New Hampshire and Massachusetts have similar provisions in their wage statutes that permit an employee who is not paid to seek payment from those who are in management at the company and who made the decision not pay the employees. Start-up companies may seek to attract investors and board members of their companies and to the extent those investors and board members do not manage the company nor make decisions as to when, and if, to pay employees, they generally should not be liable under both the New Hampshire or Massachusetts Wage Act. There was a December 28, 2018 decision from the Massachusetts Supreme Judicial Court in the case of Segal v. Genitrix, LLC. which illustrated that point. In that case a jury held that two former board members and investors in a limited liability company (“LLC”) were liable under the Massachusetts Wage Act for failing to pay wages owed to the plaintiff who was the former president of the LLC. The Massachusetts Supreme Judicial Court overturned the jury verdict finding that these two individuals were not officers or agents in management at the company and therefore could not be held personally liable.
It is possible in a start-up company that the bosses, officers, and other employees will be encouraged to continue to work while not timely receiving their salary. This would be in hopes that the company, currently insolvent will become solvent and successful wherein not only will the employees recoup their unpaid salary, but they may also reap some benefit from stock options that they may have in the start-up company. The risk for those officers or agents of the company who make decisions as to which employees to pay and when, is that they may be found to be personally liable. Neither the company nor its agents are permitted to allow an employee to work without getting paid. Even if the employee states she wants to work knowing she may not get paid she may be able to still make the wage claim against the boss that allowed her to work without pay.
Simply put, if you are considering being an investor or board member of a start-up company and you are not prepared to take over management of the company then you want to make sure the lines are clearly drawn so that you do not encourage officers of the company to have the employees continue to work without being timely paid in that ultimately such an action may provide personal exposure to you. Likewise, if you are a mid-level manager in the company and are told by upper management that you are to encourage the employees to “stay the course”, even though they will not be paid at this juncture, you may subject yourself to personal liability for the wages of the employees who remain unpaid.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].