D&O Newsflash: Directors & Officers Not Personally Liable under the Massachusetts Wage Act

November 26, 2013

In an unpublished decision of the Appeals Court of Massachusetts, Perrin v. The Collaborative Engineers, Inc., N0. 12-P-1882 (here), that came late last week, the Appeals Court held that corporate directors and officers were not liable for a Wage Act claim brought by an employee of the corporation.  The decision brings some insight to a category of claims that have gotten more attention lately from professional lines insurers and their insureds.

The case was brought by an employee of the defendant pursuant to Massachusetts General Laws c. 149, section 148.  In her suit, the plaintiff was seeking unpaid wages.  The Massachusetts law imposes personal liability on officers and directors under the Commonwealth’s Wage Act:  “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 Massachusetts Supreme Judicial Court defined liability under the Commonwealth’s statute in Wiedmann v. The Bradford Group, Inc., 444 Mass. 698, 711 (2005):  “[one] who controls, directs, and participates to a substantial degree in formulating and determining policy of a corporation”. 

The Appeals Court in Perrin concluded that the officers and directors of the defendant were not personally liable because “[n]one of the individual defendants here served as president or treasurer of the corporation. Nor were they officers of the corporation. Rather they were full-time employees, directors, and minority shareholders of [the defendant].  . . . There was no evidence that any of the individual defendants performed any corporate management functions.6 Absent such evidence, we reject the notion that directors may be held liable solely on the basis of their titles.”

The Appeals Court also denied the plaintiff’s request for treble damages against the corporation on the grounds that the company “at least had a good faith basis” for its decision not to treat the plaintiff as an employee, and that there was “no compelling evidence of outrageous conduct” by the defendant corporation. 

While the decision is unpublished and considers state law, the case brings some authority to an area that has gotten attention recently from corporate officers and directors and D&O insurers.  Carriers and their insureds may dispute coverage for these type of claims, but the liability implications of this decision should provide a small measure of comfort to both. 

For more information on this issue or Bowditch & Dewey's insurance litigation practice, please contact Mary-Pat Cormier at mcormier@bowditch.com or 617-757-6527.