Law Office of Adam P. Whitney Blog
Outside General Counsel Posts

'Ayr Racecourse builds for the future' found at https://flic.kr/p/g5rZUE by Elite Ayrshire Business Circle (https://flickr.com/people/eliteayrshirebusinesscircle) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Ayr Racecourse builds for the future' found at https://flic.kr/p/g5rZUE by Elite Ayrshire Business Circle (https://flickr.com/people/eliteayrshirebusinesscircle) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Ayr Racecourse builds for the future' found at https://flic.kr/p/g5rZUE by Elite Ayrshire Business Circle (https://flickr.com/people/eliteayrshirebusinesscircle) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

The Massachusetts Wage Act as it Applies to Directors and Investors

Subtitle: The President or CEO of an Underfunded Corporation or LLC Is in a Unique Position to Face Double Financial Disaster

'DSC_9682 a' found at https://flic.kr/p/qibFsq by Toppazzini (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'DSC_9682 a' found at https://flic.kr/p/qibFsq by Toppazzini (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'DSC_9682 a' found at https://flic.kr/p/qibFsq by Toppazzini (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Massachusetts Employers Should Prepare for the New Pregnant Workers Fairness Act

Synopsis: This new statute amends Chapter 151B, Section 4 and provides substantial rights to employees and applicants based on pregnancy and pregnancy-related conditions.

'Dogged' found at https://flic.kr/p/732b7n by JD Hancock (https://flickr.com/people/jdhancock) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Dogged' found at https://flic.kr/p/732b7n by JD Hancock (https://flickr.com/people/jdhancock) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Dogged' found at https://flic.kr/p/732b7n by JD Hancock (https://flickr.com/people/jdhancock) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Employment Severance Agreements Should Be Drafted or Reviewed By Your Attorney

Severance agreements, also called separation agreements or sometimes settlement agreements are legal documents that can greatly impact legal rights and obligations. Some may consider these standard legal documents. While there are many standard provisions, careful drafting and review are in order. Even experienced attorneys make mistakes when drafting these documents. While they seem simple and straightforward, they are more complicated than one would think and there are many traps for the...

'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

Does Your Business Need an Outside General Counsel?

Big companies have their own attorneys on payroll and at the ready. As likable as most attorneys are, businesses would not keep them on the payroll unless they added value. A general counsel acts as a strategic partner. She understands the business, puts it in the best legal position, and protects it from potential liability. When a dispute arises and a business needs immediate legal action, things go much better when an attorney who is already familiar with the business and issues is ready...

'Film archive storage' found at https://flic.kr/p/aUg8cx by DRs Kulturarvsprojekt (https://flickr.com/people/kulturarvsprojektet) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)
'Film archive storage' found at https://flic.kr/p/aUg8cx by DRs Kulturarvsprojekt (https://flickr.com/people/kulturarvsprojektet) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)
'Film archive storage' found at https://flic.kr/p/aUg8cx by DRs Kulturarvsprojekt (https://flickr.com/people/kulturarvsprojektet) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)

A Minority Owner's Right to Inspect LLC Records or Corporate Books and Records

An LLC (Limited Liability Company) Member in Massachusetts has a right to inspect certain records of the LLC. This includes basic information, such as the certificate of organization, the names and addresses of all Members and Managers, and a copy of the operating agreement.

'Money Hedge' found at https://flic.kr/p/chEbX5 by Tax Credits (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Money Hedge' found at https://flic.kr/p/chEbX5 by Tax Credits (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Money Hedge' found at https://flic.kr/p/chEbX5 by Tax Credits (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

The New Massachusetts Equal Pay Act - How Bad Is it for Employers?

The new Massachusetts Equal Pay Act goes into effect on July 1, 2018. The basic concept of the statute is that you cannot pay employees differently based on gender. You are busy running your business, but don't ignore this statute. You could face lawsuits that result in high damages awards and an award of the plaintiffs' attorneys' fees and litigation costs. There are attorneys who will be actively targeting your company to find violations. The statute will be irresistible because any...

'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)
'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

Myths and Realities - Starting or Joining an LLC or Corporation with Friends, Family Members and Acquaintances.

As a lawyer who litigates disputes among partners, close corporation shareholders, and limited liability company members and managers, I hear a lot of myths about them. The myths below are in italics, with my (sometimes snide) comments below each one.

'Party Time' found at https://flic.kr/p/ihruT3 by Nanagyei (https://flickr.com/people/nanagyei) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Party Time' found at https://flic.kr/p/ihruT3 by Nanagyei (https://flickr.com/people/nanagyei) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Party Time' found at https://flic.kr/p/ihruT3 by Nanagyei (https://flickr.com/people/nanagyei) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Having a Company Holiday Party? Have Fun, but Don't Get Sued.

