Ukraine-based employee can sue under Wage Act

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The Ukraine-based employee of a Massachusetts company’s Ukrainian subsidiary could bring a Wage Act suit over allegedly unreimbursed travel expenses and unpaid vacation time, a U.S. District Court judge has determined.

In 2016, plaintiff George Serebrennikov entered a consulting agreement with defendant Proxet Group, a Massachusetts-based software development company. The agreement labeled him an independent contractor.

Serebrennikov, who apparently worked primarily in Ukraine, separately entered into an employment contract with Proxet’s Ukrainian subsidiary, Proxet Ukraine.

After Serebrennikov and Proxet Group parted ways in 2022, he sued the company, alleging that it violated the Wage Act by failing to pay him $22,500 in unpaid salary, a $100,000 bonus, $16,000 worth of unused vacation time, and more than $450,000 in unreimbursed employment-related expenses.

Moving for summary judgment, Proxet Group argued that the Wage Act did not apply because the “operative contract” in the case was Serebrennikov’s employment agreement with Proxet Ukraine, which had a Ukraine choice-of-law provision, and because Serebrennikov lived in Ukraine, performed his work there, and the parties had virtually no interactions in Massachusetts.

But Judge Indira Talwani disagreed, finding that the defendants’ reliance on the choice of law provision in Serebrennikov’s employment contract with Proxet Ukraine was misplaced “where Serebrennikov does not bring any claims under that Employment Contract, and where his dispute is with Proxet and its CEO, [Vladimir] Medvodovsky. The court finds further that Massachusetts is the state with the most significant connection to the parties’ working relationship. Proxet was organized as an LLC in Massachusetts in 2009. Proxet also issued Serebrennikov IRS forms that list Proxet as located in Massachusetts and reflect that Proxet paid Serebrennikov from that location.”

Talwani also rejected Proxet Group’s arguments that the Wage Act did not apply to Serebrennikov as a non-employee, finding that the company, in its consulting agreement, misclassified him as an independent contractor.

The 32-page decision is Serebrennikov v. Proxet Group LLC, et al., Lawyers Weekly No. 02-580-25.

Extraterritorial application

One of Serebrennikov’s attorneys, Michael V. Parras Jr., said the legal team was pleased the court confirmed that the client should have been classified as an employee and that the Wage Act applied to his claims.

“Importantly, this ruling confirms that the Wage Act applies extraterritorially and affords protections to out-of-state employees when Massachusetts has the most significant relationship to the employment,” he said.

A spokesperson for defense counsel Jeffrey A. Dretler of Boston and Sonya Rosenberg of Chicago declined to comment.

Elise Busny of Woburn convinced the Appeals Court to apply the Wage Act extraterritorially to a Florida employee in the 2013 case Dow v. Casale, et al. Busny said Serebrennikov reinforces that Massachusetts-based companies need to be cognizant of the statute even when their employees work elsewhere.

“The defendant in this case tried to focus on a separate agreement with a Ukrainian subsidiary, but the agreement the plaintiff was suing under was in Massachusetts,” Busny said.

Gregory L. Demers similarly pointed out that the Ukrainian choice-of-law provision applied Ukrainian labor law to claims “arising under” the employment contract, and Serebrennikov was careful to assert claims outside the contract such that the provision did not control.

“If the employer had structured the agreement to apply Ukrainian law to all claims or disputes in any way relating to or arising out of the plaintiff’s employment, the court may have reached a different result,” he said.

Boston attorney Joshua N. Robbins said the ruling provides important guidance to plaintiffs’ counsel.

“As a practice tip, attorneys who represent employees should not dismiss a case out of hand where the employee is working out of state or where there is a contract controlled by a different state or a different country,” Robbins said.

Meanwhile, Lori A. Jodoin of Newton said the decision is important because it reinforces that, under the Wage Act, employers cannot pass ordinary business costs such as travel expenses onto employees.

She also said the ruling highlights that misclassification is risky.

“Workers who function as employees have legal rights, regardless of how a contract labels them,” Jodoin said.

Alleged wage violations

In July 2016, Serebrennikov and Proxet Group entered a consulting agreement and a confidentiality agreement, both of which contained a Massachusetts choice-of-law provision.

The consulting agreement called for Serebrennikov to provide senior project management services “as reasonably requested from [CEO Medvodovsky] from time to time” and that the relationship was “that of an independent contractor and not that of an employee.”

