Out-of-state employee wins Wage Act lawsuit

A technology company could not deny a state Wage Act claim brought by its sales director who resided in Florida, a Massachusetts Superior Court judge has ruled.

The employer argued that the Wage Act does not apply outside of Massachusetts and therefore does not cover out-of-state residents.

But Judge Peter M. Lauriat disagreed, ruling that the law could indeed protect an out-of-state employee of a Massachusetts company as long as the worker had sufficient contacts with the commonwealth.

“Here, although [the employee] was not a Massachusetts resident, his business address was in Massachusetts and his contact information was a Massachusetts telephone number and Massachusetts fax number,” Lauriat wrote, adding that many of the employee’s customers were in Massachusetts, that he visited the state regularly, and that paperwork regarding his sales was sent from and returned to the commonwealth.

“The court concludes, therefore, that [the employee] had more than sufficient contacts with Massachusetts to afford him the protection of the Wage Act,” said the judge, granting summary judgment to the plaintiff on the issue of liability.

The 16-page decision is Dow v. Casale, et al.

Call for diligence

Woburn, Mass., lawyers Elise Busny and Margaret M. Pinkham represented the employee. Busny said the decision is a warning to employers not to assume that their workers in other states do not have Wage Act protection.

“As the court pointed out, with today’s technology, workers can perform their work anywhere there is an Internet connection,” Busny said. “Therefore, employers need to be careful about paying wages.”

Busny also said that a ruling in favor of the employer could have encouraged Massachusetts businesses to hire more nonresident workers and have them work remotely in order to push their workforce out of state.

“The Wage Act itself is very onerous, [with] mandatory treble damages and attorney fees,” she said. “So they might have chosen not to be burdened by it to the extent that they could.”

W. Paul Needham of Needham & Johnson in Boston, who represented the employer’s chief executive officer, one of the defendants in the case, said Dow could have unintended negative consequences.

For example, officers and directors involved in a decision that allegedly violates the Wage Act face individual liability. Expanding the class of claimants could have a chilling effect on qualified candidates being willing to take managerial positions in Massachusetts, said Needham, whose client has not yet determined whether he will appeal.

“I would think that if we had a client who told us, ‘Gee, there’s a startup company that’s offered me a position,’ we’d have to advise him to be careful about taking it. Because in this economy, if there’s a slowdown and you have to defer salary and commissions, you’re on the hook individually. And that’s a lot of exposure to have, which will, in all likelihood, not be covered by insurance.”

Similarly, a lot of companies rely on deferring salaries and commissions to help them through a rough patch, Needham said.

“But now, if a client comes to you and says their cash flow is off and they need to consider [deferring compensation], you’d have to tell them to terminate all employees and close their doors instead,” he said. “[The Wage Act] just carries really draconian remedies, especially when we’re talking about individual liability. It’s not just, ‘Honey, the company went bankrupt.’ They’ll move for a real-estate attachment on your house.”

Jennifer B. Furey, an employment lawyer at Cooley, Manion, Jones in Boston who was not involved in this case, agreed that the decision raises concerns.

“As more companies are unable to make payroll or issue bonuses, employees turn to the Wage Act to try to hold managers responsible for those wages, and associated penalties, even when those managers did not make the ultimate decision on the wages,” said Furey, who represented the employer in the Superior Court’s 2009 Hadfield v. A.W. Chesterton Co. decision, the only prior ruling addressing extraterritorial application of the state wage law.

“The Wage Act was intended to strictly limit those individuals who could be individually liable to the president or treasurer, or functional equivalent if no such title existed,” she said.

David Conforto of Boston, who represented the employee in Hadfield — in which the court found that the Wage Act did not protect a resident of Australia who worked in Africa for a Massachusetts employer — said neither the Hadfield court nor the court in Dow should have been focusing on the employee’s contacts in the first place.

“There’s nothing in the Wage Act that says it only applies to residents or individuals with minimum contacts with the state,” he said. “But the judges in both cases analyzed the presumption against extraterritoriality in terms of who it should protect versus who it should regulate. I think it’s the latter that’s important, not the former.”

