Employers take note: the Massachusetts Supreme Judicial Court (“SJC”) ruled this week for an employee seeking treble damages for untimely paid wages under the Massachusetts Wage Act (“Wage Act”), even though the employer had corrected its mistake and paid the wages before the employee filed suit. Writing for the majority in Reuter v. City of Methuen, Chief Justice Scott L. Kafker interpreted the “strict time-defined payment policies” and liquidated damages provisions under the Wage Act to find that the employer was responsible for treble the amount of late wages, and not treble the amount of interest, even though the wages were ultimately paid before the complaint was filed. This underscores the importance of paying all wages, including vacation or PTO in a timely fashion.

Background

Beth Reuter worked for the city of Methuen as a custodian for the city’s school department starting in 1988.  On March 7, 2013, the city terminated Reuter’s employment for cause.  At the time, the city owed Reuter $8,952.15 for accrued vacation time but did not pay her this amount until three weeks later.

On March 11, 2014, Reuter’s counsel sent the city a demand letter for $23,872.40, which represented a trebling of the late vacation pay, plus $5,986.10 for attorney’s fees, minus setoff for the late payment. The city responded to the demand letter with an “unconditional check” for $185.42, which represented a trebling of the twelve percent annual interest on Reuter’s vacation pay accrued during the three weeks between her termination and payment. Reuter’s lawsuit followed, where she asserted an individual claim for the failure to pay her vacation pay on the day of her termination, as required by the Wage Act, M.G.L. c. 149, § 148.

The Wage Act

The Wage Act provides that employers must pay their employees “weekly or bi-weekly” within either six or seven days of the “termination of the pay period during which the wages were earned.” § 148.  However, “any employee discharged from such employment shall be paid in full on the day of his discharge.” Id.  The Wage Act defines “wages” to include “any holiday or vacation payments due an employee under an oral or written agreement.”  Id.  The Wage Act further provides that an employee aggrieved by a violation of § 148 “who prevails in such an action shall be awarded treble damages, as liquidated damages, for any lost wages and other benefits and shall also be awarded the costs of the litigation and reasonable attorneys’ fees.”  § 150.

The Decision

The SJC held that the Wage Act mandates treble damages on the amount of late-paid wages, and not interest on the delay.  According to the Court, “lost wages” encompassed all late payments under the statute, and the statute “expressly focused on trebling lost wages and other benefits.”  In so holding, the SJC rejected interest as the proper measure of damages for late payment of wages, explaining that such an interpretation “is unsupported by the language of the statute and inconsistent with its purpose.”

In addition, the SJC also held that the Wage Act imposed strict liability on employers for late payment of wages, and that employers will be liable under the statute even if payment is made to the employee before a complaint is filed because “employers rather than employees should bear the cost of such delay and mistakes, honest or not.”  While the court acknowledged that this statutory requirement puts employers in a difficult position, especially when immediately terminating employees for misconduct, it also noted that the legislature considered the differences between involuntary discharges and other separations from employment, and the difference in pay requirements under the Wage Act hinges on the fact that the employer does not control when an employee quits, and may not have advance notice, but does decide if and when to terminate an employee.  Accordingly, the Court opined that if the employer discharges an employee, it must be prepared to pay them in full on the date of termination or it will owe the employee treble damages on the unpaid wages, litigation costs, and attorneys’ fees.

Employer Takeaways

• An employer may bear the cost of delay and mistakes regarding pay under the Wage Act regardless if the delay or mistake is honest or proactively corrected.

• If an employer chooses to discharge an employee, it should pay the employee in full on the day of termination. Accordingly, employers must consider and discuss the method and timing of payment to a soon-to-be terminated employee with enough time to comply with pay requirements under the Wage Act.  In the context of involuntary termination, an employer may want to consider suspending an employee who has engaged in harmful or illegal conduct to prepare for a final payment on the termination date.