The Massachusetts Wage Act requires that terminated employees be paid the full amount of wages owed to them on the date they are discharged. This includes regular wages, at the then current rate, plus earned commissions and payment for unused vacation. The penalties for failure to make timely payment to employees under the Wage Act include triple the amount of the wages due, plus attorney’s fees and court costs. Historically, triple damages were not assessed as long as the employer paid the terminated employee in full before he or she filed a complaint with the court to recover the unpaid wages.

On April 4, 2022, the Massachusetts Supreme Judicial Court overturned prior cases and ruled in Reuter v. City of Methuen that employers are strictly liable for the payment of triple damages if they are late in paying amounts due under the Wage Act, without regard to whether the employee has commenced a lawsuit.

PLDO Partner William F. Miller’s latest advisory, Reuter v. City of Methuen: Bad News for Massachusetts Employers, discusses in more detail the consequences for businesses if there is any delay in payment of employee compensation beyond the period permitted by the statute. If you have further questions on the Massachusetts Wage Act or other business matters, please contact Attorney Miller at 508-420-7159 or email wmiller@pldolaw.com.

[back to top]


IMPORTANT CONSIDERATIONS WHEN DRAFTING WATERFALL PROVISIONS IN OPERATING AGREEMENTS

When starting a business, there are many challenges and important issues that need to be addressed, including the allocation of profits and losses and how investors’ interests will be protected. The distribution of assets and/or funding is generally addressed in the operating agreement if the entity is a limited liability company, or the shareholder agreement if the entity is a corporation. Waterfall provisions relates to how and when the distribution will occur and dictates each party’s rights under the contract and who has a priority in the distribution.

When drafting waterfall provisions, it is important that all parties understand and agree upon the structure and what rights are assigned to each shareholder. Questions that need to be addressed include:

• What type of distribution will be disbursed (i.e., cash flow, capital events, tax, liquidation, in-kind)?
  
• Do owners share in all distributions equally or on a pro-rata basis?
  
• Will there be priority rights?
• Will there be an accrued preferred return?
• What is the timing for distributions?
• Will distributions occur in specific time periods (i.e. quarterly or annually)?
• Will specific owners or managers control the amount of distributions?

These are all very important decisions that should be clearly defined in the waterfall provisions of an operating agreement. For more information on this process, read PLDO Managing Principal Gary R. Pannone’s advisory, Important Considerations When Drafting Waterfall Provisions in Operating Agreements. To contact Attorney Pannone, please call 401-824-5100 or email gpannone@pldolaw.com.

[back to top]

In an asset sale, the buyer buys a business’ assets in exchange for the purchase price. Then the buyer gets to operate that business, simple, right? In an asset transaction, the transfer of the “business” is often not as simple as signing a document transferring title to the assets in exchange for the purchase price. Rather, a selling business may have both continuing and outstanding obligations that do not cease, as well as trailing payments for products and services. In other words, a business usually has outstanding accounts receivables and payables. Further, payment of payroll and benefits may not line up with the closing date.

While this is not as simple as buyers and sellers might like, it is also foreseeable for lawyers to address in the purchase agreement as “net working capital.” Net working capital represents the difference between a company’s current debts and assets, and reflects the business’ operational liquidity. In an asset transaction, net working capital is a number agreed upon by the buyer and seller over and above the purchase price. As noted, it reflects the operational practicalities of the business itself rather than the value of the assets. Colloquially, one can think of it as keeping some cash in the cash register to actually operate the business on day one. Like any other material business term, the amount of the net working capital, called the “target working capital,” should be negotiated by the parties prior and addressed in the purchase agreement. At closing, and sometimes for a period of time trailing closing, the parties will look at the net working capital of the selling business. If the actual net working capital is less than the agreed upon target working capital, then the purchase price will be increased to compensate. Alternatively, if the actual net working capital is more than the target, the purchase price is similarly reduced.

The appropriate amount of the target depends on several factors, including the type of business and size of business. Indeed, determining an appropriate target should necessarily include input from the seller and current business owner on how the business operates. In addition, when to determine the true-up for the target, for example, at the closing or some other period afterward (thirty or sixty days), also depends on the details of the particular business.

If you would like further information on asset sales or other business matters, please contact Attorney Joshua J. Butera at 401-824-5100 or email jbutera@pldolaw.com.

[back to top]

STAY INFORMED – PLDO COVID-19 RESOURCE LIBRARY

PLDO’s team of attorneys continue to add updates and advisories regarding the pandemic and its impact on families, businesses and organizations. To access our COVID-19 Resource Library, click here.

[back to top]