Relief for Board Members and Investors in Non-Payment of Wages Cases
The Massachusetts Wage Act, M.G. L. c. 149, § 148, imposes on employers treble damages and attorney's fees for the failure to timely and fully pay wages. The statute also provides that, "[t]he president and treasurer of a corporation and any officers or agents having the management of such corporation shall be deemed to be the employers of the employees of the corporation" and, thus, those persons may be individually liable for such non-payment of wages.
In the recent case of Segal v. Genitrix, 478 Mass. 551 (2017), the Massachusetts Supreme Judicial Court considered what it means to be "an officer or agent having the management" of a corporation.
To the relief of many, the Court held that board members, acting only in their capacity as board members, and investors, engaged in ordinary investment activity, are not agents or officers having the management of a corporation and, therefore, are not individually liable.
For board members or investors to become individually liable under the Wage Act, they must have "assumed and accepted as individuals significant management responsibilities over the corporation similar to those performed by a corporate president or treasurer, particularly in regard to the control of finances or payment of wages." (Emphasis supplied.) The Court provided the following additional guidance:
Regarding Individual Directors:
"Neither the board of directors nor an individual director...is, as such, an agent of the corporation. An individual director may become an agent if he or she is also appointed as an agent, but no agency relationship arises from his or her position as a director, in and of itself. For example, an individual director could be appointed as an agent if the board exercised its express or implied power to confer authority upon the individual to act for the corporation, or if the individual was appointed as an executive officer. Additionally... the collective powers of the board to control management or set policy are separate and distinct form the powers of individual board members."
Regarding Individual Investors:
"An outside investor, acting in his or her capacity as an investor, is not an agent of the company. An outside investor may become an agent, if the board, exercising its express or implied powers, confers authority upon the investor to act for the corporation, or if the investor is appointed as an executive officer. The exercise of ordinary financial control over an investment does not give an investor the management of the company in which he or she invests. An investor may, for example, impose conditions on the use of the money invested, such as targeting it for particular expenditures, without having the management of the company."
The bottom line is that board members and investors, operating solely in those capacities, should be relieved to know that they are most likely not individually liable for the pay practices of the companies with which they associate.