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.

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Employees May Now File Discrimination Complaints Online with the EEOC

On November 1st, the Equal Employment Opportunity Commission (“EEOC”) launched an online system that allows employees nationwide to inquire about potential discrimination and electronically sign and file discrimination charges against their employers.  Following initial filing, the online system will permit complainants to update information relating to their charge of discrimination, including uploading documents in support of the charge.

The EEOC’s launching of this system follows testing of the public portal in five cities over the past six months.  The EEOC hopes the new online system will allow for more efficient handling of charges.

This latest tool, coupled with the prevalence of news stories related to the Hollywood sexual harassment and sexual assault scandals, will undoubtedly result in an uptick in the filing of discrimination charges.  As a result, employers are well advised to conduct refresher sexual harassment and discrimination prevention training, particularly for supervisors and managers.  Such training has proven useful in uncovering and effectively remediating concerns well prior to an employee filing a charge of discrimination or harassment, thereby enabling the company to avoid extensive legal defense fees.

If you would like to schedule a training session, please contact any one of the attorneys or paralegals within Mirick O’Connell’s Labor, Employment & Employee Benefits Group.

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Employment Law Ballot Initiatives May Go To Massachusetts Voters

Massachusetts voters may soon get another chance to significantly impact employment relationships in Massachusetts through the ballot box, just as they did in 2015 with their approval of the Earned Sick Time law.  This past week, the Attorney General of Massachusetts certified ballot initiatives concerning minimum wage, paid family and medical leave, and nurse staffing levels, as meeting constitutional requirements for the ballot initiative process. The Attorney General’s certification clears the way for sponsors of the initiatives to proceed to the next step in the process in having the proposed laws placed on the ballot in November 2018.

Proponents of the proposed laws must now gather and file 64,750 signatures of registered voters by December 6, 2017 for each initiative. Once the signatures are filed, the proposals will be sent to the Legislature to enact by May 2, 2018.  If the Legislature does not enact the proposals, the proponents must gather an additional 10,792 signatures by July 2018 in order to have them placed on the November 2018 ballot.

The following is a brief summary of each of the certified proposals:

Minimum Wage Increase to $15

Raise Up Massachusetts, a group that describes itself as, “a grassroots coalition of community organizations, religious groups, and labor unions committed to building an economy that works for all of us,” filed the ballot question that would require raising the minimum wage to $15 per hour by 2022.  Under the proposal, the current $11.00 per hour minimum wage would be raised to $12.00 in 2019; $13.00 in 2020; $14.00 in 2021; and $15.00 in 2022.  The proposed law would also raise the minimum cash wage that must be paid to tipped employees, which is $3.75 per hour as of January 1, 2017, to $5.05 in 2019; $6.35 in 2020; $7.64 in 2021; and $9.00 in 2022.

Paid Family and Medical Leave

Raise Up Massachusetts is also the sponsor of the ballot question that would create a statewide paid family and medical leave insurance program.  Under the proposal, covered workers could take family leave to care for a child after the child’s birth, adoption, or placement in foster care; to care for a seriously ill family member; or to address needs arising from a family member’s active duty military service.  Workers could also take paid medical leave to address their own medical conditions.

Covered workers taking family or medical leave would receive 90% of their average weekly earnings, up to $1,000 per week, while on leave.  Beginning January 1, 2021, the weekly cap on benefits could be adjusted annually based on the Consumer Price Index published by the United States Department of Labor for the Boston metropolitan area.

The proposal would allow covered workers to take up to 16 weeks of paid family leave or 26 weeks of paid medical leave.  A covered worker could not take more than a total of 26 weeks of both types of leave in one year.  Paid leave could also be taken intermittently and would run concurrently with leave taken under the state Parental Leave Act or the federal Family and Medical Leave Act.

In order to pay for the leave benefits, the proposed law would create a trust fund into which employers would pay 0.63% of each employee’s annual wages, up to half of which could be deducted from employee wages.  Beginning October 1, 2021, the contribution rate would be reviewed and adjusted annually to ensure funding of at least 140% of the amounts paid out during the previous year.

The proposed law would cover both private and public employees, except that municipal employees would be covered only if the proposed law were accepted by vote of the city or town.

Nurse Staffing Levels

The Massachusetts Nurses Association sponsored the ballot initiative titled, “Petition for a Law Relative to Patient Safety and Hospital Transparency.”  The proposed law would limit how many patients could be assigned to each registered nurse in Massachusetts hospitals and other health care facilities based upon the schedule set forth in the law. For example, under the law in emergency departments, there could only be one critical or intensive care patient per nurse (or 2 if the nurse has assessed each patient’s condition as stable); 2 urgent non-stable patients per nurse; 3 urgent stable patients per nurse; or 5 non-urgent stable patients per nurse.  The proposal further dictates nurse-patient ratios for other departments within the healthcare facility.

