Agreements to Defer Salary Violate The Wage Act

Employers can not coerce employees to work for free, deferring wages until the occurrence of some event. Oftentimes employers short of cash turn to their number one expense item, employee wages.

In an effort to reduce their expenses some employers take their needs to an extreme, asking employees to work for free, accruing wages on the company’s books until enough money comes in to make wages a priority. Some employers even ask employees to sign contracts agreeing to this practice.

The Wage Act, however, is clear. “No person shall be a special contract with an employee or by any other means exempt himself from the section.”

In Stanton v. Lighthouse Financial Services Inc., the Federal District Court in Massachusetts faced such a situation. John Stanton founded a company and served as its President. At some point, the company’s Board of Directors decided to stop paying his salary, invoking the terms of his written employment contract. Stanton worked for Lighthouse for over a year under this arrangement, but when things turned sour, he sued.

Judge Nancy Gertner agreed with Stanton. The Court found Stanton was an “employee” under the Wage Act, that Stanton’s salary was a “wage” under the Wage Act, and that the “deferral agreement in Stanton’s employment contract is void as a matter of law.”

There is no dispute that Stanton was never paid for his work at Lighthouse. And there is no dispute that the “no special contracts” provision of the Wage Act protects employees from just such a situation.