Your company holiday party comes with potential legal liability. While you can never eliminate all potential liability, you can minimize your risk. Here are some ways to do that:

'fiduciary' found at https://flic.kr/p/29iajFb by mikecohen1872 (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'fiduciary' found at https://flic.kr/p/29iajFb by mikecohen1872 (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'fiduciary' found at https://flic.kr/p/29iajFb by mikecohen1872 (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

New Ruling From Massachusetts Appeals Court Shows the Importance of LLC Operating Agreement Language

How do Limited Liability Company Operating Agreements affect the fiduciary duties owed to co-Members of the LLC? That issue was decided in the case of Butts v. Freedman, which also involved Boston Equity Advisors LLC (“BEA”) and Outcome Capital, LLC (“Outcome”).

'Legal Contract & Signature - Warm Tones' found at https://flic.kr/p/JPT7sR by Visual Content (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Legal Contract & Signature - Warm Tones' found at https://flic.kr/p/JPT7sR by Visual Content (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)
'Legal Contract & Signature - Warm Tones' found at https://flic.kr/p/JPT7sR by Visual Content (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

No Good at Goodbyes: Why Employment Attorneys are Important to use for Creating Severance Agreements

Severance agreements, which are contracts between an employer and an employee that contain certain rules and guidelines for when an employee is terminated, may be regarded as somewhat of an afterthought by employers. An employer might think to himself, “the employee is leaving the company to go his or her own way, so what is there to worry about?” Despite this fact, it is imperative that anyone involved in the hiring process has an employment lawyer review a proposed severance agreement. A...

The Massachusetts Wage Act as it Applies to Directors and Investors

'Ayr Racecourse builds for the future' found at https://flic.kr/p/g5rZUE by Elite Ayrshire Business Circle (https://flickr.com/people/eliteayrshirebusinesscircle) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Subtitle: The President or CEO of an Underfunded Corporation or LLC Is in a Unique Position to Face Double Financial Disaster

Last week's decision from the Massachusetts SJC provides guidance on how investors and board members can reduce their exposure for Wage Act claims. See Segal v. Genitrix, LLC, Slip Op. (Mass. SJC, Dec. 28, 2017). Because I litigate these same issues,1 I found the 37-page decision to be a good read. Most business people won't have the time or the interest, but the decision can be found here: https://law.justia.com/cases/massachusetts/supreme-court/2017/sjc-12291.html. Although not reported in the decision itself, the SJC overturned a judgment of over $1.75 million for Segal, the former President of Genitrix, LLC, against two former board members and investors.

As most employers now know, the Wage Act provides strong protection to Massachusetts employees. There are virtually no defenses. If wages are not paid to a Massachusetts employee, liability attaches. Once suit is filed, the company will be found liable for triple damages, attorneys' fees, interest and costs. Smart businesses and lawyers settle wage claims quickly unless there is a particular defense or factual dispute. Wages include hourly pay, salary, vacation pay, and commissions that are due and determinable.

Many of the cases that are now litigated and appealed involve personal liability under the Wage Act. A Massachusetts Corporation must designate a president and treasurer. Those individual officers are considered agents of the corporation who have the management of the corporation. They are liable under the Wage Act by the express text of the statute. The statute provides as follows:

“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.”

In recent years, the SJC has ruled that the term “corporation” also includes Limited Liability Companies. Left somewhat unclear, at least until last week, was whether and under what circumstances investors (including LLC Members and stockholders) and directors could be found personally liable as “officers or agents having the management of such corporation.” The ruling in the Segal v. Genitrix, LLC case is largely favorable to investors and directors.

This post is too short to get into all the nuances of Segal v. Genitrix, LLC and its antecedents. Briefly, the SJC reasoned that the Wage Act “does not impose personal liability on board members, acting only in their capacity as board members, or investors engaged in ordinary investment activities.” Id. at p. 2. The Court went through a long and well-reasoned analysis to conclude that “to impose such liability, the statute requires that the defendants be 'officers or agents having the management' of a company.” Id. Normally, they are not agents and normally they do not have the management of the corporation. There must be particular facts to support both conditions in order for personal liability to attach (which facts were not present in the Segal v. Genitrix, LLC case).

Anyone involved in an LLC or corporation or other entity should be concerned about potential personal liability. We now have a clear picture of ways to do that. Careful crafting of LLC Operating Agreements, corporate shareholder agreements, and other corporate documents are a crucial starting point. An investor and/or director who is not named as an officer and is willing to give up a certain level and type of control can virtually eliminate personal liability under the Wage Act.

The other lesson to glean from this line of cases is the subject of the subtitle of this post. Be wary of being named president or treasurer or manager of an LLC or corporation. Sophisticated investors may be setting you up to be the scapegoat if the business entity is underfunded and cannot pay its employees. As set forth above, Segal was the President of the Company. He apparently will not recover his unpaid wages. He was the President. The buck stopped with him. But it could have been even worse. He could have been stuck with the exposure of triple damages and attorneys' for other unpaid employees on top of not being paid himself (the decision indicates that one other employee was paid after threatening a Wage Act claim).

