Startup Companies And Unpaid Wages

Massachusetts is a good place to start a business, as it is home to many highly-educated and entrepreneurial people who are able to team up here with similar folks here to start successful businesses.  While many of these businesses succeed, other fail. However, employee wages are not contingent on business success and two important principles back that up.

  1. An employee cannot waive his or her entitlement to wages. Section 148 of the Wage Act prevents an employee from making a deal with a struggling employer to defer or waive payment of wages. This is a so-called “special contract,” and it is not enforceable in a subsequent lawsuit for unpaid wages.  These agreements sometimes happen in startup companies struggling with cash flow problems. However, companies prioritizes other expenses over wages at their peril.  The agreement with the employee to defer or waive wages will not be enforceable, and if that employee decides to sue before being make whole, they will triple the value of their claim (due to mandatory treble damages after the filing of a wage complaint) and the employer will be liable for that employees attorneys’ fees.
  2. Section 148 of the Wage Act also states that, “the president and treasurer of a corporation and any officers or agents having the management of such corporation” shall be personally liable for unpaid wages.  This means that the officers of a startup company cannot walk away from a failing startup without making sure all employees are paid in full.  When this happens–and we see it a lot–the former officers often make strong lawsuit targets, as they often are re-employed or, at the very least, have good earning potential going forward and the ability to pay a a large judgment.

The lessons: Startup companies should learn the law of wages and make sure that they pay employees in full and on time.  Employees with unpaid wage claims from a failed or failing startup should reach out to our office for a free wage consultation to learn their options.