Two recent appellate decisions in Massachusetts further expand the reach of the state’s Payment of Wages Law (“Wage Act”), which imposes significant penalties for violations, including mandatory treble damages and attorneys’ fees.

First, on June 13, 2013, in Cook v. Patient Edu, LLC, the Massachusetts Supreme Judicial Court (SJC) held that, regardless of the form of business entity, a manager who “controls, directs, and participates to a substantial degree in formulating and determining the financial policy of a business entity” is a “person having employees in his service” under the Wage Act and, therefore, can be held individually liable. The law states that “[t]he 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,” but makes no reference to managers of other business entities, such as limited liability companies (LLCs). Given this language, employers have argued successfully that the individual liability provision applies only to officers of corporations, and not to managers of other types of businesses.

In Cook, however, the SJC announced it would not be confined by the statute’s precise wording and would interpret the Wage Act liberally to impose liability on those with authority to “shape the employment and financial policies” of the business. In so doing, the court noted that the LLC form did not exist when the individual liability provision was added to the statute and exempting those in charge of LLCs would defeat the legislative intent behind the statute.

In the second case, Fraelick v. PerkettPR, Inc., the Massachusetts Appeals Court, a mid-level appellate court, held that an employee who complains about an employer’s failure to pay expense reimbursements is protected under the Wage Act’s anti-retaliation provision, even though expense reimbursements do not generally fall under the statute’s purview. In her complaint, the plaintiff alleged she was terminated after she complained that the company failed to timely reimburse her for business-related expenses. The trial court granted the employer’s motion to dismiss, holding that the Wage Act does not cover business expenses.

The plaintiff appealed only the retaliation claim, and not the underlying Wage Act claim. Acknowledging that business expenses are not literally wages, the plaintiff argued that, in her case, expense reimbursements were a component of the overall compensation structure outlined in her employment agreement and the employer’s failure to timely reimburse those expenses effectively reduced her compensation, amounting to an illegal deduction from her wages in violation of the statute. Because she had a “reasonable belief” that her employer committed wage violations, the plaintiff argued, her complaint regarding delayed reimbursement of business expenses was protected activity for purposes of her retaliation claim. For its part, the employer argued that the plaintiff’s belief that business-related expenses are wages under the Wage Act was unreasonable on its face.

Significantly, the appellate court noted that “[i]n the ordinary course, the violation of a standard expense reimbursement arrangement would not constitute a violation of the Wage Act because the reimbursement is not compensation ‘earned’ by ‘labor, service or performance’” and, therefore, falls outside of the scope of the statute. It went on to say, however, that an employer “may not reduce wages by, or condition the timely payment of full wages on, payments made by an employee to or on behalf of the employer.” Accordingly, the Appeals Court concluded that the plaintiff’s allegation that her employer required her to advance expenses indefinitely under the threat of termination was sufficient to show that she had a “reasonable belief” that her rights under the Wage Act were violated for purposes of her retaliation claim and reversed the dismissal.

These two decisions, as well as other recent decisions (see here and here), make clear that Massachusetts courts will construe the Wage Act broadly to effectuate its legislative intent: the protection of employees and their wages. Because the penalties for Wage Act violations are substantial, Massachusetts employers and employers with employees working in Massachusetts should carefully review their wage-related policies and procedures to ensure compliance with the Wage Act’s requirements.