Additionally, the agreement, which renewed automatically annually until either Serebrennikov’s services were complete or either party terminated the agreement, called for Proxet Group to pay Serebrennikov $6,875 “semi-monthly” after he submitted invoices.

In January 2018, Serebrennikov entered a contract with Proxet Ukraine, which stated that it created an employer-employee relationship and that the Ukraine labor law applied to the “mutual relations of the parties under this contract.”

Proxet Group was not a party to the agreement, which provided Serebrennikov a monthly salary, 24 vacation days a year, and expenses for business trips abroad.

From 2016 until the war in Ukraine began in early 2022, Serebrennikov spent several months at a time working in Ukraine, with shorter periods in the U.S.

During that time, he worked as Proxet Group’s chief operating officer and oversaw its foreign operations while managing operations of Proxet Ukraine.

He apparently also helped with Proxet Group’s clients, participating in the sales process, helping prepare marketing materials, and helping develop a prototype product for Proxet Group while coordinating with Ruth Kanfer, Proxet’s legal counsel and head of U.S. operations on certain Proxet matters.

According to Serebrennikov, Proxet Group policy provided 20 vacation days to consultants and employees for each of their first three years, 25 days each of their next two years, and 30 days thereafter.

Starting in February 2022, Serebrennikov initiated efforts to part with Proxet Group. Back-and-forth regarding his potential departure continued into the summer.

Proxet Group claims Serebrennikov was on vacation between June 9 and June 22, while Serebrennikov claims he was actively working.

The parties continued to negotiate the terms of his departure without reaching agreement.

Serebrennikov’s last day was July 31, 2022.

The plaintiff subsequently brought a Wage Act suit against Proxet Group and CEO Medvodovsky in U.S. District Court, claiming they owed him for unreimbursed business and travel expenses, unpaid salary, a bonus and unused vacation days.

The defendants moved for summary judgment.

While challenging the merits of the complaint, the defendants also cited the Ukraine choice-of-law provision in his employment agreement with Proxet Ukraine and asserted that the Wage Act did not apply to any claims against Proxet Group itself because he was an independent contractor, not an employee.

Closest connection

Talwani found that Massachusetts law, not Ukraine law, governed the dispute, since Massachusetts had the closest connection to the parties’ working relationship.

For one, she observed, Proxet Group issued tax forms to Serebrennikov listing itself as located in Massachusetts and reflecting that it paid the plaintiff from Massachusetts.

“That Proxet is based in Massachusetts and lists a Massachusetts address on tax records is significant as the Wage Act ‘is directed at the regulation of employers and does not, in terms, restrict its remedies to employees who live or work in Massachusetts,’” Talwani said, quoting Dow.

Additionally, she noted, the defendants’ focus on Serebrennikov’s relationship with Proxet Ukraine ignored the direct relationship between Proxet Group and Serebrennikov.

“Throughout the relationship, he reported to Proxet’s management team located in Massachusetts [and] Serebrennikov performed significant services for Proxet,” the judge said. “It is undisputed that Serebrennikov ‘provided operational services for Proxet’; dealt with some Proxet clients; coordinated with Kanfer, Proxet’s legal counsel and head of U.S. operations, on Proxet matters and on Serebrennikov’s departure from Proxet; helped develop a prototype product called Employa for Proxet; prepared some marketing materials for Proxet; and provided summaries and descriptions of projects to Medvedovsky, Proxet’s CEO.”

Meanwhile, the Massachusetts choice-of-law clauses in Serebrennikov’s consulting agreement supported application of Massachusetts law to the dispute, Talwani said.

Having found that Massachusetts law governed the dispute, the judge further found that Proxet Group misclassified Serebrennikov as an independent contractor when he was really an employee, placing his claims under the Wage Act.

Specifically, she found that Proxet Group failed to establish all three indicia that Serebrennikov worked as an independent contractor: namely that he was free from Proxet’s control and direction, that he performed his services outside Proxet’s usual course of business, and that he was customarily engaged in an independently established business of the same nature as the services he performed for Proxet.

Still, the judge concluded, the record did not support all of Serebrennikov’s claims.

In particular, it did not support his claims for all his expenses, but she found that his Wage Act claim could proceed with respect to certain travel expenses.

Talwani similarly found that his claims could proceed regarding allegedly unused vacation time but not with respect to the $100,000 bonus he claimed he was owed.