Conforto added that Dow illustrates employers fighting tooth and nail to avoid having out-of-state workers’ wage claims handled in Massachusetts under state law.

Before 2008, when mandatory treble damages were added to the Wage Act, employers were happy to have Massachusetts law apply to all claims because it was administratively easier only to hire local counsel, he said.

“With mandatory treble damages, the calculus has changed,” he said. “Even though administratively it might be more of a burden to hire separate counsel from different states, that’s a tradeoff employers seem willing to make these days.”

Withheld commissions

Plaintiff Russell Dow was the director of sales for Starbak Inc., a small Massachusetts company that produced videoconferencing technology. He held the position from March 2007 to February 2010.

Dow, the company’s only salesperson, remained a Florida resident and worked from home throughout his tenure at Starbak. He had customers in more than 30 states, including Massachusetts, and traveled to the commonwealth about a dozen times in 2008 and eight to 10 times in 2009.

The employee did not maintain a dedicated cubicle at Starbak’s office, but he always used the same cubicle when he was there.

His business cards listed as his contact information the company’s Newton, Mass., address and its phone and fax numbers.

Additionally, all paperwork related to Dow’s sales was generated in Massachusetts, all purchase orders from his customers were sent to Massachusetts, all invoices were sent from Massachusetts and all payments sent to Massachusetts.

Dow’s compensation consisted of an annual base salary plus a 10-percent commission on his sales and a 2.07-percent “accelerator” once he reached his quarterly quota. He received half his commission when he booked a sale and the other half when the customer paid the invoice.

On Oct. 31, 2008, the company allegedly failed to pay Dow commissions he earned during the third quarter of 2008. Unpaid commissions also apparently accrued throughout 2009. According to Dow, he ultimately racked up approximately $106,000 in unpaid commissions.

The company shut down on Feb. 5, 2010. At that point, Dow claimed, he was owed more than $138,000 in unpaid commissions, expense reimbursements and accrued vacation.

On April 1, 2010, Dow sued defendant Gregory Casale, the company’s chief executive officer, in Superior Court, alleging violations of the Wage Act and seeking treble damages and attorneys’ fees. He also sued two other Starbak executives, James Strahle and Lawrence Baker.

All parties moved for summary judgment.

Sufficient contacts

Defendant Casale relied primarily on Hadfield to support his argument that the Wage Act does not apply outside of Massachusetts and therefore the plaintiff, as a Florida resident who worked outside the commonwealth, had insufficient contacts to enjoy its protections.

But Lauriat said the ruling provided little guidance.

“[The Hadfield court] concluded that there was ‘no legislative intent to rebut the presumption that the Wage Act does not apply outside of Massachusetts,’” the judge said. “However, because the plaintiff/employee in Hadfield was a resident of Australia working in sub-Saharan Africa, the court did not have occasion to address whether the Wage Act would apply if the employee were a resident of and/or worked in another state, rather than another country.”

With no appellate guidance on the issue either, Lauriat said he was left to “fall back” on a personal jurisdiction analysis.

In doing so, the judge found that Dow — who maintained a Massachusetts business address and contact information, traveled to the commonwealth nearly two dozen times in two years, had almost daily contact with Casale in Massachusetts and processed his paperwork through the Massachusetts office — had sufficient contacts with the state to afford him Wage Act protection.

“Certainly nothing in the statute itself limits its application in these circumstances, and the court is of the view that [the Wage Act] was designed to regulate the actions of Massachusetts employers, regardless of where their employees work,” the judge concluded, granting summary judgment to Dow on the issue of liability.

The judge went on to reject an argument by co-defendant Strahle, the company’s chief operating officer, that because he was technically an independent consultant, he could not be personally liable under the Wage Act.

“[A] reasonable jury could find that, in a company that had but seven or eight employees, Strahle participated in and formulated its policies sufficient to bring him within the ambit of the statute,” Lauriat said.