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Court: Treble Damages Law Does Not Cover Claims Before July 2008

Posted by Brad MacDougall on Sep 7, 2011 10:30:00 AM

The Massachusetts Supreme Judicial Court (SJC) has affirmed that employees may not seek mandatory treble damages for violations of the Massachusetts Wage Act that took place before the Legislature changed the treble-damages law in 2008.

Treble DamagesThe SJC ruled in a compensation dispute between two lawyers that the treble-damages law applied “only prospectively, to claims arising on or after the amendment's effective date of July 12, 2008.” The ruling supported the position of Associated Industries of Massachusetts and the New England Legal Foundation, which argued in a joint brief that applying treble damages retrospectively to cases filed before 2008 would unleash a torrent of unproductive litigation.

“The SJC confirmed the idea that laws operate prospectively. AIM still opposes mandatory treble damages, but appreciates the court’s ruling that employers cannot violate a law that did not exist at the time,” said John Regan, Executive Vice President of Government Affairs.

Writing for the SJC in the case of Elena Rosnov versus John Molloy, Justice Margot Botsford said:

"In the absence of an express legislative directive, this court has usually applied '[t]he general rule of interpretation . . . that all statutes are prospective in their operation, unless an intention that they shall be retrospective appears by necessary implication from their words, context or objects when considered in the light of the subject matter, the pre-existing state of the law and the effect upon existent rights, remedies and obligations.

“Doubtless all legislation commonly looks to the future, not to the past, and has no retroactive effect unless such effect manifestly is required by unequivocal terms. It is only statutes regulating practice, procedure and evidence, in short, those relating to remedies and not affecting substantive rights, that commonly are treated as operating retroactively, and as applying to pending actions or causes of action."

Lawyer Elena Rosnov brought the case against her former employer, Attorney John Molloy, in an attempt to collect 40 percent of a $432,500 legal settlement she claims to have been promised for referring the case to Molloy. A jury found in 2009 that an oral contract for the division of fees existed between Rosnov and Molloy, and that Molloy had breached the contract by not providing Rosnov a referral fee.

The SJC ruled only on the question of whether Rosnov could seek treble damages under the 2008 law. The high court decision means that Rosnov’s claim for treble damages is now under the discretion of the Superior Court rather than the mandate of the 2008 law.

AIM believes that the awarding of treble damages should be at the discretion of the court, not an automatic award.  The current law rejects that notion and sends a message that all employers act in willful disregard for the wellbeing of their employees.

Representative Martha Walz filed legislation this year, H.1411, on behalf of AIM that would limit treble damages to “willful” violations of the wage and hour statute.  The proposal would remove the threat of punitive damages for employers who make honest mistakes understanding the complex state wage laws or who are involved in good-faith compensation disputes.  Lawmakers considered the legislation during the Fiscal Year 2012 budget process, but did not include it in the final compromise bill.

A public hearing on the bill is expected in late September.

Please contact me at [email protected] if you would like to receive updates on this issue.

Topics: Associated Industries of Massachusetts, Employment Law, Treble Damages Law, Massachusetts Supreme Judicial Court

Court Restricts Personal Liability of Managers for Wage Judgments

Posted by Kevin Murphy on Jul 18, 2011 10:03:00 AM

Kevin S. Murphy is an employment lawyer with the firm of Yurko, Salvesen & Remz, PC, in Boston.

One of the little known and disturbing facts about the Massachusetts Wage Act is that senior managers of a corporation may be held personally liable if an employee wins a lawsuit over wage claims. If the company cannot pay, you can be left holding the bag. 

Wage Law LiabilityPersonal liability has been a particular concern since 2008, when Massachusetts passed a law saying that damages from any failure to pay properly are mandatorily tripled, and to that is added attorneys fees, costs and interest, even if the improper pay was totally unintentional. 

As a lawyer representing companies in wage disputes, I know that the prospect of individual liability is a major weapon for plaintiffs and the attorney general.  They are happy to take full advantage in settlement negotiations or in litigation strategy, freezing personal bank accounts, tying up personal assets or levying upon real estate.  

Now, a recent superior court case may offer some help on the prospect of individual liability, depending upon how your business is organized. 

The potential good news comes out of Springfield.   A superior court judge there considered a case where a company called Patient EDU, LLC failed to pay its director of business development for the first six months of his employment and sporadically thereafter.  The director of business development sued the company and the individual manager of the LLC, Steven Graziano. 

Graziano’s lawyers moved to dismiss the case against him.  While they admitted that Patient EDU was subject to the wage act, they argued that Graziano could not be personally liable for any wage act violations.  Graziano’s lawyers pointed to the statutory language, which provides for individual liability of “the president and treasurer of a corporation and any officers or agents having the management of such corporation.”  They argued that since Patient EDU was not organized as a corporation, but a limited liability company, the language of the statute did not apply to Graziano.

The court agreed, pointing out that a corporation is a very different thing from an LLC, with different rights and treatment under Massachusetts corporations, tax, and other laws.  The court also noted that the legislature had specifically limited individual liability to managers of “corporations,” instead of using more expansive terms such as in the definition of “employer” in the employment laws, or “entity” in the Corporations Act. 

The court felt constrained to apply the statutory words as written, despite admitting that it makes little sense to hold individual managers of a corporation liable but to give individual managers of an LLC a free pass.   Nor was the court dissuaded by the fact that there were no LLCs until 60 years after the Wage Act was written, noting (in a possible veiled reference to the devastation to be wrought upon an individual who is liable for triple Wage Act damages) that the Wage Act had been amended four times since LLCs came into being, and the “corporations” language was not changed.  

The importance for you, as a manager of a business, could be significant.  If your business is other than a corporation – if it is for instance an LLC, LLP, or partnership – there is now legal precedent supporting the argument that you cannot be held personally responsible for the entity’s wage act violations. 