While most people will not feel sorry for the President or CEO of a corporation or the Managers or other executive officers of an LLC, these individuals are in a uniquely precarious position. When a company is struggling, they may be the last to be paid, as Segal was. Once the company is penniless, there may be no viable targets for a lawsuit by the executive officer. The executive officer may then face insult and further injury on top of injury. He or she may be left personally liable for not just the unpaid wages of others, but triple that amount plus the reasonable attorneys' fees of the other employees. Plus costs and 12 % interest on the base amount for good measure. That might be your reward for working for free and trying to keep the company afloat through tough times.

If you are contemplating running a business as a President, CEO or Manager, etc. and you are not the majority investor, protect yourself with the proper agreements. If you are already the captain of a sinking ship where employees are not getting paid, consult with a qualified attorney immediately to see how you can protect yourself as much as possible.

By Adam P. Whitney 617.338.7000

1I obtained a settlement for a corporate executive of $255,000 in a Wage Act claim against several members of an LLC Board of Managers and a judgment of over $640,000 against another Board Member who served as the de facto CEO (subject to appeal).

Massachusetts Employers Should Prepare for the New Pregnant Workers Fairness Act

'DSC_9682 a' found at https://flic.kr/p/qibFsq by Toppazzini (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Synopsis: This new statute amends Chapter 151B, Section 4 and provides substantial rights to employees and applicants based on pregnancy and pregnancy-related conditions.

Goes into effect: April 1, 2018

Applies to: All employers with 6 or more employees; Existing Employees and applicants

Obligations: Provide accommodations for pregnancy related conditions, including lactation;

Engage in good-faith interactive process to determine an effective, reasonable accommodation;

Accept documentation from a wide range of professionals, not just doctors, including nurses, occupational therapists, midwife and others;

If needed, provide leave of absence, more/longer unpaid breaks, time off, modified schedule, temporary transfers, light duty, job restructuring, modification/acquisition of equipment or seating, assistance with manual labor;

Provide private place (not-bathroom) for expressing breast milk;

Reinstate employee after leave of absence with same position and benefits or equivalent position

Prohibitions: Forcing undesired accommodations on employee;

Forcing a leave of absence;

Retaliating against employee who exercises her rights;

Refusing to hire or promote pregnant employee or applicant

New policy needed: Required by statute to have a handbook, pamphlet or other means of notice by April 1, 2018;

must also give notice to new employees as well as employees who give notice of a pregnancy-related condition

New Training: Training of H.R. and managers recommended

Violations: Violations can result in liability for damages, including back pay, front pay, emotional distress and other compensatory damages, punitive damages, civil fines and attorneys' fees and costs.

The above is not legal advice, but just a synopsis of this important new statute that provides pregnant employees and applicants with substantial new rights. Take your obligations seriously and comply with these obligations to avoid liability.

By Adam P. Whitney

617.338.7000

Employment Severance Agreements Should Be Drafted or Reviewed By Your Attorney

'Dogged' found at https://flic.kr/p/732b7n by JD Hancock (https://flickr.com/people/jdhancock) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Severance agreements, also called separation agreements or sometimes settlement agreements are legal documents that can greatly impact legal rights and obligations. Some may consider these standard legal documents. While there are many standard provisions, careful drafting and review are in order. Even experienced attorneys make mistakes when drafting these documents. While they seem simple and straightforward, they are more complicated than one would think and there are many traps for the unwary.

Businesses Should Have Every Severance Agreement Drafted or Reviewed by an Experienced Employment Attorney

If you use the severance agreement you found on the internet or that a general practitioner drafted 5 years ago, you do so at your peril. While severance agreements are, at their essence, contracts, they are also governed by a myriad of state and federal employment laws as well as agency decisions and court rulings. As a result, an agreement that was sound five years ago may not be today. Moreover, what applies to one employee may not apply to another.

Why does this matter? For example, if you don't include the right language, the release in your Severance Agreement could be ineffective against Wage Act claims and leave you exposed to triple damages and attorneys' fees. You also need specific language for Age Discrimination claims in order for them to be waived. As you may know, there are new state and federal employment laws going into effect quite frequently (including marijuana laws and pregnancy discrimination and accommodation laws), which might need to be addressed.

Even the contract issues are not as simple as you might think. For example, if you have an existing noncompete agreement with your employee, you have to be careful regarding your merger clause. Otherwise, you could inadvertently void your noncompete agreement. Employers sometimes make mistakes such as this.

Executives and Other Employees Should Have their Severance Agreements Reviewed by an Experienced Employment Attorney

Even if it is a friendly split, look out for your own best interests. When you sign a severance agreement, you will be waiving substantial rights and perhaps taking on substantial obligations, such as noncompetes or non-solicitation provisions or a duty to cooperate. A recent case report in Massachusetts demonstrates why you need professional assistance. An executive entered a severance agreement and inadvertently waived his right to valuable stock options. Although the right was not specifically addressed, the court ruled that the general release provisions controlled, and the executive was out of luck.

