Massachusetts SJC Rules that Employers are Strictly Liable for Treble Damages for Delayed Wage Payments

Background

The Massachusetts Wage Act, M.G.L. c. 149, § 148 (the Wage Act), requires that employers pay terminated employees the full amount of owed wages on the day of discharge. Employees who voluntarily resign from employment may be paid on the next regular payday. The term “wages” includes regular wages as well as accrued, unused vacation and earned commissions. Damages for violations of the Wage Act include trebled (i.e., three times) “lost” wages, plus attorneys’ fees and court costs.

Before the Reuter decision, Massachusetts employers were able to avoid paying treble damages for late payment of wages by relying on a string of cases starting with Dobin v. CIOview Corp., a 2003 Massachusetts Superior Court decision.² The Dobin court held that an employer is not required to pay treble damages for late wage payments as long as the employer pays the owed amount prior to the employee filing suit. In such instance, the only damages to which the employee would be entitled is three times the amount of forgone interest resulting from the delayed payment.

After the Reuter decision, however, employers can no longer rely on this approach and will instead be liable for three times the amount of late-paid wages.

SJC Decision in Reuter

Beth Reuter, a custodian for the Methuen Public Schools, was terminated by the school district after a criminal conviction. At the time of her termination, she had accrued almost $9,000 in unused vacation time. On the day of her discharge, the city paid Reuter her regular pay through such date but did not pay Reuter for her accrued but unused vacation time until three weeks later. A year after Reuter received that payment, her attorney sent the city a demand letter seeking approximately $24,000, representing a trebling of the vacation pay amount plus attorneys’ fees, with a setoff for the late payment previously made. The city responded by sending Reuter a check for $185.42, which represented a trebling of the interest that had accrued on Reuter’s unused vacation time during the three weeks between her termination and the payment of her vacation time. Reuter rejected the offer and filed suit.

The SJC, in a decision authored by Justice Scott Kafker, noted that the city clearly violated the Wage Act by failing to pay Reuter for her accrued but unused vacation time on the day she was terminated. The issue before the SJC was determining the proper damages for a Wage Act violation when the employer’s payment of wages due was made after the deadline provided in the Wage Act but before the employee filed a complaint. The SJC concluded that, given the strict time-defined payment policies underlying the Wage Act, “an employer is responsible for treble the amount of the late wages, not trebled interest.”

In so holding, the SJC refused to follow Dobin and its progeny, finding that the lower court’s reasoning was in conflict with the purpose of the statute, which is to encourage prompt payment of wages. While the SJC acknowledged that its ruling would likely impose harsh results on employers who make honest mistakes, it reasoned that “[t]he Legislature has chosen the stick rather than the carrot to encourage compliance with the act[.]”

Key Takeaways

After Reuter, employers face steep penalties for technical violations of the Wage Act. Employers who fail to pay terminated employees their full wages on the day of termination, even in cases of termination for egregious misconduct and even where the oversight is remedied the next day, will be subject to treble damages, plus attorneys’ fees. Because the Wage Act protects all employees (even highly compensated executives), the SJC’s ruling has the potential to result in substantial damage liability.

To avoid being subject to these penalties, employers must be prepared to pay employees their full wages, including accrued vacation and earned commissions, on the day their employment terminates. This means that in situations where an employer wants to take immediate disciplinary action (e.g., in the event of an employee’s illegal activity or serious misconduct) but is unable to pay the employee their owed wages that day, the employer should postpone the effective date of termination until final pay can be issued and put the employee on administrative leave until such date. Employers must similarly ensure that employees who have elected to resign, even abruptly, are paid all their final wages on the employer’s next regular payday.

Footnotes -

1. SJC-13121 (April 4, 2022).
2. 16 Mass. L. Rep. 785.