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June 21, 2022
Highest Court in Massachusetts Deals Triple Threat to Employers

The Massachusetts Wage Act requires employees to be paid within set time frames. For example, if employees work five or six days in a calendar week, they have to be paid within six days of the close of the pay period. As another example, if employees are involuntarily terminated, they must be paid their wages, including accrued, unused vacation, on the separation date. (This rule is a little different for employees who voluntarily resign). The Wage Act carries stiff penalties, including mandatory triple damages for violations and attorneys’ fees and costs. For years, employers believed, and lower courts agreed, that so long as an employer remedied a late payment under the Wage Act before an employee filed a lawsuit, the employee couldn’t recover triple damages on the late payment. But a recent case decided by the Massachusetts Supreme Judicial Court (SJC), the state’s highest court, turns that belief on its head.

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Small Mistake Has Big Consequences

When Beth Reuter was involuntarily terminated by her employer, the city of Methuen, it mistakenly failed to pay her for accrued vacation time totaling more than $8,000 on her last day of employment. Instead, she was paid her unused vacation time three weeks later.

Reuter hired an attorney who sent a demand letter to the city seeking more than $23,000 in damages, which represented three times the late vacation payment and attorneys’ fees, minus the vacation payment made three weeks after her separation. In response, the city paid what it apparently calculated to be three times the interest accrued during the three weeks she wasn’t paid her vacation time.

A year later, Reuter sued the city for three times the amount of her late vacation pay, plus attorneys’ fees. Consistent with several lower court decisions in Massachusetts, the trial judge determined she wasn’t entitled to three times the entire amount of vacation pay, only the interest that accrued between the date of termination and the date of payment (about $185 in this case).

Reuter appealed her case, which landed before the SJC, arguing she should have been paid treble damages on the late vacation payment, not just the interest. The SJC agreed, and in so doing, reversed all of the earlier court decisions that ruled an employer wasn’t liable for treble damages for late payment of wages as long as the wages were paid before the employee filed a complaint.

The court ruled that paying employees late is equivalent to not paying at all, thereby entitling them to triple damages if they aren’t paid on time. The SJC reasoned that “employers rather than employees should bear the cost of such delay and mistakes, honest or not.” It recognized this “puts employers in a difficult position when immediately terminating employees for misconduct,” but also explained this challenge can be overcome by suspending employees until their final check is ready. Reuter v. City of Methuen, No. SJC-13121 (Mass., April 4, 2022).

Where Does This Leave Employers?

This decision has several important takeaways for employers in Massachusetts. It underscores how important it is to pay terminated employees all wages, including vacation time, on their last day of work. Otherwise, if you are even one day late, you owe the employee triple damages. Paying all wages due can be a challenge when an employee engages in unexpected misconduct, warranting immediate termination. In those cases, you should have a process in place to suspend the employee while you work out cutting the final paycheck.

The decision goes further than that though: Any employee who is paid late under the statute is automatically entitled to mandatory triple damages, regardless of whether the mistake is intentional. Picture this: You are getting ready to leave work late on a Friday. You’re excited for the weekend, but as you take a final stroll through the office, you notice that Jane Smith left her paycheck at her desk. This is strange, you think, because like everyone else Jane usually gets paid on Thursday via direct deposit, which is the sixth day after the close of the pay period. Then you remember that Jane requested a paper check this week because she was switching bank accounts. The paper check wasn’t ready until Friday afternoon, seven days after the close of the pay period, and Jane was already gone for the day. You play HR Hero and overnight the check to Jane so she has it first thing Saturday morning. And Jane is thrilled when she gets the check the next day. The bad part? In Massachusetts, you actually owe Jane three times the amount in her paycheck because she received her pay late under the Wage Act. If she files in court, she will get it, plus her attorneys’ fees and costs.

The more difficult part of this case is that it puts employers in a very tough spot when they discover inadvertent payroll errors. Previously, employers in Massachusetts that identified payroll errors could promptly pay any wages owed so that liability for treble damages could be avoided. In light of the Reuter case, employers don’t have the same incentive to pay back wages and actually could put the company in a worse position by only paying single damages when they discover payroll errors. Given the risks associated with failure to comply with the Massachusetts Wage Act, you should consult with experienced wage and hour counsel when you have questions about paying wages to employees.

John S. Gannon is a partner at the firm of Skoler, Abbott & Presser, P.C., in Springfield, Massachusetts. John has defended numerous employers against claims of discrimination, retaliation, harassment, and wrongful termination, as well as actions arising under the Family Medical Leave Act and wage & hour law. He also has experience with lawsuits seeking to enforce restrictive covenants and protect trade secrets. John can be reached at 413-737-4753 or jgannon@skoler-abbott.com.

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