While severance agreements are sometimes not negotiable, sometimes they are. You might get a better deal or at least clarify problem language if you hire a lawyer to advocate on your behalf. Consider if the peace of mind and chance at a better deal would be worth the relatively small dollars.

Or you can rely on the company lawyer to do what's best for you (not really).

By Adam P. Whitney

617.338.7000

awhitney@awhitneylaw.com

Does Your Business Need an Outside General Counsel?

'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79SjE by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

Big companies have their own attorneys on payroll and at the ready. As likable as most attorneys are, businesses would not keep them on the payroll unless they added value. A general counsel acts as a strategic partner. She understands the business, puts it in the best legal position, and protects it from potential liability. When a dispute arises and a business needs immediate legal action, things go much better when an attorney who is already familiar with the business and issues is ready for action.

Many private businesses cannot justify the cost of a full-time general counsel on the payroll. But could your business benefit from a long-term relationship with an outside general counsel? Think of the benefit of having a lawyer who understands your business and how you operate. You can quickly vet issues, including complex employee termination issues, contract issues, client issues, government issues and competitor issues. Your lawyer can keep you up to date on changes in the law so that you make the necessary changes in your handbook. He can train you and your managers on how to avoid legal traps. An outside general counsel is ready to immediately send a letter to competitors, ex-employees or others who pose a threat to your business.

If you think that having an outside general counsel is expensive, try not having one. If you leave your company exposed, one bad lawsuit can kill your bottom line or even put you out of business altogether. Owners can sometimes face personal liability, so not just your business assets are at risk. Businesses often reach out to an attorney after an issue has arisen. While this is certainly better than not hiring an attorney, the business will be scrambling to bring the lawyer up to speed. There won't be time to see if the lawyer is a good fit for the company and how it operates. An attorney who values a long-term relationship will also be more conservative with billing compared to an attorney who sees your business as a one-time billing opportunity.

By contrast, having a lawyer who you know, like and trust at the ready will greatly reduce your stress should a sticky legal situation arise. Smaller issues can be nipped in the bud before they grow into vexing lawsuits. Having an attorney who understands how you like to approach problems could make all the difference. Successful business owners and managers are smart, driven and great decision-makers. The right outside general counsel will be a trusted advisor who will provide perspective along with guidance to allow you to make the best decisions.

By Adam P. Whitney, Esq.

617.338.7000

A Minority Owner's Right to Inspect LLC Records or Corporate Books and Records

'Film archive storage' found at https://flic.kr/p/aUg8cx by DRs Kulturarvsprojekt (https://flickr.com/people/kulturarvsprojektet) used under Creative Commons Attribution-ShareAlike License (http://creativecommons.org/licenses/by-sa/2.0/)

An LLC (Limited Liability Company) Member in Massachusetts has a right to inspect certain records of the LLC. This includes basic information, such as the certificate of organization, the names and addresses of all Members and Managers, and a copy of the operating agreement.

Minority LLC Members who feel that they are being oppressed or frozen out will want to obtain as much information as possible, including especially financial information. A Massachusetts LLC must, by statute, have an office in the Commonwealth where it must keep certain records. These records include the following:

  1. Income tax returns for last three years; and

  2. Financial Statements, if any, for the last three years.

Any Member of the LLC shall be allowed to inspect and copy the records, at that member's expense, and at reasonable times. Subject to the provisions of the Operating Agreement or standards set by the Manager(s), each Member shall also be allowed to obtain “true and full information regarding the state of the business and financial condition of the limited liability company, [. . . inluding] other information regarding the affairs of the limited liability company as is just and reasonable.” M.G.L. c. 156C, Sec. 10.  How to determine what is "just and reasonable?"  The wise majority owners should develop uniform standards regarding access to documents to prevent a claim of unfair treatment by the minority owner. The test is whether a request is “reasonably related” to the Member's interest. A minority owner that makes repeated and numerous requests may be seen as being a pest or having an ulterior motive. By contrast, a Delaware court (addressing a similar statute) ruled that the following were “proper purposes” for requesting documents from the LLC: (1) putting a valuation on one's ownership interest; and (2) investigating potential wrongdoing by the majority.

If the majority owners refuse a request for information, the minority owner must determine what action to take. There are no “LLC Police” to call. A minority owner will have to file suit to obtain the documents it wants. If there are enough facts to support such a claim, a minority owner can also bring a claim for a freeze out, which occurs when the majority owners violate their fiduciary duties to the minority owner and frustrate her reasonable expectations of ownership.  A Member's ownership interest in an LLC is considered personal property and a Member is entitled to obtain an accounting from a fellow Member, but you will have to file suit for an accounting. At least one Massachusetts court has held that a Member of an LLC is entitled to an accounting from a controlling Member or Manager where there is a fiduciary relationship between the parties. By contrast, there is no right to an accounting against the LLC itself because there is no fiduciary duty owed by the LLC to the Members.

