United States: WARN Act Damages Not Subject To Massachusetts Wage Act

Last Updated: January 14 2019
Article by Peter M. Rosenblum

Employee Creditors May Not Assert Claim for Such Damages Derivatively Against Corporate Officers

Corporate insolvencies and near insolvencies regularly generate significant claims and litigation initiated by creditors seeking payment of unsatisfied indebtedness and judgments. On December 28, 2018, the Massachusetts Supreme Judicial Court (SJC) rendered a significant decision addressing claims of a class of employee creditors of a Delaware corporation. The employees sought to recover damages from officers of the corporation under the Massachusetts Wage Act (the Wage Act) for breach of the Federal Worker Adjustment and Retraining Notification Act (the WARN Act). The employees also asserted a derivative claim on behalf of the corporation alleging that the officers had breached their fiduciary duties to the corporation by allowing the corporation to breach the WARN Act. The SJC affirmed the dismissal of the employees’ complaint in all respects.

The Wage Act establishes a private right of action and imposes personal liability on certain corporate officers who improperly fail to pay earned wages in accordance with the Act. The concept of “earned wages” is fundamental to analysis under the Wage Act. The WARN Act requires sixty days’ advance notice of a plant closing or mass layoff by business enterprises that employ at least one hundred full-time employees or are otherwise covered enterprises.

The SJC’s decision in Calixto v. Coughlin arose from a Delaware corporation’s failure to comply with the WARN Act. The corporation had abruptly ceased operations and, without giving the required WARN Act advance notice, had terminated all of its employees as a result of financial difficulties. Employees of the corporation brought a class action lawsuit against the corporation in federal court under the WARN Act and obtained a $2 million default judgment. Being unable to collect the judgment against the insolvent corporation, they brought a class action against the officers of the corporation under the Wage Act for the amount of the default judgment and further sought to assert a derivative claim as creditors of the corporation. A Superior Court judge granted a motion to dismiss the employees’ complaints for failure to state a claim, and an appeal to the SJC followed.

The employees’ claim in the case raised a key question: are WARN Act damages “earned wages” for purposes of the Wage Act? The SJC rejected the employees’ contention that WARN Act damages were earned wages that would trigger Wage Act penalties. The SJC applied the “plain and ordinary meaning” of the term “earned wages”. The SJC held that to be “earned wages” under the Wage Act, unpaid wages must be owed for work actually performed and a payment for the work must actually be due at the time of suit. “Wages” for work that would have been performed if a WARN Act notice had been timely given and for which payment was not presently due did not qualify as “earned wages” for purposes of the Wage Act.

The SJC similarly rejected the employees’ claims that the officers of the corporation were liable to the corporation for breach of their fiduciary duties in causing the corporation to incur WARN Act liability1. As the SJC noted, under Delaware law, creditors of an insolvent corporation have standing to maintain derivative claims2 against directors3 for breaches of fiduciary duties. However, under Delaware law, these creditors do not have a right to bring a direct claim for breach of fiduciary duty against directors. The SJC found that on the facts of this case, the fiduciary duty claim “simply repackages” the employees’ argument that the officers breached duties owed to the employees under the WARN Act. The SJC noted that “[b]y its express terms, the WARN Act is the exclusive remedy for WARN Act violations.”

The decision in this case is an important one for officers of corporations that are insolvent or nearing insolvency and that have operations in Massachusetts. As determined by the SJC, the Wage Act’s substantial penalties will not apply to the results of a failure to provide timely notices under the WARN Act and the corporate officers will not be liable under the Wage Act for such penalties. Moreover, in a Massachusetts action relating to a Delaware corporation based on facts similar to those in this case, a claim against officers of a corporation with respect to WARN Act damages brought by employee creditors, though, in the SJC’s words, “styled” as a derivative claim, cannot be used to circumvent limitations of the Wage Act in order to create substantial liabilities for corporate officers. Some care must be exercised in applying this decision in other contexts. The decision does not provide guidance as to whether generally a Massachusetts court would follow the Delaware approach to rights of creditors to bring derivative claims in a case involving a Massachusetts corporation nor does it suggest a result in situations where claims asserted by creditors are more clearly derivative in substance and remedy sought.


1 The SJC stated that the Massachusetts corporate statute required that Delaware substantive law be applied to the derivative claims and their disposition.

2 A derivative claim is a claim brought by stockholders of a corporation to assert rights of the corporation on its behalf.

3 The SJC did not distinguish the corporation’s officers from directors for this purpose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions