Managers of Limited Liability Entities May Be Individually Liable for Unpaid Wages

The Massachusetts Supreme Judicial Court recently held that managers of a limited liability company (“LLC”), or other limited liability entity, may be held individually liable for claims under the Massachusetts Wage Act, to the same degree that corporate officers can be held liable.

In Cook v. Patient, EDU, LLC, 465 Mass. 548 (2013), the question was whether General Laws chapter 149 §148, the Massachusetts Wage Act (“the Act”), can impose liability for unpaid wages on managers of an LLC.  The Act, which has long been used to reach corporate officers personally, provides:  “The 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 within the meaning of this section.”

The Court held that the Act’s reference to corporate officers did not implicitly exclude managers of LLCs or other limited liability entities.  Instead, the Court found a “clear legislative intent to ensure that individuals with the authority to shape the employment and financial policies of an entity be liable for the obligations of that entity to its employees.”  Id.

Thus, the Court concluded that “a manager or other officer or agent of an LLC, limited liability partnership, or other limited liability business entity” may be liable under the Wage Act if he or she “‘controls, directs, and participates to a substantial degree in formulating and determining policy’ of the business entity.’”  Id., quoting Weidmann v. The Bradford Group, Inc., 444 Mass. 698, 711 (2005).

As the Court noted, individual liability expressly extends to managers of any business entity, including LLCs, for misclassification of employees as independent contractors under General Laws chapter 149 §148B.  Since a misclassification claim is typically tied to a Wage Act claim, it would make no sense for individual liability to be available under one statue and excluded under the other.

The Act is a potent tool in the hand of former employees, as it provides for a private right of action for injunctive relief as well as damages, including mandatory treble damages, costs of litigation, and attorney’s fees.  In addition, the Attorney General is empowered to bring a criminal action for violation of the Wage Act.  Thus, managers of LLCs and other limited liability entities should now be vigilant in ensuring that they are fully apprised of the company’s financial posture and its ability to meet payroll.  Wage Act violations may be found in a broad range of circumstances, including failure to pay earned commissions, breach of compensation terms in an employment agreement, and even failure to pay out accrued vacation upon termination.

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