The rights to records of a minority shareholder of a Massachusetts corporation are similar, but not identical to the rights of an LLC Member. A shareholder should be able to articulate specific facts regarding possible mismanagement or wrongdoing by the controlling interest in order to see financial records, meeting minutes and other business records (other than the basics).

The takeaway is to first check the Operating Agreement or Shareholder Agreement or other company documents and then the statute to determine what documents a minority owner is entitled to. Both sides should consider carefully whether their dispute over records can be resolved without resorting to litigation. Perhaps an independent mediator could help the parties resolve their dispute before both sides incur substantial legal fees.  In other situations, someone is being unreasonable or someone is hiding something. This is a recipe for contentious litigation, so you better lawyer up if you think that the minority owner is being unreasonable or has an ulterior motive, or if you think that the majority is hiding something. As always, this post contains general information in a cursory fashion and is not legal advice.

By Adam P. Whitney, Esq.

617.338.7000

The New Massachusetts Equal Pay Act - How Bad Is it for Employers?

'Money Hedge' found at https://flic.kr/p/chEbX5 by Tax Credits (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

The new Massachusetts Equal Pay Act goes into effect on July 1, 2018.  The basic concept of the statute is that you cannot pay employees differently based on gender.  You are busy running your business, but don't ignore this statute.  You could face lawsuits that result in high damages awards and an award of the plaintiffs' attorneys' fees and litigation costs.  There are attorneys who will be actively targeting your company to find violations.  The statute will be irresistible because any employee will be able to show a prima facie case if he or she is paid less than employees of another gender for comparable work.  The statute is unclear on the employee's burden of proof, but it may fall to the employer to justify any discrepancies in pay.

In my opinion, while the statute is generally well crafted and has laudable goals, there are going to be some unintended consequences that will interfere with an employer's legitimate business judgment.  It doesn't even matter if you did not knowingly violate the statute because it is a “strict liability” statute.  The statute is tricky because you cannot necessarily pay an employee more who has a higher skill level.  You cannot necessarily pay an employee more because the employee commands a higher salary on the open market.  If you have a few outlier employees who have high earnings on your payroll, you cannot lower their compensation to bring your company into compliance with the statute.  You will either have to pay other employees performing comparable work at the same rate (unless you can justify the higher rates based on a specific factor in the statute), or you will have to fire your highly paid outliers.     

You also cannot rely on a contract.  Even a shareholder, minority owner/LLC Member with a specific contract, operating agreement or shareholder agreement could have a claim under the statute even if he or she expressly agreed to the compensation.  Under the express language of the statute, it would not matter if that person contributed less initial equity to the corporation or LLC, because that is not a specific factor in the statute that can justify a discrepancy.

I recently attended a continuing legal education course on the new statute, Mass. Gen. Laws c. 149, §105A. A representative of the Attorney General's Office spoke at the seminar, so I have a pretty good idea of what the AGO will focus on. The AGO has released some thorough and well-drafted guidelines for employers, including guidelines for performing self-evaluations (discussed below).  The AGO is not out "to get" employers, but it does want to eradicate gender-based pay discrepancies.  There are ways to reduce your risks under the statute, but you need to act very soon.  The four big takeaways are: (1) transparency; (2) salary history ban; (3) comparable work; and (4) self-evaluation.

Transparency simply means that employees cannot be prohibited from discussing salary.  You may want to check all your policies and contracts to make sure that there is nothing that prevents employees from discussing wages (limited exception for HR or managers who have access to other's compensation). Consider even putting out a new policy when the statute takes effect.

Salary history is another target of the Massachusetts Equal Pay Act.  Not only can you not ask about it, you can't use salary history to justify unequal pay.  It is potentially even dangerous to ask about salary expectations unless you are just using the expectations to see if they are in the ballpark.  The thought is that women workers are not as aggressive at negotiating.  You can't base salaries on negotiating skill.

Employees can volunteer salary history. Also, employers can seek to confirm salary history after making an offer (although there does not seem to be much of a legitimate reason to do so).  You can also ask about an employee's sales volume at a previous employer, but not the earnings from such sales.

Comparable work is another key concept that I expect will be hotly litigated.  The basic idea is not simply “equal pay for equal work;” it is “equal pay for comparable work.”   One mistake that employers may make is to not compare employees in various divisions.  Also, the nature of the work, not the job title, will control.  If a worker of one gender is earning less for comparable, you must justify it by one of the specific, limited reasons in the statute.

Self-evaluation. This is a peculiar statute in that it gives employers a chance to carefully evaluate their payrolls to see if there is any gender discrepancies (this is likely because the statute is so potentially dangerous and burdensome).  If you make a real effort to do this and to fix discrepancies, you can get a lot of protections against damages claims.  Really, even without the protections, every employer should self-evaluate so as to comply with the statute.  The existence of the protections makes it a no-brainer.  That doesn't mean that there are no risks to a self-evaluation.  There are.  The self-evaluation could be used against you for alleged violations of federal statutes.   

