Massachusetts Employers Beware: Any Late Wage Payment Means Liability for Triple Damages
Last month, in Reuter v. City of Methuen, the Massachusetts Supreme Judicial Court held that any late payment of wages by an employer results in strict liability for treble damages under the Wage Act. Prior to this ruling, under lower court precedent, an employer could avoid treble damages by making a late payment in full prior to the filing of a complaint by the employee. If it seems to you that this ruling could lead to unfair results, you are in good company.
Imagine, for example, that you are the CEO of a Massachusetts-based company. On Friday morning, outside legal counsel and your Vice President of Human Resources report to you the results of their investigation into employee complaints of harassment against a sales executive. The investigation results are damning and unequivocal. The sales executive has created a hostile work environment for which your Company may be strictly liable and, moreover, harmed employee morale. You want the sales executive gone by day’s end. But HR tells you they can’t cut a check for the sales executive’s final salary payment of $10,000, owed commissions of $30,000, and $10,000 of unused vacation until Monday. Knowing that Massachusetts law requires you to pay discharged employees final wages on the day of termination, but not wanting the harasser associated with your business for one day more, you terminate the sales executive on Friday and deliver final payment in the amount of $50,000 to the discharged employee 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. But after Reuter v. City of Methuen, the discharged sales executive above is owed triple damages on the entire amount, or $150,000.
In Reuter v. City of Methuen, the Plaintiff, Beth Reuter, 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 for three times the accrued vacation pay, the Supreme Judicial Court reasoned:
[g]iven the strict time-defined payment policies underlying the Wage Act, and the liquidated damages provision providing for treble damages for ‘lost wages and other benefits,’ we conclude 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].
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. If final payment cannot be made, suspend the employee or place the employee on administrative leave until final payment can be arranged. Employers also must remember to pay employees who voluntarily quit on the next payroll date, and to pay commissioned employees their commissions when they are due under the terms of the commission plan. After Reuter v. City of Methuen, any late wage payment may result in an employer receiving a surprising demand letter for triple the amount.