Thought Leadership
BEWARE: In Bankruptcy, "Equity Compensation" Treated As Equity, Not Compensation
Prepared by  Brian J. MacDonough

In a January 25, 2018 decision,  In re: Lehman Brothers, Inc. , the Second Circuit of the United States Court of Appeals upheld a lower court decision that restricted stock unit (RSUs) claims filed by former Lehman Brothers employees were securities claims, not creditor claims - putting the compensation claims behind the claims of creditors.  The Second Circuit accepted the lower court analysis that the employees "had ... a choice" regarding compensation terms, which in our experience is often not true.  In reliance on the notion of choice, the Second Circuit agreed that, "Because [the employees] assumed the risk and reward expectations of shareholder when they agreed to receive compensation in the form of RSUs, [their claims] must be subordinated."   

MCAD Issues Guidance on the Pregnant Worker Fairness Act
Prepared by  Nancy S. Shilepsky and  David I. Brody

The Pregnant Workers Fairness Act becomes effective on April 1, 2018 and will be enforced by the Massachusetts Commission Against Discrimination.  In anticipation, the Commission has issued a short Guidance that is available here, on  As highlighted in the Guidance, the Act expressly prohibits employment discrimination on the basis of pregnancy and pregnancy-related conditions, such lactation or the need to express breast milk.  Generally, employers may not treat employees - or job applicants - less favorably than other employees are treated based on pregnancy or pregnancy-related conditions. 

The Act provides pregnant women and new mothers with a right to reasonable accommodations from their employers for pregnancy and pregnancy-related conditions whether or not they have a "handicap" as defined by law.  Employers cannot require medical documentation to support requests for accommodations regarding: (i) more frequent restroom, food or water breaks; (ii) seating; (iii) limits on lifting no more than 20 pounds; and (iv) private, non-bathroom space for expressing breast milk. An employer, may, however, request medical documentation for other requested accommodations.

The Act itself is available here  

Relief for Board Members and Investors in Non-Payment of Wages Cases

The Massachusetts Wage Act, M.G. L. c. 149, ยง 148, imposes on employers treble damages and attorney's fees for the failure to timely and fully pay wages.  The statute also provides that, "[t]he president and treasurer of a corporation and any officers or agents having the management of such corporation shall be deemed to be the employers of the employees of the corporation" and, thus, those persons may be individually liable for such non-payment of wages. 

In the recent case of Segal v. Genitrix, 478 Mass. 551 (2017), the Massachusetts Supreme Judicial Court considered what it means to be "an officer or agent having the management" of a corporation.

To the relief of many, the Court held that board members, acting only in their capacity as board members, and investors, engaged in ordinary investment activity, are not agents or officers having the management of a corporation and, therefore, are not individually liable.

For board members or investors to become individually liable under the Wage Act, they must have "assumed and accepted as individuals significant management responsibilities over the corporation similar to those performed by a corporate president or treasurer, particularly in regard to the control of finances or payment of wages."  (Emphasis supplied.)  The Court provided the following additional guidance:

Regarding Individual Directors:

"Neither the board of directors nor an individual, as such, an agent of the corporation. An individual director may become an agent if he or she is also appointed as an agent, but no agency relationship arises from his or her position as a director, in and of itself. For example, an individual director could be appointed as an agent if the board exercised its express or implied power to confer authority upon the individual to act for the corporation, or if the individual was appointed as an executive officer. Additionally... the collective powers of the board to control management or set policy are separate and distinct form the powers of individual board members."

Regarding Individual Investors:

"An outside investor, acting in his or her capacity as an investor, is not an agent of the company. An outside investor may become an agent, if the board, exercising its express or implied powers, confers authority upon the investor to act for the corporation, or if the investor is appointed as an executive officer. The exercise of ordinary financial control over an investment does not give an investor the management of the company in which he or she invests. An investor may, for example, impose conditions on the use of the money invested, such as targeting it for particular expenditures, without having the management of the company."

The bottom line is that board members and investors, operating solely in those capacities, should be relieved to know that they are most likely not individually liable for the pay practices of the companies with which they associate. 

Federal Tax Deductibility: Three Changes That Impact Employees

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, making numerous and significant changes to the Internal Revenue Code, many of which impact executive compensation and employee benefits.  Two changes that impact deductibility are of particular concern.

First, the Act broadens the reach of IRC Section 162(m), the section of the Code that that caps at $1 million per year the deductibility of compensation paid by publicly held companies to certain employees, by broadening the scope both of the employees and of the employers to whom the cap applies.  Simultaneously,
the Act eliminates the commonly relied upon performance-based exceptions to the cap, encouraging employers and employees to consider whether and how to amend compensation practices and vehicles for highly compensated employees.  (In a related change, tax-exempt organizations will now pay an excise tax on compensation in excess of $1 million per year paid to their covered employees, as well as an excise tax on certain parachute payments.)  

Second, the Act eliminates employer deductibility of a number of employee benefits, such as certain transportation benefits, entertainment expenses and club memberships, as well as the deduction for employer-provided meals as of 2026. 

Third, on the heels of the #MeToo movement, a new IRC Section 162(q) provides that an employer may not deduct any settlement or other payment "related to sexual harassment or sexual abuse  if such settlement or payment is subject to a nondisclosure agreement ."  Furthermore, attorney's fees related to such settlement or payment are also not deductible - apparently by either party.  Unless and until revised or clarified, this limitation on deductibility of attorney's fees may serve as an inducement to both parties to consider apportionment in settlement agreements of the amounts paid pursuant to specific claims, separating, for example, the amounts paid on account of pay disparity from those paid on account of sexual harassment. 

Recent News and Events
Sherin and Lodgen attorneys, including  Nancy S. Shilepsky and  David I. Brody , participated in Walk to the Hill for Civil Legal Aid on January 25, 2018. 

Brian J. MacDonough  attended the Boston Bar Association's event, " Meet MCAD's New Chair and Hear Her Plans for the Future," on January 23, 2018.  

Nancy S. Shilepsky  attended the Jewish Alliance for Law and Social Action Annual Meeting, "Living Our Lives", on January 21, 2018.
About Sherin and Lodgen LLP 

Sherin and Lodgen is a mid-sized Boston law firm specializing in real estate, litigation, business law and employment. With over 40 attorneys, the firm handles complex matters, while providing responsive, senior-level attention to every matter.  Known for its effective, efficient and focused representation, Sherin and Lodgen delivers sophisticated analysis and a high touch service by developing an in-depth understanding of clients' business goals, issues, concerns and emerging industry trends. Visit our website to learn more.