But many employers may conclude that they should still perform the self-evaluation.  A lawyer, accountant or another professional can help you with this.  Smart, proactive companies are already starting their self-evaluations in an effort to protect their companies from what could be a tide of new lawsuits.

This post merely scratches the surface of this important new statute and how an employer should protect itself.  As always, this post is not legal advice.

By Adam P. Whitney, Esq.

617.338.7000


Myths and Realities - Starting or Joining an LLC or Corporation with Friends, Family Members and Acquaintances.

'Alec Ross and Emily Banks at the AMCHAM reception in Auckland, August 31, 2012' found at https://flic.kr/p/d79Sah by US Embassy New Zealand (https://flickr.com/people/us_embassy_newzealand) used under Creative Commons Attribution-NoDerivs License (http://creativecommons.org/licenses/by-nd/2.0/)

As a lawyer who litigates disputes among partners, close corporation shareholders, and limited liability company members and managers, I hear a lot of myths about them.  The myths below are in italics, with my (sometimes snide) comments below each one.

I will be an owner, so of course, I will be employed by the Limited Liability Company.

Unless you have a strong employment agreement for a term of years (or until you die or retire) or employment is guaranteed in the Operating Agreement, there is nothing inherent in being a Member/Owner of an LLC that guarantees employment.  

An LLC Operating Agreement is a standard document that can be found on the internet.

That Operating Agreement that you found on the internet is worth every penny that you paid for it.  It may be even worth less than nothing.  An Operating Agreement that the parties do not understand and that is not specifically tailored to meet the needs and expectations of the members may have unintended consequences.  The provisions might work in your favor, but they might just as well work against you.

We hired a lawyer to set up the company, so she will look out for my interests.

Not necessarily. It is understandable to want to save costs when setting up a company and to jointly hire a lawyer to draft the Operating Agreement or By-Laws.  But that cost-savings comes with a price.  The lawyer cannot advocate for any one of the founders.  The minority owners are in particular need of protection, but the lawyer cannot advocate for the minority because she owes a duty to all the founders.  In a perfect world, everyone gets their own lawyer, but of course, this rarely happens.  If you are the minority owner or you are joining an existing company, at least consider having an independent lawyer review the Operating Agreement and suggest changes to protect you and your expectations in the company.

We are equal owners, so we must get paid the same salary and have equal say.

Nope.  The people running the business (President, CEO or Managers) will decide the compensation.  You could argue that the compensation is unreasonable, but you will have to prove it and you may have to file suit to do anything about it.

As for equal say, usually, the officers, managers or board of directors have all the say.  If you are not one of those, your opinion may count for very little.

At least my business partners won't withhold dividends or engage in self-dealing.

But what if they do?  You need to guard against this as much as possible.  When it does happen, you have a few options: (1) a legal battle; (2) sell your interest to the majority at a discount; (3) go away with your tail between your legs.  

My business partners and I trust each other, so that's enough.

Ha!  That one made me laugh.

Of course, you might be right that your business partners are good and decent people.  But even those rare birds will have legitimate disagreements. Documenting your expectations can help avoid this.

Also, think about what happens if your reasonable business partner dies and her crazy husband Larry inherits her ownership interest.  A buy-sell agreement with life insurance can address this, but it also shows why you need a strong operating agreement or shareholder agreement.

If I need to liquidate or if I can't work with my partners, I can just sell my shares. 

Maybe you can in theory if there are no restrictions on transferability.  But if the environment is toxic, no one will want to buy your interest.  You need an exit strategy going in.  You need to foresee potential disputes and guard against them.

If my business partners try to screw me over, I'll just call the LLC Police.

Okay, I made that one up.  The point is that no one is going to assist you in a private business dispute other than a lawyer that you hire on your dime.  You can't expect the Attorney General or Secretary of State to get involved unless there is a public interest.  

If you have a clear case of embezzlement, maybe you can get law enforcement interested.  But these situations are usually not clear-cut and law enforcement sees them as civil matters.

My own father/son/mother/brother/sister won't turn against me.

Maybe not your family member, but I've seen all of these unsavory situations in family businesses.  

At least I can't be personally liable for corporate obligations or wrongs that I or the LLC commit.

This is partially true part of the time, but now always.  Clear? Here's the thing, if you properly follow corporate procedures and record keeping, you may avoid contracts that you did not personally guaranty and wrongs that you were not involved in.  The reality is that the owners of most small businesses are involved in all actions and decisions.  Creditors, banks, landlords and others may insist that you personally guaranty company obligations.  So personal liability can be hard to avoid unless you are a larger, more established business.

As always, the above is not legal advice.

By Adam P. Whitney, Esq.

617.338.7000

Having a Company Holiday Party? Have Fun, but Don't Get Sued.

'Party Time' found at https://flic.kr/p/ihruT3 by Nanagyei (https://flickr.com/people/nanagyei) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

Your company holiday party comes with potential legal liability.  While you can never eliminate all potential liability, you can minimize your risk.  Here are some ways to do that:

1.Don't Serve Alcohol.