If each of the above proposed laws were approved by the Legislature or at the ballot box, they would have a significant impact on Massachusetts employers.  As such, employers would be well advised to monitor the proposed laws progress through the ballot initiative process.

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Do Your COBRA Notices Comply with the Law? If Not, Your Organization Could be Susceptible to a Class Action Lawsuit

Pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), employers with twenty (20) or more employees that provide health insurance must furnish covered employees and their families with certain specific notices that summarize their rights under COBRA after certain events such as termination of employment.  The notices must explain how continuation coverage is offered, how qualified beneficiaries may elect such coverage, and when such coverage can be terminated.

Last month, a federal court held that Marriott International, Inc. must defend a proposed class action lawsuit alleging that the hotel chain provided its employees with deficient COBRA notices of their rights to continued healthcare coverage in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by COBRA.  In Vazquez v. Marriott International, Inc., the United States District Court for the Middle District of Florida dismissed Marriott’s motion to dismiss a complaint filed by former housekeeper Alina Vazquez (individually and on behalf of all others similarly situated to her) on the grounds that it was premature to determine whether Marriott’s contention that the former employee’s loss of healthcare coverage was attributable to the fact that she could not afford it, as opposed to any deficiency in the COBRA notice.

In her complaint, Ms. Vazquez alleges that Marriott’s COBRA notice violated the law because it failed to:

  1. provide a notice of continued healthcare coverage rights under COBRA in Spanish;
  2. adequately explain the procedures to elect healthcare coverage; and
  3. provide a notice that an average participant would understand.

According to Ms. Vazquez, as a result of Marriott’s deficient COBRA notice, both she and her husband lost their healthcare coverage for approximately two months, incurred significant medical expenses, and now have medical bills that remain unpaid.

Marriott is just the latest employer to be faced with class action suits claiming they failed to comply with COBRA’s notice requirements.  Other companies, including Wal-Mart, SunTrust Banks, and American Bottling Company have also faced similar suits.  In 2016, SunTrust Banks agreed to pay almost $290,000 to settle class action claims that it provided defective COBRA notices to its employees.

In light of these recent cases, employers are well advised to have their COBRA notices reviewed to ensure they comply with the law.

If you would like any assistance in reviewing and, if necessary, revising your COBRA notices, please contact any of the attorneys within the Labor, Employment & Employee Benefits Group.

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Previously Enjoined Salary Basis Test for White Collar Exempt Employees Has Been Permanently Struck Down by U.S. District Court Judge in Texas

As previously reported in, “Breaking News: DOL’s Final Rule Increasing Salary Threshold for White Collar Exempt Employees Enjoined and Will Not Take Effect on December 1,” Judge Mazzant of the U.S. District Court for the Eastern District of Texas had enjoined the Department of Labor’s Final Rule under the Fair Labor Standards Act that was slated to go into effect on December 1, 2016.  The Final Rule, had it gone into effect, would have raised the minimum salary threshold for white collar exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).

Since Judge Mazzant’s ruling in late November 2016, the legal challenge to the Final Rule continued in the form of a motion for summary judgment filed by the plaintiffs, Plano Chamber of Commerce and national business groups.  In their motion, the plaintiffs sought to permanently invalidate the Final Rule as having been improperly issued by the Department of Labor.  Specifically, the plaintiffs argued that the Department of Labor exceeded the authority granted to it by Congress when it more than doubled the salary threshold.

On August 31, 2017, Judge Mazzant agreed with the plaintiffs and permanently struck down the Final Rule.  As a result of Judge Mazzant’s ruling, the current salary threshold of $455 per week for white collar exempt employees will remain in effect for the foreseeable future.  In its decision, the Court stated that “the Department [of Labor] does not have the authority to use a salary-level test that will effectively eliminate the duties test” for white collar exemptions.  The Court found it troublesome that the Final Rule would reclassify over 4.2 million currently exempt employees to non-exempt employees without regard to an analysis of (or any change in) their job duties.  Instead, the Final Rule’s reclassification effect would be based solely on a change in the minimum salary threshold.  As stated by the Court:

“Congress unambiguously directed the Department [of Labor] to exempt from overtime pay employees who perform ‘bona fide executive, administrative, or professional capacity’ duties.  However, the Department creates a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

The Court went on to state that the Final Rule was inconsistent with Congressional intent and was, therefore, “unlawful.”

