SJC Finds LLC Managers Individually Liable Under Massachusetts Wage Act

On June 13, 2013, the Massachusetts SJC issued its decision in Cook v. Patient EDU, LLC (SJC–11272), holding that a manager of a limited liability company (“LLC”) may be held individually liable under the Massachusetts Wage Act (G.L. c. 149, §§ 148, 150) the same way that the president, treasurer, or other officers with management responsibilities of a corporation may be held individually liable.

In Cook, the plaintiff sued his former employer – an LLC – and its two managers for unpaid wages under the Wage Act. The Act requires “[e]very person having employees in his service” to pay those employees their wages on either a weekly or bi-weekly basis, or on a less frequent basis in certain circumstances. Violation of the Act results in mandatory treble damages and the award of reasonable attorneys’ fees and costs to the successful plaintiff. The Act provides that the president and treasurer of a corporation, as well as “officers or agents having the management ” of the corporation, “shall be deemed to be the employers of the employees of the corporation within the meaning of this section.” G.L. c. 149, § 148. Similarly, the Act imposes individual liability on “‘[e]very public officer whose duty it is to pay money, approve, audit or verify pay rolls, or perform any other official act relative to payment of any public employees’ who fails to do so.” This means that individuals in those roles may be held personally liable for violations of the Act, including for treble damages, attorneys’ fees, and costs.

In moving to dismiss the plaintiff’s complaint against them, the two managers argued that because the Act does not specifically mention managers of LLCs, they could not be held individually liable for failing to pay the plaintiff his wages. The Court rejected the managers’ argument. It refused to read the language of the Act as “an effort to single out for individual liability only the officers or managers of the specific types of entities mentioned in the statute.” Instead, the Court wrote, “We discern from the inclusion [in the Act] of the provisions regarding corporate and public officer liability a clear legislative intent to ensure that individuals with the authority to shape the employment and financial policies of an entity to be liable for the obligations of that entity to its employees.” The Court concluded that the legislative purpose of the Act would not be served by holding officers and agents of a corporation liable for failure to pay wages but not managers of an LLC, who likewise control the policies and practices related to the timely payment of wages to employees. “To interpret G.L. c. 149, § 148, so as to distinguish between such actors would produce a result at odds with the intent of the statute.”

While not necessarily a shocking result, Cook clarifies an issue that has been the subject of opposing decisions in the superior court. With Cook, there is no longer any doubt that the Massachusetts Wage Act imposes individual liability on managers of an LLC and other limited liability entities. Individuals in these types of roles must recognize their exposure in the event the LLC itself is unable to pay a damages award. This is yet another reason why employers – and their most senior leaders – must insure that they are complying with the strict requirements of the Wage Act.

Massachusetts Supreme Judicial Court Rules That Independent Contractor Statute Applies To Out-Of-State Workers

On May 17, 2013, the Massachusetts Supreme Judicial Court ruled that out-of-state individuals working as independent contractors for Massachusetts-based companies are protected by the Massachusetts independent contractor statute and wage act. In Taylor v. Eastern Connection Operating, Inc., 465 Mass. 191 (2013), the plaintiffs lived in New York and worked there as couriers for Eastern, which is headquartered in Woburn, Massachusetts. The plaintiffs entered into identical independent contractor agreements with Eastern, which contained a Massachusetts choice-of-law and forum selection clause. In 2010, the plaintiffs sued Eastern in Massachusetts Superior Court, claiming that they were misclassified as independent contractors in violation of the independent contractor statute and that, as employees, they were owed unpaid wages and overtime under the wage act. The Massachusetts independent contractor statute contains a very strict three-part test for determining whether a worker is an independent contractor or an employee. The test is so strict that it is virtually impossible for a Massachusetts employer to lawfully classify a worker as an independent contractor under the statute. Workers who should properly be classified as employees are entitled to the protections of the Massachusetts wage act, which provides for mandatory treble damages and the award of reasonable attorneys’ fees to prevailing plaintiffs. The Superior Court dismissed the plaintiffs’ suit, ruling that the independent contractor statute did not apply to non-Massachusetts residents working outside of Massachusetts. Consequently, it determined that the plaintiffs were not entitled to the protections of the wage act.

On the plaintiffs’ appeal to the SJC, Eastern argued that the choice-of-law clause in its independent contractor agreement “cannot imbue the [independent contractor] statute with extraterritorial effect it otherwise lacks.” In rejecting Eastern’s argument, the Court relied on established case law to hold that “where no explicit limitation is placed on a statute’s geographic reach, there is no presumption against its extraterritorial application in appropriate circumstances.” The Massachusetts independent contractor statute is silent as to its extraterritorial application. Accordingly, the Court looked to the particular circumstances, finding that the parties had agreed that the independent contractor agreement would be construed in accordance with Massachusetts law and that application of the independent contractor statute did not offend the fundamental public policy of New York. It therefore concluded that there was no apparent reason to disregard the parties’ choice of law and held that the independent contractor statute governed the plaintiffs even though they were out of state.

The practical implication of the Taylor decision for Massachusetts-based companies is that they now face even greater exposure under the independent contractor statute and the wage act. With mandatory treble damages and the award of attorneys’ fees, the penalties for misclassifying employees as independent contractors are severe. Massachusetts-based companies with out-of-state independent contractors should examine whether those individuals truly meet the strict three-part test set forth in the independent contractor statute. Where the test is not met, those workers should be reclassified as employees and paid in accordance with the wage act.