporate dissolutions, intra- and inter-company disagreements, and intra-family business disputes. Rich also provides ongoing employment litigation and counseling services to numerous clients in the private, public and higher education sectors. In the private sector, Rich represents clients in a broad range of industries including health care, professional services, high technology, industrial and manufacturing. In addition, he is also frequently selected by litigants to assist in the resolution of their disputes as an independent arbitrator or mediator.
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