In a recent decision, the Massachusetts Supreme Judicial Court (SJC) clarified the scope of personal liability for investors and board members under the Commonwealth’s Wage Act, as codified at G.L. c. 149, §§148-150. The SJC held that investors and board members could not be held personally liable solely by virtue of their investment activity or acts performed in their official capacity as board members. While the case involved a nuanced set of facts aptly described as “unusual and removed from the core concerns of the Wage Act,” its holding is nonetheless significant, and provides guidance for personal liability under the Wage Act for individuals other than a company’s president or treasurer.
In Segal v. Genitrix, LLC, 478 Mass. 551 (2017), H. Fisk Johnson and Stephen Rose, two former board members of Genitrix, LLC, sought direct appellate review of an adverse jury verdict that found them personally liable for failing to pay wages owed to the company’s former president and CEO, Andrew Segal. Johnson, Rose, and Segal founded the biotech company, originally a Maryland LLC, in 1997. Johnson briefly served as a board member during Genitrix’s opening year, but continued to invest in the company until its dissolution in 2007. Johnson designated Rose as his appointee to the board and advised Segal that Rose was to be his contact for any financial matters.
As a condition to Johnson’s initial investment, he required Segal to execute an employment agreement with Genitrix. The agreement stipulated that Segal would receive a fixed salary in consideration for his service as the company’s president and CEO, including managing the day-to-day financial and administrative affairs of the company. Segal, the company’s sole officer, supervised the laboratory, managed all human resource functions, including payroll, and was the only individual authorized to issue wage checks.
The company began to experience financial difficulties in 2006, which led to Segal’s recommendation that the company lay off its at-will employees in order to meet payroll obligations. In turn, the two defendants invested additional money in the company; however, they earmarked the investment for specific purposes such as funding payroll and replacing lab equipment. The company’s financial condition worsened in 2007, and Segal unilaterally decided to stop taking his salary. By mid-2007, the company was unable to make payroll and its board voted to lay off the other remaining employee. The defendants made a final investment to pay off that employee’s remaining salary obligations and then shuttered the company’s doors.
The company ultimately filed a petition for judicial dissolution. During those proceedings, Segal filed an array of claims against the company, and also attempted unsuccessfully to block the dissolution of Genitrix, a Delaware LLC. See Fisk Ventures, LLC v. Segal, et al., C.A. No. 3017-CC (Del. Ch. Jan. 13, 2009).However, Segal did not assert a claim under the Massachusetts Wage Act. Notably, Segal continued in his role as president while the dissolution proceedings were ongoing, despite continuing to decline a salary. Segal’s belief that he eventually would get paid for the work
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