Employee Exchanged Right-To-Sue For Stocks
January 31, 2005 | Massachusetts Lawyers Weekly
By Lisa K. Bruno
An employee could not sue his employer and its president for unpaid wages where the employee had signed a release of his rights under the state’s Wage Act, a Superior Court judge has ruled.
The employee argued that the duty to pay past wages was absolute and that the Wage Act prohibited the release of wage claims.
But Judge John A. Agostini disagreed, distinguishing releases from waivers and wage deferral agreements, deemed unlawful under the statute.
“[T]here is no proscription in the statute to releasing an acknowledge wage claim, particularly when it is to the benefit of the employee,” he wrote. “In fact, in order to resolve the claim short of a trial a release would be necessary.”
Agostini also found that the three-year limitation contained in the Wage Act was a “statute of repose,” and that the employee’s claim has been filed after the time period had lapsed.
The eight-page decision is Gordon v. Millivision Holdings, LLC, et al., Lawyers Weekly No. 12-003-05.
Flexibility Of Alternatives
Paul S. Weinberg and John E. Garber of Northampton, who represented the individual defendant, said the decision struck an appropriate balance between providing protection to employees and allowing employers flexibility in dealing with valid claims.
“It’s valuable for the idea that, one, people should recognize how dangerous it is to violate the Wage Act, and two, if you can’t meet payroll, there are alternatives available once there has been a violation, to avoid having to shut down.” Weinberg said.
Although an employer may not demand that an employee give up the right under the statute to be paid regularly, Garber remarked, once the employee has a claim for non-payment, the claim may be released for good consideration and in the absence of duress.
“The judge properly recognized that the Wage Act does not, and could not, place an absolute ban on releasing claims,” he said. “Otherwise taking a claim to judgment would be the only permissible course.”
Weinberg noted that “[t]here has to be some recognition of the fact that there is an amount due and some consideration for the release of the claim, but the ruling gives you the room to make these alternative arrangements.”
While the decision does not provide a “recipe” as to what would constitute good consideration, he said, it implicitly acknowledged alternative arrangements, such as the offer of stock options and the taking of notes.
“Presumably, the burden of demonstrating duress in the event of questionable consideration would be fairly low,” Garber said.
A question remained as to whether an employer could offer a partial payment of the wages owed in exchange for a full release when the employee’s alternative is loss of employment, Weinberg commented.
“In the absence of fraud or duress, it seems that the employee can make that decision to release the claim,” he speculated. “But I would still be troubled to advise an employer that it could continually short-change its employees, doing so with the knowledge that it was not violating the Wage Act. That would be cutting it a little close.”
He also suggested that the decision, read together with the Superior Court’s 2003 ruling in Dobin v. CIOview Corporation, allowed for wage deferral agreements, as long as there was good consideration.
Weinberg added that the case also served as a reminder that managers can be liable under the Wage Act, noting that his client, as an executive, faced exposure to a judgment of triple the wages owed, plus attorney fees.
“There can be a wide variety of people who can find themselves personally liable for a violation – and criminally liable as well,” he remarked.
Robert E. Sullivan of Boston, counsel for the plaintiff, was not available for comment prior to deadline. Robert L. Leonard of Springfield represented the corporate defendant.
The plaintiff, David Gordon, was employed as a design engineer by the defendant, Millivision Holding, LLC, a company specializing in the development of technology for use in contraband detection devices. Co-defendant Richard Huguenin was president and an owner of Millivision.
As a fledgling enterprise, reliable funding was difficult to secure and the business was unable to meet payroll for all of its employees. During 1998 and 1999, the plaintiff and other employees, including Huguenin, were not paid a portion of their salary and benefits.
The company’s management explained to the employees the financial problems it faced, but expressed optimism that payment would be forthcoming. Out of concern for the company’s viability, the plaintiff agreed to forgo salary from time to time and continued to work without full pay.
In January 2000, the plaintiff was informed that Millivision was unable to pay him and he left to work for another company. At that time he was owed approximately $30,000 in deferred and unpaid wages and benefits.
He kept his ties to Millivision by doing some consulting work, and in August 2000 the plaintiff rejoined the company, only to be laid off again a year later.
In December 2001, a new investor group formed Millivision, Inc., which acquired the assets of Millivision LLC and was able to secure financing. Due to the success of the new company, the plaintiff was hired and offered regular, full-time employment on March 29, 2002.
The employment agreement provided that the plaintiff would receive a salary increase of $17,000, as well as stock options for 33,000 shares of Millivision. The stock options were intended to compensate former employees of Millivision LLC for the wages owed them.
The employment offer was contingent on the plaintiff agreeing to “release any claims for compensation that it had against Millivision, Inc. and its members, officers, employees or agent.” The plaintiff agreed to this condition and signed the employment agreement on April 19, 2002.
His employment with Millivision, Inc., ended in April 2003, and in September of that year he filed a Wage Act claim.
In response, the defendants moved for summary judgment, asserting that the released precluded the claim and that the action was untimely.
Agostini initially observed that broad exculpatory clauses are routinely enforced. While doubts about the interpretation of the release must be resolved in the plaintiff’s favor, he remarked, unambiguous and comprehensive releases are enforced as drafted, save for fraud or duress.
The judge state the release in question was an unambiguous one and further noted that the plaintiff did not allege fraud or duress in signing the agreement. There was also no dispute that the plaintiff was aware of the release language and understood that it was a precondition to his employment, he said.
Agostini rejected the plaintiff’s reliance on Dobin, which held that a wage deferral agreement was void as contrary to the specific language of the Wage Act.
“This court agrees… that such a waiver is unlawful; however, a waiver is very different from a release,” he explained. “The law prohibits a waiver of the employee’s rights under the Wage Act; it does not prohibit releasing those rights after the claim has been established.”
Agostini remarked that the agreement was a negotiated release of a wage claim for both present and future compensation. The plaintiff recognized that the benefits under the agreement could be greater than his wage claim, he said, and also recognized that they could be less, depending on the length of his employment and the value of his stock options.
“He voluntarily decided to exchange his claim for valid and thoughtful reasons,” Agostini concluded. “His attempt to void the release is without merit.”
Nature Of Limitation
The defendant also argued that the three-year period of limitations contained in the act was in the nature of a statute of repose and that the plaintiff filed his action after the statute lapsed. The plaintiff countered that the statutory language amounted to a statute of limitations and, as such, could be tolled under a theory of equitable estoppel or modified by discovery.
“Although there seem to be no case directly on point, I am persuaded that the language represents a statute of repose,” Agostini stated.
The case was not a tort or negligence action in which the breach might be difficult to discover, he noted, but a commercial dispute, which were seldom “inherently unknowable.”
“Consequently, it would make little sense to have this expiration period modified by discovery or principles of estoppel,” Agostini wrote. “When an employee is not paid, he or she knows it immediately and has three years from that date to seek relief.”
Given that the limitation was a statute of repose, he concluded, the plaintiff did not timely file his claim.