In Mui v. Massachusetts Port Authority, issued on January 29, 2018, Massachusetts’s highest court decided an issue of first impression in the Commonwealth: whether accrued but unused paid sick time counts as “wages” for purposes of the Massachusetts Wage Act. Under the Wage Act, an employer that fails to pay wages is subject to strict liability, treble damages, and attorneys’ fees in a civil action for violation of the Act, and may also be subject to criminal liability. The plaintiff in Mui argued that the paid sick time he had accrued but hadn’t used at the time that he resigned from his employment with the Massachusetts Port Authority (Massport) qualified as wages, and thus that he was entitled to treble damages for Massport’s failure to pay him for that unused time when he resigned. The Supreme Judicial Court (SJC) rejected that argument, holding that the legislature did not intend to include sick pay within the definition of “wages” in enacting the Wage Act.

Background

In 2013, after Massport had initiated disciplinary proceedings against him, Tze-Kit Mui applied for retirement. Shortly thereafter, Massport terminated Mui’s employment for cause. Under Massport’s sick leave policy, eligible employees who are discharged for cause are not eligible to be paid for any of their accrued, unused sick time, but other departing and otherwise eligible employees are paid a percentage of the value of such time. Because Massport had discharged Mui for cause, it did not pay him the value of his accrued, unused sick time upon the termination of his employment; subsequently, however, an arbitrator determined that the discharge for cause was ineffective because, at the time, Mui had already retired from his position and thus could not be fired.

Following the arbitrator’s decision, Massport paid Mui the value of his accrued but unused sick time in accordance with its policy, but by that time more than a year had passed since Mui had retired. Mui then filed suit against Massport, alleging that it had violated the Wage Act by failing to pay him for his accrued, unused sick leave within the time required by the Act—which mandates payment of all wages owed to employees who depart voluntarily on or before the next regular pay day—and claiming treble damages and attorneys’ fees under the Act. The Superior Court agreed with Mui and granted his motion for judgment on the pleadings; Massport appealed that decision and, after briefing in the Appeals Court, the SJC transferred the case to itself sua sponte.

The SJC’s Ruling

The Wage Act, as the SJC observed, does not define the term “wages,” but does state that “‘wages’ shall include any holiday or vacation payments due an employee under a written agreement,” and that the term encompasses commissions “when the amount of such commissions . . . has been definitely determined and has become due and payable” to the employee. Thus, the Act does not contain any specific reference to “sick pay”—and although the court acknowledged that the statute’s use of the word “include” in describing what constitutes wages indicates that the legislature did not intend the items listed to be exclusive, it noted that it had previously construed the Wage Act narrowly, declining on several occasions to expand the meaning of “wages” to include other types of compensation (such as discretionary bonuses, deferred compensation, and severance pay) that are not referred to expressly in the statute, and that it “ordinarily . . . will not add language to a statute where the Legislature itself has not done so.” Accordingly, the court held, it could “discern no reason to conclude that the Legislature intended to include sick pay as ‘wages’ under the Wage Act.” 

In further support of its decision, the SJC compared paid sick leave to paid vacation time—a form of compensation that the legislature specifically included in its description of what constitutes “wages” under the Act. According to the court, although both paid sick leave and paid vacation time are “often accrued as one works for an employer,” they differ in two significant ways. First, paid sick leave is conditional (i.e., it can be used only if an employee or a family member is ill), while vacation time can be used for any reason. Second, employers can (and often do) promulgate “‘use it or lose it’ sick time policies,” under which paid sick leave may be forfeited if not used. Thus, the court reasoned, “[b]ecause accrued, unused sick time is not compensable under a ‘use it or lose it’ sick time policy, such time clearly is not a wage under the [A]ct.” It is worth noting in this connection that under an advisory opinion issued by the Fair Labor Division of the Commonwealth’s Attorney General’s Office in 1999 (Advisory 99/1, “An Advisory from the Attorney General’s Fair Labor Division on Vacation Policies”), which the SJC cited with approval and relied on in Electronic Data Systems Corp. v. Attorney General, 454 Mass. 63, 67-69 (2009), employers are also permitted to institute “use it or lose it” policies for paid vacation time, under which “employees must use all of their accumulated vacation time by a certain period of time or lose all or part of it”—even though paid vacation time clearly qualifies as a “wage” under the Act.

Finally, the court noted that Massport’s policy providing for the payment of accrued but unused sick leave to employees who were not discharged for cause operated “essentially [as] a contingent bonus paid to separating employees for not having used all of their accrued sick time and not engaging in conduct warranting termination for cause.” Because the court’s prior decisions have established that contingent bonuses are not considered “wages” for purposes of the Wage Act—indeed, the only form of contingent compensation that qualifies as wages are commissions, which are considered wages only when they have been definitely determined and are due and payable—accrued sick time under the Massport policy could not be considered a “wage” under the Act.

Key Takeaways

The SJC’s decision in Mui is good news for Massachusetts employers. Even an inadvertent failure to pay compensation that qualifies as “wages” under the Wage Act can result in severe penalties—including mandatory treble damages and attorneys’ fees, as well as potential criminal liability—so any decision that narrows the scope of what counts as wages under the Act benefits employers. That is particularly true with respect to paid sick leave, since Massachusetts employers have only recently been required to provide such leave to their employees—the law requiring paid sick leave went into effect on July 1, 2015, with full implementation required by January 1, 2016—and some are continuing to work through the complexities and uncertainties inherent in implementing such a policy for the first time. A potentially problematic aspect of the opinion for employers, however, is the court’s suggestion that a “use it or lose it” policy may be incompatible with a form of compensation that qualifies as “wages” under the Act, since paid vacation time clearly qualifies as “wages,” and many employers (relying on Advisory 99/1) have implemented “use it or lose it” policies for paid vacation time.