Under the Massachusetts Weekly Payment of Wages Act (“Wage Act”), the President, Treasurer and “any officers or agents having the management of such corporation” are considered to be employers and are subject to individual liability for failing to comply with its requirement. In a previous blog post, Managers of LLCs Can Be Personally Liable Under the Massachusetts Wage Act, I had written about Cook v. Patient Edu, LLC, where the Massachusetts Supreme Judicial Court clarified that managers of limited liability companies (not just the officers of a corporation) could be held individually liable under the Wage Act. In Cook, the SJC concluded that it did not matter whether the entity was a limited liability company or corporation, and determined that “individuals with the authority to shape the employment and financial policies of an entity [were] liable for the obligations of that entity to its employees.”
In a recent unpublished decision, Segal v. Genitrix, LLC, the Massachusetts Appeals Court, relying on Cook, appears to have expanded the scope of individual liability under the Wage Act to certain equity holders of limited liability companies.
In Segal, the President and CEO of Genitrix brought a claim under the Wage Act against the company, Fisk Johnson, the controlling member of the LLC, and Stephen Rose, a minority equityholder. Neither Johnson nor Rose was the President, Treasurer or any other officer of the LLC. While the claims against Johnson and Rose were dismissed on summary judgment by the Superior Court, that decision was issued prior to the Cook decision. On appeal, and after Cook had been decided, the Appeals Court overturned the entry of summary judgment, ruling that Segal might have viable claims against Johnson and Rose notwithstanding that neither was an officer. Why? The decision appears to hinge on Rose’s deposition testimony in which he acknowledged that he managed Fisk Ventures’s investment in Genitrix and made recommendations to Johnson, who made the final decision on whether or not Fisk Ventures should provide any capital infusions into Genitrix. Indeed, Rose had recommended, and Johnson had decided, to have Fisk Ventures provide money for another Genitrix employee’s compensation and for protection of company intellectual property, but decided not to have Fisk Ventures provide any money for Segal’s compensation. In other words, Rose was making decisions on the financial policies of Genitrix. Thus, Rose’s and Johnson’s actions were deemed to be sufficient to raise a genuine issue of fact as to whether or not they were “agents having the management of such corporation” and, therefore, could be individually liable under the Wage Act.
How might this affect in-house counsel? They should advise any individual who makes decisions about management or policies of a business entity, especially with respect to payment of compensation, regardless of whether the entity is a limited liability company or a corporation and regardless of what his/her title may be, to proceed with caution, as those decisions may give rise to individual liability under the Wage Act.