In Stanton v. Lighthouse Financial Services, Inc., the co-founder and president of a start-up company sued the company and its CEO for nonpayment of wages, arguing that a contract for deferral of wages violated the Massachusetts payment of wages statute. The District Court held that because the plaintiff was an employee, his salary constituted wages, and the deferral provision was void as a matter of law.
John Stanton and Thomas Drunsic started Lighthouse Financial together, and on behalf of the corporation, they signed each other’s compensation contracts. These one-year contracts set their salaries but allowed the company to defer payment. Neither Stanton nor Drunsic received a salary that year. After their contracts expired, Stanton resigned and sued the corporation for nonpayment of wages under Massachusetts General Laws ch. 149, § 148 (the Wage Act).
Each side moved for summary judgment, arguing that the case turned on pure questions of law: whether Stanton was eligible for protection under the Wage Act, which requires employers to pay weekly or bi-weekly wages to employees within a proscribed period of time, and if so, whether the deferred provision of the construct was valid. Drunsic also moved to amend his answer to include a set-off claim because Stanton owed him wages under his own employment contract. The Court determined that the viability of Stanton’s claim turned on whether he was an employee, and whether the deferred salary constituted wages under the statute. On this issue, the Court concluded that Stanton was an employee because there is no basis to find that co-venturers in a start-up are not employed or to limit the statute’s application to lower-level employees. The Court also looked to the statute’s plain language, which permits an individual to be liable as an employer and protected as an employee in different contexts. The Court found that Stanton’s deferred salary constituted wages because the statute uses the terms “salary” and “wages” interchangeably, and because it would be unreasonable to argue that a base salary is not a wage.
Moreover, because the Wage Act contains a specific provision that invalidates contractual waivers of statutory rights, the Court held that the parties’ agreement to defer compensation was void as a matter of law. The District Court denied Drunsic’s motion to amend his answer to add a claim for set-off against Stanton because the statute of limitations had run on Drunsic’s claim.
This case demonstrates that even high-level executives may bring claims under the Wage Act, and businesses may not rely on salary deferral clauses to avoid liability. Interestingly, Stanton would also have been liable if the statute of limitations had not run on Drunsic’s claim because the two had signed each other’s contracts as officers of the corporation. It is possible, then, for corporate officers to be simultaneously protected by the Wage Act as employees and liable under it as employers.