Tuesday, July 9, 2013
Massachusetts Court Holds Managers of LLC Equivalent to Corporate Officers for Purpose of Liability Under Unpaid Wage Act
Massachusetts Court Holds Managers of LLC Equivalent to
Corporate Officers for Purpose of Liability Under Unpaid Wage Act
Massachusetts, like most states, has a statute imposing personal liability upon certain individuals where corporate employer fails to pay the promised wages. The Massachusetts statute imposes that liability on the president and treasurer of a corporation, as well as the officers or agents having management of the corporation, treating in certain situations each as the employer. Mass. Gen. Laws. ch. 149, § 148. In a recent decision, the Massachusetts Supreme Court has applied these rules to the managers of an LLC. Cook v. Patient Edu, LLC, SJC-11272, 2013 Mass. LEXIS 464 (June 13, 2013).
Cook was an employee of Patient Edu, LLC, it having as managers Steven Graziano and Michael Schulman. The LLC breached its agreement to pay certain compensation to Cook; at the time of his resignation, he was owed $61,538.56 in accrued but unpaid wages and was as well due $6,879.36 in expenses that had been accrued but not been reimbursed. He brought suit for the unpaid wages, naming the LLC and each of the managers. Those managers, individually, sought dismissal of the complaint, which was granted by the trial court. The Massachusetts Supreme Court, of its motion, removed the dispute from the intermediate appellate court for its consideration.
Notwithstanding the fact that the statute referred to corporate officers, and was silent as to managers or other representatives of an LLC, the Court did not view the statutory language as a legislative determination to single out for individual liability only corporate officers. Rather, the Court found the inclusion of the provisions on corporate officer liability and public officer liability serve to illustrate the circumstances in which an individual may be deemed a “person having employees in his service.” On that basis, the Court rejected the defendant’s argument that there was an implicit exclusion of those acting on behalf of other limited liability forms. The Court afforded no effect to a legislative proposal that would have amended the statute at question to expressly address LLCs, stating that legislative inaction could not be used to interpret a statute passed by a prior legislature.
Holding the managers of an LLC to be functionally “persons having employees in his service,” the managers of the LLC were liable for the unpaid wages.
If nothing more than to play devil’s advocate, decisions of this nature treating a “corporation” as a proxy for “any business entity affording limited liability” set a dangerous precedent. Focusing on the Massachusetts statute in question, it imposes liability upon the corporation’s “president” and “treasurer.” The Massachusetts Supreme Court provide no explication as to how or why the managers of this particular LLC would be treated as equivalent to a corporate president or a corporate treasurer. Likewise, there was no explanation as to how one determines (or not) that an LLC’s managers, and these managers in particular, had the required degree of control. Further, as Massachusetts is the home of the organizational form generically referred as to the “Massachusetts business trust,” it seems curious that the Supreme Court would in effect let the legislature off the hook in not considering other organization forms.