If you must have alcohol at your party, do yourself a favor and do not serve alcohol yourself.  Either have a professional caterer who is properly trained, licensed and insured (and ideally, who will indemnify you or name you as an additional insured), or go to a bar or restaurant.  Consider providing employees with a limited number of drink tickets.  

2. Remind Employees to Be Safe and Behave Property.

Remind employees beforehand of company expectations and that people consuming alcohol should have a designated driver.  Offer to pay for rides home, no questions asked.  In the era of Uber and Lyft, there should be plenty of rides available in most areas.  Remind and expect the management team to lead by example.

Sexual harassment is also a major concern for office holiday parties.  Gently remind employees of company policies prior to the party.  

3. Set High Expectations for Managers and Supervisors.

Your first lines of defense are the company supervisors.  Recruit them to look out for employees who are drinking too much.

Remind them also that they lead by example.  If Sales Manager Bob is on his sixth triple IPA and telling dirty jokes, some in his sales team will follow his lead.  In Massachusetts, there is strict liability when a supervisor sexually harasses a subordinate.  If you can't trust your managers and supervisors, then you have a big problem.  If you haven’t provided sexual harassment training to managers recently, here is your excuse to do so.

4. Check with Your Insurer.

The end of the year is as good of a time as any to review your insurance coverage with your broker.  If you don't have a good broker who will take your call and answer your questions, find one who will.  Insurance is complicated and gaps in coverage are more common than business owners may think.  Checking your various policies for a holiday party will also serve as a good year-end check.

5. Remind People that it is a Party and they Can Have Fun.

The key here is to make it clear that the party is voluntary.  No one is going to get paid wages, so no one has to attend.  Hold the party when employees are not working.  You do not want any claims of failing to pay wages or overtime.  Don't require any employees to perform any duties, such as checking coats or tending bar, which could be viewed as work requiring pay.  This may also prevent a worker's compensation claim if someone is hurt at the party (check with your insurance broker).

If you have any questions about dealing with liability issues for an open house or company party, call me at 617.338.7000. As always, the above is general information, not legal advice.

New Ruling From Massachusetts Appeals Court Shows the Importance of LLC Operating Agreement Language

'fiduciary' found at https://flic.kr/p/29iajFb by mikecohen1872 (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

How do Limited Liability Company Operating Agreements affect the fiduciary duties owed to co-Members of the LLC?  That issue was decided in the case of Butts v. Freedman, which also involved Boston Equity Advisors LLC (“BEA”) and Outcome Capital, LLC (“Outcome”). 

Underlying Facts:

Mr. Butts and Mr. Freedman co-owned BEA.  They were the founders and held equal ownership.  A third defendant, Mr. Ben-Joseph worked at BEA as an independent contractor. Butts and Fredman began having disagreements with one another, mostly about Ben-Joseph’s compensation.  Freedman and Ben-Joseph decided to leave BEA and join Outcome, a competing enterprise.

At first, there were discussions of merging BEA and Outcome.  Freedman and Ben-Joseph did not inform Butts of their meeting and discussions with Outcome.  After Butts found out that Freedman and Ben-Joseph joined Outcome, he/BEA sued for breach of fiduciary duty against Freedman (and another claim not relevant to this post against both Freedman and Ben-Joseph).  

Why Butts/BEA Lost:

The Appeals Court agreed that Freedman owed Butts and BEA fiduciary duties.  The Appeals Court explained that under Massachusetts law “fiduciaries may plan to compete with the entity to which they owe allegiance, provided that in the course of such arrangements they do not otherwise act in violation of their fiduciary duties.”

The question of whether Freedman “otherwise acted in violation of [his] fiduciary duties” depended on the interpretation of the Operating Agreement.  Specifically, the Operating Agreement of the LLC broadly provided that Members may engage in other business ventures and investment opportunities.  Notably, there was not a non-compete provision in the Operating Agreement or otherwise.  

The Appeals Court ruled that the language of the Operating Agreement limited the fiduciary duty of Freedman such that he had no duty to disclose the Outcome opportunity or to share the Opportunity with Butts or BEA.

Freedman made cogent arguments that the language was just boilerplate and that literal application would allow members to take corporate opportunities away from their LLC. However, the Appeals Court essentially ruled that the freedom to contract overrode those concerns.  Freedman prevailed in his defense.  

Takeaway

The lesson here is that the words of an Operating Agreement matter.  Some people think that they are “standard” and that they are all boilerplate.  But what do you think will happen when your business partner has disagreements and they go to a lawyer?  The lawyer will parse through each sentence of the Operating Agreement to find language that will support your opponent in a lawsuit.  So Operating Agreements don’t matter. Until they do.

If you are are going into an LLC, read the proposed Operating Agreement carefully and strongly consider having a lawyer review it with you.  It’s important to understand your business and your goals because each situation is unique.  I get that it seems like an unnecessary expense when you are starting a business, but you could be dooming yourself for failure if you don’t pay attention to the details.  

