The Massachusetts Supreme Judicial Court (SJC) recently reiterated the draconian penalties under even an unintentional violation of the Massachusetts Wage Act, a cautionary tale affecting all Massachusetts employers, including municipalities. In Reuter v. City of Methuen, the SJC ruled that, when an employee is terminated from employment, the employer will be liable for treble damages plus interest and attorneys’ fees and costs in the event of even a minor miscalculation or delay in payment of final wages.
The Wage Act requires employers to pay all owed final wages, including accrued vacation time, on the date of discharge when the employer terminates an employee. Failure to do so violates the Act, subjecting the employer to treble damages for lost wages and other benefits, costs, reasonable attorneys’ fees, and interest. Previously, Massachusetts courts have held that, if an employer failed to pay the correct amount of final wages on the date of discharge, the employer could remedy the situation by paying the amount owed plus 12% interest from the termination date through the date of payment, so long as the payment was made prior to the filing of a lawsuit. This “remedy” is no longer allowed.
In Reuter, the employee was terminated from her position as a janitor at the city school department. On her termination date, she had accrued nearly $9,000 in unused vacation time, which the City paid in full three weeks after her termination date. One year later, the employee’s attorney sent the city a demand letter seeking approximately $24,000 (tripling the vacation pay, plus attorneys’ fees). The city offered a check of $185.42, which was the tripling of the interest that had accrued on the unused vacation time.
The employee rejected the offer and then filed a Wage Act claim against the City, seeking damages for failing to pay her in full on the date of termination. The Superior Court found that the employee was entitled to only treble damages on the interest owed for the three-week delay (which the City had already paid her) plus attorneys’ fees and costs. The employee appealed, and the SJC took the appeal on its own motion.
The SJC overturned the Superior Court decision by reasoning that the text of the Wage Act does not provide employers with a defense to pay late wages prior to the filing of a lawsuit; nor does the Wage Act allow for the payment of interest-only as a remedy for late payments. The SJC reasoned that the lower court rulings conflicted with the purpose of the statute—to encourage prompt payment of wages. The SJC recognized that this would negatively affect employers who make inadvertent mistakes but emphasized that the “Legislature has chosen the stick rather than the carrot” to encourage employers to comply with the Wage Act. Ultimately, the SJC held that the City was required to pay the discharged employee treble the entire amount of vacation accrued, plus attorneys’ fees and costs, and interest.
The Reuter opinion emphasizes that the Wage Act is a strict liability statute. Employers must be very careful when making a final payment of wages to terminated employees—even those who have been terminated for egregious violations of law or employer policy. Employers may want to present a paper check to the employee, so that they can be sure that the final payment of wages occurs on the termination date and will not otherwise be delayed by direct deposit. If the amount owed cannot be accurately calculated and paid on the date of termination, employers should consider placing the employee on paid or unpaid leave to allow the employer additional time to confirm the amount owed.
Keep in mind that the law also applies to employees who resign. Employees who resign from employment must be paid all their final wages, including accrued but unused vacation time, on the employer’s next regular pay day or they may face similar consequences under the Wage Act.