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Court Restricts Personal Liability of Managers for Wage Judgments

Posted on July 18, 2011

Kevin S. Murphy is an employment lawyer with the firm of Yurko, Salvesen & Remz, PC, in Boston.

One of the little known and disturbing facts about the Massachusetts Wage Act is that senior managers of a corporation may be held personally liable if an employee wins a lawsuit over wage claims. If the company cannot pay, you can be left holding the bag. 

Wage Law LiabilityPersonal liability has been a particular concern since 2008, when Massachusetts passed a law saying that damages from any failure to pay properly are mandatorily tripled, and to that is added attorneys fees, costs and interest, even if the improper pay was totally unintentional. 

As a lawyer representing companies in wage disputes, I know that the prospect of individual liability is a major weapon for plaintiffs and the attorney general.  They are happy to take full advantage in settlement negotiations or in litigation strategy, freezing personal bank accounts, tying up personal assets or levying upon real estate.  

Now, a recent superior court case may offer some help on the prospect of individual liability, depending upon how your business is organized. 

The potential good news comes out of Springfield.   A superior court judge there considered a case where a company called Patient EDU, LLC failed to pay its director of business development for the first six months of his employment and sporadically thereafter.  The director of business development sued the company and the individual manager of the LLC, Steven Graziano. 

Graziano’s lawyers moved to dismiss the case against him.  While they admitted that Patient EDU was subject to the wage act, they argued that Graziano could not be personally liable for any wage act violations.  Graziano’s lawyers pointed to the statutory language, which provides for individual liability of “the president and treasurer of a corporation and any officers or agents having the management of such corporation.”  They argued that since Patient EDU was not organized as a corporation, but a limited liability company, the language of the statute did not apply to Graziano.

The court agreed, pointing out that a corporation is a very different thing from an LLC, with different rights and treatment under Massachusetts corporations, tax, and other laws.  The court also noted that the legislature had specifically limited individual liability to managers of “corporations,” instead of using more expansive terms such as in the definition of “employer” in the employment laws, or “entity” in the Corporations Act. 

The court felt constrained to apply the statutory words as written, despite admitting that it makes little sense to hold individual managers of a corporation liable but to give individual managers of an LLC a free pass.   Nor was the court dissuaded by the fact that there were no LLCs until 60 years after the Wage Act was written, noting (in a possible veiled reference to the devastation to be wrought upon an individual who is liable for triple Wage Act damages) that the Wage Act had been amended four times since LLCs came into being, and the “corporations” language was not changed.  

The importance for you, as a manager of a business, could be significant.  If your business is other than a corporation – if it is for instance an LLC, LLP, or partnership – there is now legal precedent supporting the argument that you cannot be held personally responsible for the entity’s wage act violations. 

While it is likely the legislature will correct this language, this case would stand for the proposition that, for the time period up until such amendment, no individual liability attaches.  This takes a major arrow out of the plaintiff’s quiver, especially if the company is small and would have a difficult time paying plaintiff’s claims or an attorney general citation. 

While the case is not an appellate decision, and therefore is not mandatory authority to another judge, it would be persuasive authority.  At the time of this writing, the case had not been appealed.