If you already have an Operating Agreement and you are having disputes with your co-owners, have a qualified lawyer review the language to see what leverage you have.  Or, maybe you can renegotiate and enter a new Operating Agreement.

Adam P. Whitney

617.338.7000

awhitney@awhitneylaw.com

www.awhitneylaw.com


Fine print: the above is not legal advice, but general information.  I cannot provide legal advice without a written fee agreement and a full review of your legal matter.

No Good at Goodbyes: Why Employment Attorneys are Important to use for Creating Severance Agreements

'Legal Contract & Signature - Warm Tones' found at https://flic.kr/p/JPT7sR by Visual Content (https://flickr.com/people/null) used under Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0/)

GUEST POST BY BRANDON SLOANE

Severance agreements, which are contracts between an employer and an employee that contain certain rules and guidelines for when an employee is terminated, may be regarded as somewhat of an afterthought by employers. An employer might think to himself, “the employee is leaving the company to go his or her own way, so what is there to worry about?” Despite this fact, it is imperative that anyone involved in the hiring process has an employment lawyer review a proposed severance agreement. A poorly drafted severance agreement can have long term legal and economic consequences for a business.

Benefits of an Employment Attorney

1. Protecting an Employer from Liability

One of the primary benefits offered in severance agreements is a liability waiver, which is a clause stating that in exchange for some consideration provided by the employer in termination (usually in the form of monetary compensation), the terminated employee agrees to waive or release any potential claims he or she may have against the company.

An employer may think that using standard liability waiver clause language from legal technology websites would be sufficient for their agreements, but this is not always the case. Each state has its own body of statutory provisions and caselaw concerning what is allowed in waiver agreements. Without the help of a seasoned employment attorney, an employer may inadvertently include (or exclude) certain words or phrases that invalidate the waiver. Such an invalidation would expose the employer to many types of litigation, including wrongful termination, breach of contract, and breach of implied covenant of good faith and fair dealing.

In addition to preventing accidental invalidations of liability waivers, employment attorneys can add in language specifically aimed at preventing costly litigation. A prime example of this issue involves the Massachusetts Wage Act (c. 149, sec. 148 et seq.). Violators of the Wage Act are required to pay treble damages to winning plaintiffs (meaning that employers found guilty of violating the Wage Act automatically owe triple the amount originally owed to the employee, plus attorneys’ fees). If an employee was owed wages earned before termination, he or she could file a Wage Act lawsuit against the employer even after the employment relationship has ended. However, there is Massachusetts caselaw that allows for agreements in which an employee consents to releasing the right to file a Wage Act claim. See Gordon v. Millivision Holdings, LLC, 19 Mass. L. Rptr. 61, 3 (Mass. Supp. 2005). An employment attorney would know the exact right language to include in a severance agreement to ensure that the employee has properly released his or her Wage Act claim against the employer.

2. Guarding Company Confidentiality

Similar to liability waivers, severance agreements can include clauses binding the terminated employee to keep certain information about the company confidential. Employment law attorneys will be aware of the legal requirements for what can and cannot be included in a confidentiality clause in a severance agreement.

3. Restricting Competition

A staple of the severance agreement is the non-compete clause, which restricts the ability of the former employee to work at competitors within a certain geographic area and for a fixed time period. In 2018, Massachusetts enacted sweeping changes to its non-compete law. For smaller businesses that may not have had to make any hires in the past few years, they may be unaware of these changes. An employment law attorney would certainly be up to date on the law, and could ensure any non-compete clause didn’t violate the new legislation.

4. Ensuring an Employer’s Benefit Obligations have been Fulfilled

Most employers offer a set of perks and benefits designed to entice employees to work for them. These can include offering sick/vacation/PTO days, medical benefits, stock options, and retirement/pension plans. Terminating the employment relationship can have legal ramifications relating to the benefits that have accrued to the employee. An employment attorney could review an employer’s benefit plans and determine what termination would mean for these benefits, and design a severance agreement crafted to shield the employer from unnecessary liability.

5. Tailoring Specific Agreements for Problem Employees

Employees are like snowflakes: no two are exactly alike. Because of this, sometimes a severance agreement will require a clause or two that are tailored only to the one employee. This is especially true for problem employees, who employers may be worried about divulging confidential information, soliciting company clients, or even trying to poach current employees away from the company. An employment attorney will be able creating the right severance agreement for a problem employee, and also can help an employer come up with the right strategy to use when terminating the employment relationship to create as few headaches as possible.

In summation, when it comes to creating severance agreements, if you aren’t going to craft them with the help of an employment law attorney, you might be better off not using them at all. There are simply too many potential hazards that can arise from a poorly executed severance agreement to not have the assistance of a lawyer who is an expert in the field.

Brandon Sloane is a third-year student at Boston College Law School. He aspires to become a Massachusetts labor & employment attorney after graduation

Disclaimer: The above is the work product of the author only.  The above is not legal advice.