In a decision that can be described as nothing less than shocking to many in the employment law arena, a superior court judge has held that the Massachusetts Wage Act does not apply to limited liability companies (LLC) in the same way it covers corporations. Applying a narrow view of the law’s specific language and rejecting the implications of her decision, Judge Bertha Josephson concluded that managers of LLCs are not personally on the hook in the way that presidents, treasurers and other officers of corporations are when wages aren’t paid to employees.
The decision, reported in the July 4, 2011 edition of Massachusetts Lawyers Weekly, could have broad and substantial implications. In many wage cases and for very good reasons, employees name individual decision makers as defendants in lawsuits. This helps ensure that employers do not hide behind what may be underfunded or even bankrupt business entities and claim that they do not have the funds to pay what is owed to their workers. Under Cook v. Patient EDU, LLC, employers might now avoid paying wages via the expedient of forming an LLC or simply closing down the ones they already have. Though the decision comes from the superior court level and is thus not binding on other trial judges, it will likely be cited liberally by defense attorneys until and unless it is overturned on appeal. Given the slow pace of legal cases generally, that could take years and cause substantial difficultiies to employees of LLCs who believe they are owed back wages.
The Wage Act mandates that employees be paid in full within narrow time frames. Violations are punished by a mandatory tripling of damages and the assessment of legal fees incurred by employees forced to file suits to collect wages owed. Since the Act expressly provides that corporate presidents, treasurers and others in charge are personally liable for unpaid wages, practioners have long treated LLC managers in the same fashion; LLCs are, after all, business entities that act much like corporations do. Judge Josephson, however, concluded suing LLC managers is prohibited, since the term “limited liability company” does not currently appear alongside “corporation” in the Wage Act. It is now up to an appeals court to alter the ruling or the legislature to amend the statute.