While it is likely the legislature will correct this language, this case would stand for the proposition that, for the time period up until such amendment, no individual liability attaches.  This takes a major arrow out of the plaintiff’s quiver, especially if the company is small and would have a difficult time paying plaintiff’s claims or an attorney general citation. 

While the case is not an appellate decision, and therefore is not mandatory authority to another judge, it would be persuasive authority.  At the time of this writing, the case had not been appealed.

Topics: Employment Law, Massachusetts employers, Treble Damages Law

Employers Ask Budget Conferees to Narrow Treble-Damage Law

Posted by John Regan on Jun 9, 2011 9:21:00 AM

AIM today urged the conference committee hammering out next year’s state budget to include a House provision narrowing the punitive 2008 treble damage requirement for violations of the wage and hour law.

Treble damagesThe association is asking member employers to contact conference committee members, along with House and Senate leaders, to support the provision. Members may use the AIMVoice system to express their opinions.

House members voted on April 28 to include in their Fiscal Year 2012 budget proposal a provision limiting the treble damages statute to “willful” violations of the wage and hour statute.  The vote would remove the threat of punitive damages for employers who make honest mistakes understanding the complex state wage laws or who are involved in good-faith compensation disputes.

The Senate, however, did not include the treble damages provision in the spending blueprint it passed on May 27.

Both budgets address the commonwealth’s fiscal deficit without raising taxes.

“The current law penalizes companies that have done nothing outrageous, have not acted with an evil motive, and have not acted with reckless indifference to employees' rights.  The same would be true in the case of a good-faith dispute over whether an employer owes commissions,” AIM President Richard C. Lord wrote to members of the House-Senate Budget Conference Committee.

“The House proposal would bring fairness and equity to a law which is now unduly punitive by restoring judicial discretion over damages for non-willful violations of the law – an appropriate moderation of the current statute. “

The narrowing of treble damages is one of several pro-growth budget provisions passed by both House and Senate for the fiscal year beginning July 1. Both proposals give municipal officials the authority to control health insurance costs; and both add stability to the Workforce Training Fund by setting it into a trust.

Topics: Associated Industries of Massachusetts, Employment Law, Treble Damages Law

Massachusetts House Votes to Narrow Treble Damages Law

Posted by Christopher Geehern on Apr 28, 2011 2:35:00 PM

The Massachusetts House of Representatives voted today to narrow the punitive 2008 Treble Damages Law that placed the Bay State near the bottom of national ratings of places to do business.

Treble DamagesHouse members voted to include in their Fiscal Year 2012 budget proposal a provision limiting the treble damages statute to “willful” violations of the wage and hour statute.  The vote would remove the threat of punitive damages for employers who make honest mistakes understanding the complex state wage laws or who are involved in good-faith compensation disputes.

The House action came several days after AIM member employers sent more than 150 emails supporting changes to the statute.

“The House of Representatives has provided a victory for common sense and for hard-working Massachusetts employers looking to create economic opportunity for the people of the commonwealth,” said John Regan, Executive Vice President of Government Affairs at AIM.

“The measure will ensure that workers are protected from willful wage violations while employers no longer have to fear treble damages in cases of mistakes - say where an inexperienced employee makes a clerical or other honest error.”

The treble damages reform marks the second time in two days that the House has taken a landmark vote to help the Massachusetts economy. Representatives voted 113-42 on Tuesday night to give municipal officials the authority to set health-insurance co-pays and deductibles outside of collective bargaining. Municipal leaders are expected to use that savings to maintain jobs in critical areas such as schools, public safety and public works.

Both the treble damages and municipal health insurance provisions will move to the Senate once House members approve the FY 2012 budget this week.

AIM thanks Speaker Robert DeLeo, House Ways and Means Chairman Brian Dempsey, Vice Chair Steven Kulik and Assistant Vice Chair Martha Walz for their efforts to address the treble damages issue.

Topics: Associated Industries of Massachusetts, Employment Law, Massachusetts House of Representatives, Treble Damages Law

AIM Members: Urge Legislators to Fix Treble Damage Law

Posted by John Regan on Apr 21, 2011 9:37:00 AM

Senate ways and means, treble damages law, budgetNext week, members of the Massachusetts House of Representatives will debate and vote on the Fiscal Year 2012 budget which includes language limiting the current punitive treble-damages law to “willful” violations of the wage and hour statute only.  This change has been sought by AIM since the original law passed in 2008.

AIM urges you to contact House members asking them to support this language and to oppose any amendment preventing the fixing of the treble damages law.

The current law penalizes companies that have done nothing outrageous, have not acted with an evil motive, and have not acted with reckless indifference to employees' rights.  The same would be true in the case of a good-faith dispute over whether an employer owes commissions.

This House proposal mirrors Governor Deval Patrick’s language to fix a 2008 law that imposed punitive treble damages even in cases where an inexperienced employee of a Massachusetts business makes a clerical or other honest error. 

Massachusetts is rated poorly by the US Chamber of Commerce because of this onerous law that mandates treble damages for any Wage Act violation.  The House Ways and Means Committee proposal would bring fairness and equity to a law which is now unduly punitive. 

AIM thanks Speaker Robert DeLeo and House Ways and Means Chairman Brian Dempsey for a fiscally sound House budget which benefits the Massachusetts Economy.  AIM also recognizes the work of Ways and Means Committee Vice Chair Steven Kulik and Assistant Vice Chair Martha Walz on the proposed House budget and for addressing the treble damages issue.

Click here to contact your elected officials and urge them to fix the treble damage law.

Topics: Speaker Robert DeLeo, AIM, House Speaker Robert DeLeo, Legislative Scorecard, Treble Damages Law, Govenor Patrick

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