MA SUPREME JUDICIAL COURT EXPANDS EMPLOYER LIABILITY FOR LATE PAYMENT OF WAGES
In 2022, the Massachusetts Supreme Judicial Court issued an important decision concerning the applicability of the treble (triple) damages provision of the Wage Act to late payment of wages by an employer. Specifically, the Court held that an employer is strictly liable for treble damages under the Wage Act where discharged employees are not paid owed wages on the date of termination. Prior to this ruling, an employer could avoid treble damages by making a late payment in full prior to the filing of a complaint by the employee.
The decision has potential for harsh results. For example, take a scenario that many HR Directors of Massachusetts-based companies often face.
On a late Friday afternoon, you conclude an investigation into an employee’s alleged misconduct and determine that you must immediately terminate that employee.
You may believe that it is entirely appropriate to terminate that employee at the end of the day, but your staff will need until Monday to calculate any final salary payment and unused vacation. You plan to provide the terminated employee with his/her final check on Monday morning.
Before Reuter v. City of Methuen, delivering final pay to the discharged employee on the next business day likely would not lead to a lawsuit. Although technically a violation of the Massachusetts Wage Act’s requirement to pay discharged employees their wages on the date of termination, at worst the employee may be owed triple the amount of a few days of interest on the amount due. It would have not amounted to much. But after this recent SJC decision in Reuter v. City of Methuen, the discharged employee above is owed triple damages on the entire amount of the owed salary (any earned commissions) and unused vacation time.
So if you owed $10,000 to that employee on Friday, you would now be liable for three times that $10,000 and not just three days of interest on that $10,000.
In Reuter v. City of Methuen, the Plaintiff was discharged from employment by the City of Methuen after she was convicted of larceny. On the date of her termination, Methuen owed Ms. Reuter $9,000 for accrued vacation time. Rather than pay this amount on the day of her termination, as required by the Massachusetts Wage Act, Methuen paid her three weeks later. In finding Methuen liable, the Supreme Judicial Court concluded “that an employer is responsible for treble the amount of the late wages, not trebled interest. As the prevailing party, the plaintiff is also entitled to attorney's fees and costs. This may mean that employees who, like the plaintiff, have engaged in illegal or otherwise harmful conduct may have to be suspended rather than terminated for a short period of time until the employer can comply with [the Wage Act].”
This decision has important implications for employers in Massachusetts.
The Massachusetts Wage Act requires that discharged employees be paid owed wages on the date of termination. “Wages” under the Wage Act includes final earned salary or wage payments for time worked, accrued but unused vacation time, and commissions (if such commissions are due and payable under the commission plan on the date of discharge). Employees who voluntarily resign must be paid their wages on the next payroll date. Employers should understand that, after Reuter v. City of Methuen, it is no longer an acceptable risk to pay wages late, even when an employee must be terminated immediately.
First, employees who are terminated must be paid their final wages on the date of termination, and employees who resign must be paid on the next applicable pay day.
Second, in recognizing the difficult position the Court’s decision put employers in, the Court suggested that employees who “have engaged in illegal or otherwise harmful conduct may have to be suspended rather than terminated for a short period of time until the employer” can calculate the amount of final wages owed to the employee. Employers should give careful thought to this alternative when terminating employees going forward.
The Wage Act is a strict liability statute, meaning that an employer’s intent is irrelevant in evaluating liability and damages.
Because employers that violate this law may be sued for treble damages and attorneys’ fees, employers should consult with experienced counsel when questions arise about their wage payment obligations.
By: Seth Barnett