Another interesting aspect of the Court’s opinion is found in a footnote where the Court referenced the following statement it made during oral argument:

“If [the salary level] had been just adjusted for inflation . . . we wouldn’t be here today . . . because [the salary level] would still be operating more the way it has . . . as more of a floor.”

The import of this statement is clear – the Court would find permissible an attempt by the Department of Labor to adjust the salary threshold in response to inflation.

The practical result of the Court’s decision is that employers may continue to conduct business as usual with respect to their prior white collar classifications and may continue to rely on the $455 per week salary threshold.  Employers must, however, ensure that employees are properly classified based on an analysis of their job duties.

Although it is difficult to predict future actions of the Department of Labor, it is likely that the Department will explore a much more modest increase to the salary threshold through future rulemaking efforts – possibly tied to inflation.  Any such attempt, however, will take months, and perhaps years, to accomplish. It should also be noted that the Department of Labor may elect to file an appeal to the 5th Circuit Court of Appeals.

If you would like any assistance with respect to proper classification of employees under the Fair Labor Standards Act or any other labor and employment-related issue, please contact any of the attorneys within the Labor, Employment & Employee Benefits Group.

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BREAKING: EEO-1 Pay Reporting Requirements Suspended Immediately

On August 29, 2017, Victoria Lipnic, the Acting Chair of the U.S. Equal Employment Opportunity Commission (“EEOC”), announced that the Office of Management and Budget’s (“OMB”) Office of Information and Regulatory Affairs has issued an immediate stay of the new EEO-1 pay reporting requirements, which were scheduled to be due in March 2018 for employers with 100 or more employees.

According to the OMB, the stay is based, in part, because the OMB “believe[s] that continued collection of this information is contrary to the standards of the [Paperwork Reduction Act]. Among other things, OMB is concerned that some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.”

For employers, the OMB’s stay means that – unless otherwise announced – the current EEO-1 form will remain in effect, but there will be no change to the 2017 EEO-1 report filing deadline of March 31, 2018. In addition, this means that the incredibly burdensome requirements being imposed by the new form will not be going into effect – at least not at this point in time.

If you have any questions about the EEO-1 pay reporting suspension or your company’s obligations with respect to the EEO-1 reports, please contact a member of Mirick O’Connell’s Labor and Employment Group.

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Massachusetts Enacts Pregnant Workers Fairness Act

On July 27, 2017, Governor Charlie Baker signed the Massachusetts Pregnant Workers Fairness Act (“PWFA”).  Historically, courts have struggled with the issue of whether pregnancy is a “disability” that must be accommodated under the Americans with Disabilities Act (the “ADA”) as well as under Massachusetts law.  The PWFA resolves that issue and conclusively establishes that pregnancy, and any related conditions, must be accommodated and that discrimination against pregnant workers is prohibited.

The PWFA goes into effect April 1, 2018 and amends Chapter 151B to:

  • Add “pregnancy or a condition related to said pregnancy, including, but not limited to, lactation, or the need to express breast milk for a nursing child” as a protected classification;
  • Require employers to provide a reasonable accommodation (see below) for an employee’s pregnancy, or any condition related to the pregnancy, unless the employer can demonstrate that the accommodation would impose an undue hardship;
  • Prohibit employers from retaliating against an employee for requesting an accommodation;
  • Provide that employers must reinstate the employee to her original employment status or equivalent position with equivalent pay and accumulated seniority when the need for reasonable accommodations ceases; and
  • Prohibit employers from requiring pregnant employees to accept a reasonable accommodation or take a leave of absence.

With respect to the requirement that employers provide reasonable accommodations to pregnant employees, the PWFA specifically enumerates several reasonable accommodations, including: (1) more frequent or longer paid or unpaid breaks; (2) paid or unpaid time off to recover from childbirth; (3) acquisition or modification of equipment or providing seating; (4) temporary transfer to a less strenuous or hazardous position; (5) job restructuring; (6) light duty; (7) private non-bathroom space for expressing milk; (8) assistance with manual labor; and (9) modified work schedules.  Under the ADA, employers can require employees to submit documentation to support their need for a reasonable accommodation.  The PWFA, however, prohibits employers from requiring documentation to support four reasonable accommodations: more frequent restroom, food, and water breaks; seating; limits on lifting over 20 pounds; and private non-bathroom space for expressing milk.

Employers must provide notice of the protections and rights created by the PWFA to all employees in a Handbook or by other means, and must provide notice to: (a) all new employees at the commencement of employment; and (b) any employee who notifies the employer of a pregnancy or related condition within 10 days of such notification. Employers should act now to create policies to satisfy this provision.

Please contact a member of our Labor and Employment Group if you have any questions about your organization’s obligations under the PWFA, including the drafting and implementation of policies.

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