May 9, 2022
Employers Pay Wages Late At Their Peril
On April 4, 2022, the SJC in Reuter v. City of Methuen held that Massachusetts employers who fail to pay wages in a timely manner are liable for mandatory treble damages under the Massachusetts Wage Act, even if payment is issued before the employee files a claim. In doing so, the SJC reversed long-standing precedent. Massachusetts employers should immediately review their payroll practices to ensure that employees are paid all earned wages in a timely manner, consistent with the Wage Act.
The plaintiff in Reuter was a former school custodian for the City of Methuen. After she was convicted of larceny, the City terminated her employment. At the time of her separation, plaintiff had $8,952.15 in accrued and unused vacation time. However, the City did not pay the accrued vacation time immediately – rather, it sent four separate checks for the total amount about three weeks later. In March 2014, more than a year after her termination, her attorney sent a letter, demanding payment for three times the vacation time that was paid late (plus attorneys’ fees), less the $8,952 the City had already paid. The City responded by sending a check for $185, representing three times the interest rate for the three-week period between her separation and the time of payment, and Reuter sued the City for treble damages under the Wage Act.
After a bench trial (i.e., without a jury), the lower court judge ruled that Reuter was only entitled to three times the interest rate for the three-week delay in receiving her vacation pay (which she had already received), plus her attorneys’ fees. On appeal, the SJC (who transferred the case from the appeals court on its own motion) reversed, holding that treble damages represent the proper measure of damages for the late payment of final wages.
In doing so, the SJC in Reuter expressly rejected Dobin v. CIOview Corp, an influential 2003 decision by the late SJC Justice Ralph Gants, who was a lower court judge at the time. In Dobin, Judge Gants drew a negative inference from a sentence in the Wage Act, which states that the payment of wages after a complaint is brought is not a defense. Based on this language, Dobin held that employers who pay earned wages before the employee files a complaint can use such payment as a defense and avoid treble damages on the amount paid. Employers would still be liable for triple the lost interest on the wages paid late. Dobin thus allowed employers to correct payroll errors and to resolve wage underpayment disputes without the specter of treble liability for the underpaid amount.
The SJC rejected this interpretation of the Act as inconsistent with the statutory language. The Wage Act allows employees to recover treble damages for “any lost wages and other benefits.” In light of the remedial purpose of the statute, the SJC reasoned that the phrase “lost wages” in the statute included wages paid late. The Court found that a different reading of the statute would encourage employers to withhold payment of wages. The SJC also found that awarding an employee only interest for late payment would be inconsistent with the remedial purpose of the statute, and that employers should “bear the cost of such delay and mistakes, honest or not.”
Until and unless the Legislature amends the statute to avoid potentially draconian results for even a minor and unintentional violation of the Wage Act, employers should use their best efforts to ensure the prompt and accurate payment of all wages consistent with the law.
State Wage Act Remedies Unavailable for Violation of Federal Wage & Hour Law
On April 14, 2022, the SJC ruled that an employee who is successful on a claim for unpaid overtime under the federal Fair Labor Standards Act (FLSA) cannot recover remedies under the Massachusetts Wage Act.
The FLSA includes its own set of remedies for the successful plaintiff, including liquidated damages in an amount equal to the unpaid wages (plus costs and attorney’s fees). Importantly, an employer can escape liability for liquidated damages by showing that it acted in good faith and with reasonable ground for believing that it did not violate the FLSA. Conversely, as noted above, the Massachusetts Wage Act is a strict liability statute imposing treble damages for a wage violation, regardless of the employer’s intent.
The plaintiffs in Devaney v. Zucchini Gold, LLC were restaurant workers, who successfully sued their former employer for unpaid overtime under the FLSA (restaurant workers are not eligible for overtime pay under Massachusetts’s overtime law). They sought – and initially recovered after trial – treble damages under the Wage Act, on the theory that the unpaid overtime amounted to earned wages under the Act. The SJC disagreed, ruling that where a plaintiff prevails on a claim brought only under the FLSA, the remedial scheme under federal law preempts the Wage Act, and state remedies are unavailable. Were it otherwise, the Court reasoned, plaintiffs could circumvent the remedies prescribed by Congress for FLSA violations.
This decision limits potential damages only in a situation where federal law provides the sole basis for the employee’s recovery. However, in many situations a plaintiff with a federal overtime claim will also have an overtime claim under Massachusetts state law, for which treble damages are available.
Franchisees May Be Employees
Lastly, on March 24, 2022, the SJC ruled that franchise owners are not barred from qualifying as employees under the state’s independent contractor statute. In Patel v. 7-Eleven, Inc., the SJC held that, where a franchisee is an individual performing any service for a franchisor, the three-prong test in the Massachusetts independent contractor statute (“ABC test”) applies to the relationship. Because federal law does not regulate the terms of the franchisor-franchisee relationship, the Court reasoned, the Massachusetts independent contractor statute does not conflict with franchisors’ obligations under federal franchise laws and is therefore not preempted.
In Patel, the SJC expressed no opinion as to how the ABC test would apply to the particular facts of the case. Although this ruling may initially seem as sounding the death knell for franchise relationships in Massachusetts, the Court clarified that the misclassification analysis begins with the threshold determination of whether the individual provides services to the franchisor. This threshold, the SJC noted, “is not satisfied merely because a relationship between the parties benefits their mutual economic interests.” Therefore, franchisors will be able to argue that for legitimate franchise arrangements that do not attempt to evade employment obligations, the ABC test should not apply. Nevertheless, the necessity of scrutinizing the specific facts of each case to determine whether the individual is providing services for the franchisor, and, if so, whether the ABC test has been met, is likely to result in increased misclassification claims by franchisees.Please feel free to contact the members of the Employment Law Group at Casner & Edwards with any questions about these recent court decisions.