Massachusetts-State-Seal.jpgAuthored by Beth L. Gobeille

The Massachusetts Supreme Judicial Court altered the state’s wage and hour landscape with two critical decisions affecting businesses across the Commonwealth.

Rosnov v. Molloy:  In a decision that will benefit many defendants in wage and hour cases in Massachusetts, the Massachusetts Supreme Judicial Court has declared that a statute mandating automatic treble damages for most violations of the Commonwealth’s wage and hour laws only applies to conduct occurring after its effective date of July 12, 2008. 

Rosnov sued Molloy for nonpayment of wages, and the Superior Court held that Molloy was automatically liable for treble damages pursuant to the July 12, 2008 amendment even though his alleged conduct predated that amendment.  Molloy appealed this finding and successfully petitioned the SJC for direct appellate review. 

Molloy argued before the SJC that the statute could not apply retroactively because it affected substantive rights and was not mere procedural or remedial legislation.  He further argued that the legislative history bore no indication that the legislature intended the amendment to apply retroactively.  The SJC agreed, holding that treble damages affect substantive rights because they greatly increase a defendant’s liability, and further holding that the legislature history is “murky” at best and cannot support a finding of retroactivity.

Employers already defending wage and hour claims in Massachusetts that involve violations dating from before July 12, 2008, may rely on this ruling to reduce exposure.  However, this decision does not insulate defendants from treble damages before the statutory amendment became effective.  To obtain multiple damages prior to that time, plaintiffs must prove that the employer’s conduct was “outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.”  Wiedmann v. Bradford Group, 444 Mass. 698, 710 (2005).  For violations after July 12, 2008, the statutory amendment mandating treble damages will apply, subject to possible constitutional challenge that the Court in Rosnov did not reach. 

Awuah v. Coverall North America, Inc: The SJC’s decision in Coverall places significant restraints on lawful deductions from wages and timely payment of wages.  The Coverall class action plaintiffs are individuals who entered into contracts with Coverall for the provision of commercial janitorial services to third-party customers.  In response to questions certified to the SJC by the U.S. District Court, the SJC held that employers may not use accounts receivable financing systems to pay an employee at the time the customer pays the employer for the employee’s work rather than when the work is performed, even with the employee’s consent.  Instead, the SJC held that wages are “earned” and due within a fixed period after the employee completes his or her labor, and not when the employer receives the customer’s payment. 

In addition, the SJC held in Coverall that employers violate the Wage Act when they deduct the costs of worker’s compensation and other work-related insurance coverage from an employee’s pay, even if the employee consents to the deduction and still receives at least the minimum wage.  The SJC held that the purpose of the Worker’s Compensation Act would not be fully realized unless the cost of workplace injuries falls squarely on the employer because the Act makes such injuries part of the employer’s “cost of business.” 

The SJC further determined that other insurance costs, such as those for comprehensive liability insurance, may not be passed on to employees.  While employees can sometimes be liable to employers for property damage, such liability must only be assigned after the employee has received a “procedurally fair” adjudication of responsibility.  “An employer may not deduct insurance costs from an employee’s wages where those costs are related to future damages that may never come to pass, and if they do, may not be the responsibility of the employee.”  Similarly, Coverall provides that employers may not lawfully deduct franchise fees from wages because such fees are “special contracts” in which employees purchase their jobs from employers and therefore violate public policy.

Rosnov v. Molloy strikes a blow to the plaintiffs’ bar that has been pushing courts and employers alike to presume that mandatory treble damages are available to plaintiffs regardless of the timing of their allegations.  However, employers should exercise caution in the aftermath of Coverall, as the scope of permissible deductions and the latitude on timely payment of wages are both significantly constrained by that decision.