November 19, 2020
By: Sharon C. Lincoln, Anita S. Lichtblau, and Stéphanie Smith
We are nearing the first anniversary of a first-of-its-kind ruling by the Massachusetts Supreme Judicial Court. The SJC’s ruling in Lynch v. Crawford in December 2019 has particular relevance right now as many nonprofit organizations are facing budget shortfalls due to the COVID-19 pandemic and its economic ramifications.
In the case, the SJC ruled that the federal Volunteer Protection Act ("VPA"), which applies in Massachusetts, provides “qualified immunity from suit” for officers in nonprofit organizations who receive no compensation. This means that both the VPA and the Massachusetts charitable immunity statute (M.G.L. ch. 231, § 85W) protect volunteer officers and directors from being sued (not just from being found liable after the case is tried) so long as they don’t fall under an exception from the statute (e.g., the VPA excludes from protection volunteer officers who engaged in criminal activity).
The SJC also ruled that this qualified immunity applies not only in cases involving common law torts but also to violations of statute.
However, the SJC’s ruling provides a sobering reminder that despite these broad protections, volunteer officers and directors may still be found personally liable under the Massachusetts Wage Payment Act ("Wage Act") for nonpayment of wages – with its attendant automatic treble damages provision – if the facts indicate that the qualified immunity under the VPA and § 85W does not apply. In Lynch v. Crawford, the SJC found that there was a material question of fact as to whether the defendant Board chair, also serving as president, acted intentionally to harm employees by causing the nonprofit to refrain from timely paying them their wages. Consequently, the defendant Board chair’s attempt to dismiss the lawsuit against him before trial failed.
The practical import of SJC’s ruling is that while volunteering to serve on the board of a nonprofit organization can be a rewarding way for someone to support worthy causes and essential social services, and carries with it substantial statutory protection from being sued, in matters involving the payment of wages to the nonprofit’s employees, those who serve in governance roles must prioritize meeting payroll or face personal liability for not doing so, particularly if the nonprofit is in a troubled financial situation.
In Lynch v. Crawford, the former employees of a defunct non-profit organization, Roxbury Comprehensive Community Health Center, Inc. (“RoxComp”), who were not paid their final wages when the entity closed, sued various individuals for violating the Wage Act, including Keith Crawford, the chair of RoxComp’s board of directors. The Wage Act treats the “president and treasurer of a corporation and any officers or agents having the management of such corporation,” as the “employer” – along with the corporation – for Wage Act purposes. On this basis, the Wage Act imposes personal, individual liability for unpaid wages on the President, Treasurer and other responsible officers and agents.
In February 2013, RoxComp was in a financially precarious position. Its interim CEO, Pratt Wiley, informed the board of directors (of which Crawford was the chair) that RoxComp would not make payroll until it received payment from the federal agency overseeing RoxComp’s grant funding. Wiley recommended laying off a number of employees and placing the remaining ones on furlough to reduce payroll. Despite this, Crawford “held multiple meetings with RoxComp’s staff where he personally urged them to continue working and assured them that they would be paid.”
Four weeks after Wiley first informed the board of his concerns, RoxComp formally ceased operating and its employees were not paid their final wages on their last day of employment (as the Wage Act requires).
Five days after the employees were laid off, Crawford directed RoxComp to pay two vendors instead of paying the wages that were still owed to the former employees. Importantly, despite his denials to the contrary, three corporate documents filed with the Massachusetts Secretary of State, which Crawford had signed under penalty of perjury, listed Crawford as RoxComp’s “President.”
Crawford moved for summary judgment, arguing that he acted solely as the chair of RoxComp’s board and not as its president, and that, even if he acted as its president, he was immune from suit under the VPA and § 85W. The trial court judge denied his motion, and the lower appellate court held that Crawford was not entitled to appeal the denial at this stage of the litigation. Crawford sought further appellate review by the SJC.
The SJC disagreed with the lower appellate court and held that Crawford was in fact entitled to appellate review now (as opposed to after trial), finding that Congress intended the VPA to provide volunteer officers in nonprofit organizations with qualified immunity from being sued, as opposed to immunity from liability. The Court found that the right to be immune from suit would be hollow if a volunteer could nevertheless be dragged into court and forced to spend time and resources establishing his or her entitlement to immunity. The SJC also found that both the VPA and § 85W, which refer to “harm,” and “any civil damages” respectively, applied not only to torts, as the plaintiffs claimed, but also to statutory violations, such as Wage Act violations. (The SJC further found that under the VPA, the state charitable immunity statute could only expand, not diminish, the immunity protection provided to nonprofit volunteers under the federal law).
However, and importantly, as to the merits of Crawford’s motion for summary judgment, the Court agreed with the lower court judge and allowed the case against Crawford to continue. Viewing the facts of the case in the light most favorable to plaintiffs, as it must do in the summary judgment context, the SJC considered whether there was a “genuine issue of material fact as to Crawford’s entitlement to the protection of either statute.” With certain exceptions, the VPA provides that:
“no volunteer of a nonprofit organization or governmental entity shall be liable for harm caused by an act or omission of the volunteer on behalf of the organization or entity if … the harm was not caused by willful or criminal conduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the individual harmed by the volunteer.” 42 U.S.C. § 14503(a).
As for § 85W, a volunteer who serves as an officer, director or trustee of a nonprofit organization will not be deemed liable for any acts or omissions in the performance of their duties to the organization, unless the acts or omissions were “intentionally designed to harm” or “grossly negligent acts or omissions which result in harm to the person.”
In this case, the SJC concluded that there was a material issue of fact as to whether Crawford violated the Wage Act. The court noted that because a Wage Act violation constitutes criminal misconduct, any such violation would exclude Crawford from immunity under the VPA. In addition, the SJC found that Crawford’s receiving advance notice regarding the likelihood that RoxComp might not make payroll, making promises to employees that they would be paid when there was the risk that the federal funding might not be provided, and recommending the payment of vendors while employees went unpaid, raised a material issue of fact as to whether Crawford, as RoxComp’s President, acted with an intentional design to harm employees by failing to pay them wages due and was therefore excluded from the immunity protections of § 85W as well. Accordingly, Crawford’s motion for summary judgment was denied.
Lynch v. Crawford provides a cautionary tale for volunteers serving on boards of nonprofits to understand the potential legal ramifications before agreeing to take on a particular role within the organization. It is also fair warning that every nonprofit corporation must have a president and treasurer, that whomever has roles most similar to those positions will be deemed the hold those positions regardless of the title normally used (such as chairman), and that information as to officers and directors provided in the annual report filed with the Secretary of the Commonwealth and other government agencies should be accurate and may be used by third parties in unexpected ways.
While the SJC’s rulings regarding immunity from suit under the VPA and § 85W are encouraging, directors and officers of nonprofits are not automatically immune from liability. The SJC’s ruling is a reminder that this immunity is qualified and wage claims are particularly problematic, given the potential for treble damages and personal liability. In addition, such claims are typically not covered under most directors & officers or employment practices liability insurance policies. Therefore, board members and other volunteers who make decisions over a nonprofit’s payroll practices would be well advised to do so consistently with the Wage Act.
Should you need assistance or have any questions concerning nonprofit governance matters or the Wage Act, contact Sharon C. Lincoln at email@example.com, Anita S. Lichtblau at firstname.lastname@example.org, Stéphanie Smith at email@example.com, or your Casner & Edwards attorney.