In Reuter v. City of Methuen (April 4, 2022), the Massachusetts Supreme Judicial Court expanded an employer’s liability for the late payment of wages.  Generally, Massachusetts law requires that an employer that terminates an individual’s employment must pay that employee’s final wages, including accrued unused vacation time, on the date of termination.  Lower courts previously had held that where an employer pays an employee their final wages in full, but late (i.e., after the employee’s final day of employment) the employee may recover damages in the form of interest accrued between the date of termination and the date of payment.  In Reuter, the court rejected that case law and held that any time an employee’s final payment of wages is late, the employee may recover treble damages for the late payment (plus attorneys’ fees).

Background

In this case, the plaintiff was convicted of larceny.  Accordingly, her employer, the City of Methuen, terminated her employment effective March 7, 2013.  As of the date of the plaintiff’s termination, she had accrued $8,952.15 in unused vacation time.  Three weeks later, the City sent the plaintiff checks in full payment of that amount.

One year later, the plaintiff’s counsel sent the City a letter asserting that the City had violated the Massachusetts Payment of Wages Law, Mass. Gen. Laws ch. 149, § 148, by not paying the plaintiff the full amount of her accrued, unused vacation on the date of termination.  The Payment of Wages Law provides that an employee who is terminated “shall be paid in full on the day of his discharge.”  In contrast, an employee who resigns “shall be paid in full on the following regular pay day.”  Under the Payment of Wages Law, the final wages owed by an employer include accrued, unused vacation.

In her demand letter, the plaintiff’s counsel asserted that, although the City had paid the plaintiff the full amount of her accrued, unused vacation,  it had not done so on the date of termination but instead had paid her three weeks later.  Therefore, according to the plaintiff, for the late payment, she was owed treble damages under the Payment of Wages Law, plus attorneys’ fees, minus a setoff of the amount paid.

In response, the City sent the plaintiff a check in the amount of $185.42.  This amount represented the interest accrued during the three weeks between the date on which her employment terminated and the date on which the City paid her.  The plaintiff then filed a lawsuit, seeking treble damages and attorneys’ fees under the Payment of Wages Law.

After a bench trial, a Superior Court judge ruled in favor of the City.  Relying upon a well-established body of state and federal trial court decisions, the judge held that because the plaintiff received full payment of her vacation pay prior to her filing a lawsuit, she was only entitled to interest accrued during the three-week period between when she should have been paid and when she actually was paid.  The judge rejected the plaintiff’s claim for treble damages.  

The Supreme Judicial Court Rejects a Well-Established Body of Case Law

The primary issue on appeal was the proper measure of damages under the Payment of Wages Law where an employer pays wages after the deadlines provided in the Law but before the employee files a complaint.

The City argued that the plaintiff had been paid in full and therefore could recover only interest accrued between the date when she should have been paid under the Payment of Wages Law and the date when she actually was paid.  In support of this argument, the City relied upon a host of state and federal court decisions that held that a plaintiff under these circumstances could only recover interest.  This case law, which had its genesis in an opinion issued in 2003 by SJC Justice Gants (when he was still a Superior Court judge), was based on the following language from the Massachusetts wage and hour laws:  “The defendant shall not set up as a defence [sic] a payment of wages after the bringing of the complaint.”  According to Justice Gants and a slew of other trial court judges, this sentence created a partial defense by negative implication for pre-complaint payments of late wages, i.e., an employer was not liable for treble damages for late payment of wages so long as the wages were paid before the plaintiff filed a complaint.

The Supreme Judicial Court unanimously rejected this interpretation for a number of reasons.  First, the court noted that the sentence relied upon by the lower courts is preceded by a sentence stating that “no defence [sic] for failure to pay as required  . . . shall be valid” except “the attachment of such wages by trustee process or a valid assignment thereof or a valid set-off against the same, or the absence of the employee from his regular place of labor at the time of payment, or an actual tender to such employee at the time of payment of the wages so earned by him.”  Because this list of defenses did not include payment of wages before the filing of a complaint, the SJC found the lower court’s interpretation to be inconsistent with the statutory language.

In addition, the Supreme Judicial Court expressed concern that this interpretation “would essentially authorize, and even encourage, late payments right up to the filing of the complaint.”  Accordingly, the Supreme Judicial Court held that the plaintiff was entitled to recover treble damages for the City’s late payment and reversed the lower court’s entry of summary judgment for the City.

Conclusion

This decision has important implications for employers in Massachusetts.

First, it serves as an important reminder of the obligations imposed by the Payment of Wages Law.  Specifically, employees who are terminated must be paid their final wages on the date of termination, and employees who resign must be paid on the next applicable pay day.

Second, the court recognized that these statutory obligations put employers “in a difficult position when immediately terminating employees for misconduct” because in some cases “it may be unclear how much an employee must be paid on short notice.”  The court suggested a possible solution for employers.  Specifically, the court stated that employees who “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 calculate the amount of final wages owed to the employee.  Employers should give careful thought to this alternative when terminating employees going forward.

Third, the Reuter decision creates a dilemma for employers that discover an inadvertent payroll error.  In the past, employers in Massachusetts that identified such an error could promptly pay any wages owed to current and former employees, thereby extinguishing liability under the Payment of Wages Law for all damages except interest accrued and attorneys’ fees.  In light of Reuter, however, employers in that same situation must now consider their exposure for treble damages when deciding whether and how much to pay employees who were the subject of a payroll error.

Fourth, while Reuter dealt only with final payment of wages, the ruling would appear to apply to any late payment of wages.  The Payment of Wages statute requires employees to be paid biweekly or (in some circumstances) semi-monthly or monthly, and requires that commissions be paid when they are “definitely determined, due and payable.”  In light of Reuter, employers should also consider reviewing their payroll practices, e.g., the timing of commission payments, to ensure compliance with Massachusetts law.

The Payment of Wages Law is a strict liability statute, meaning that an employer’s intent is irrelevant in evaluating liability and damages.  Because employers that violate this law may be sued for treble damages and attorneys’ fees, employers should consult with experienced wage and hour counsel when questions arise about their wage payment obligations.