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Wednesday, September 3, 2014

Risk and reward of start-ups is seen in NH labor rulings

J. Daniel Marr

People with an entrepreneurial spirit may join with others of like mind to invest time and perhaps money into a start-up company.

If the start-up company becomes successful and produces a good or service that customers ultimately purchase, the company can be successful. Those who invested time and money may reap a return on their investment, including a possible ownership interest in the company and a reasonable salary. ...

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People with an entrepreneurial spirit may join with others of like mind to invest time and perhaps money into a start-up company.

If the start-up company becomes successful and produces a good or service that customers ultimately purchase, the company can be successful. Those who invested time and money may reap a return on their investment, including a possible ownership interest in the company and a reasonable salary.

However, when the company does not succeed, disputes may arise as to whether those individuals who invested time in the company were, in fact, employees entitled to payment of their salary under New Hampshire’s Wage Statute RSA 275. Such was the issue in the Michael Moore v. Ameritext Corporation before the New Hampshire Department of Labor.

Mr. Moore made a claim against Ameritext Corp. for $396,835.61 in wages and liquidated damages based upon an employment agreement that he argued was to give him a salary of $250,000 a year, as well as ownership interest in the company.

If, under the New Hampshire wage statute RSA 275, Ameritext was found to have willfully and without good cause failed to pay the Moore’s wages, Ameritext could had been ordered to pay up to twice the wages as liquidated damages. Also under that statute, officers of the corporation who make the decision to not pay the wages could themselves be liable for those wages.

The hearing officer found that Mr. Moore certainly provided services for the corporation, yet he did so as an independent contractor working on products for the company that would enhance the method of communication and could potentially lead to a great deal of rewards for Mr. Moore as a shareholder of the company.

The hearing officer found that the claimant continued to work on the project from his home in Texas and thereafter in Arizona when he moved his residence. While he was presented with an employment agreement, the terms of the agreement were never reached. Ameritiext provided a proposed salary and asked the claimant to work at the company’s headquarters in Lee, and the salary was based upon the sale of the developing product, which never happened.

The hearing officer determined that the salary was a negotiation of the sum of money he would receive if and when he moved to New Hampshire. The officer pointed out that the claimant wanted sections of the proposed contract enforced – being the proposed salary – while ignoring other sections of the contract. Since the product was never sold, the claimant never moved to New Hampshire, and the company failed, the hearing officer found the claimant’s wage claim invalid.

There have been decisions from the New Hampshire Department of Labor where an individual investing time in a start-up company is found to be an employee. For example, if an individual:

n Was hired to work for a start-up company at a certain salary.

n Was told that the salary could not be paid to him at that time but would be later paid to him when revenues came into the company.

And worked without being a part owner, it would be much more likely that the hearing officer would determine that individual is an employee entitled to wages.

In addition, if an officer of the company – if it was a corporation rather than a limited liability company or other entity – had convinced him to work based upon the hope that revenues would later come in to pay him rather than laying him off, that corporate officer could be personally liable for the wage.

The wage statute requires the employer not to permit an employee to work without getting paid within an eight-day time frame. Therefore, it is incumbent upon the employer and its officers in charge to lay off an employee whom they cannot pay within those time parameters.

As noted in the Moore case, when the person providing work is also an owner in the company and there has not been a clear agreement as to an employment relationship – but it appears that person is investing time in the company in the hopes of future rewards as an owner – it is more likely that the hearing officer will find that the individual under those circumstances is not an employee and not afforded the protections of the New Hampshire wage statute.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan P.A. whose legal practice includes counseling businesses and businesspeople on a variety of legal issues and advocating on their behalf. Marr is licensed and practices in New Hampshire and Massachusetts. He can be reached at dmarr@nashualaw.com.