We invite you to join us for a micro webinar where Seyfarth’s Boston Wage and Hour attorneys will discuss practical takeaways and considerations employers in Massachusetts should be aware of in light of this decision. Read more on the Massachusetts Supreme Judicial Court decision below.
On April 4, 2022, the Massachusetts Supreme Judicial Court adopted an even more employee-friendly approach to damages for Wage Act violations in the Bay State. In Reuter v. City of Methuen, No. SJC-13121 (Mass. April 4, 2022), the SJC held that all Wage Act violations trigger treble damages, regardless of whether the employer remedies the violation prior to the employee filing suit. This decision contradicts longstanding lower court precedent holding to the contrary. Under the SJC’s holding in Reuter, any employee paid late – for whatever reason and even if remedied – is entitled to three times the total amount of the wages in question. In short: honest payroll errors and good faith disputes over what an employee may be owed just got much more expensive.
The Wage Act (M.G.L. ch. 149, § 150) provides that prevailing plaintiffs “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.” It also provides that, “[t]he defendant shall not set up as a defen[s]e a payment of wages after the bringing of the complaint.” Nearly two decades ago, in the first case to address this issue, Dobin v. CIOview Corp., then Superior Court Justice Gants interpreted this provision of the Wage Act to mean that when wages are paid late but before a complaint is filed, the only damages are interest on the delayed payment, trebled. Since then, Justice Gants’ reasoning has been followed in a number of Superior Court and federal court decisions interpreting this provision of the Wage Act.
But yesterday, the SJC upended that precedent. In Reuter, the City of Methuen terminated the plaintiff’s employment after she was convicted of larceny. Three weeks after it terminated plaintiff’s employment, the City paid the plaintiff for her accrued, unused vacation time (totaling roughly $9,000). Approximately a year later, having lost her bid to challenge her termination in front of the Civil Service Commission, Plaintiff sent the City a demand letter seeking treble damages for the late-paid vacation – plus attorney’s fees. When the City sent her a check for the trebled interest instead (consistent with the holding of Dobin), the plaintiff filed the instant action.
The SJC determined that because the City of Methuen paid the plaintiff’s final wages late, it was strictly liable and therefore owed treble damages on the delayed wages. In doing so, the Court rejected the holding in Dobin, and reasoned that “allowing a defense for late payments made before litigation is commenced would essentially authorize, and even encourage, late payments right up to the filing of a complaint.” The SJC held that the statute imposes strict liability and that “employers rather than employees should bear the cost of such delay and mistakes, honest or not.” Under the holding of Reuter, employers now have a substantially reduced financial incentive to attempt to settle wage disputes before they are filed in the courts.
This decision carries harsh penalties for inadvertent and potentially unavoidable payroll mistakes. Under this standard, payroll errors beyond an employer’s control will automatically result in liability for three times the amount of the wages actually owed. For systemic payroll errors or system outages affecting a large number of employees, this will mean potentially catastrophic liability for payments that are even one day late. The SJC was unmoved by the draconian nature of these penalties for employers, and instead singularly focused on the impact on employees whose wages may be detained upon termination.
In some respects, these harsh remedies imposed by the Reuter decision are arguably not well calibrated to the mischief that the Court sought to remedy. First, while the Court repeatedly emphasized consequences that might befall employees from the abrupt interruption of their usual wages, the amount at issue in the case pertained exclusively to vacation pay, and not all employees will have accrued vacation to use as an economic cushion when terminated. Further, the SJC even identified a means by which employers can avoid immediate payments to an employee who is subject to termination, noting that employers in that situation may need to suspend an employee to buy time to determine their final wages before actually terminating them. Most employees lawfully can be suspended without pay, leaving an employee in exactly the situation from which the Court sought to protect the plaintiff in Reuter – having her stream of income interrupted. An employee might be left in that limbo status for an extended period of time before the termination was formalized and final wages paid, and such a circumstance seems no better for the employee than the harm that troubled the Court.
As if treble damages for inadvertent payroll errors is not harsh enough, in his concurrence, Justice Georges also highlighted the Wage Act’s provision authorizing those aggrieved to recover “any damages incurred, and for any lost wages.” Under Justice Georges’ reading of the Wage Act, plaintiffs are entitled to consequential damages in addition to treble their late-paid wages. He suggests plaintiffs who “face catastrophe due to an employer’s withholding of wages” should be able to recover for those damages, citing hypothetical instances in which employees may miss mortgage or tuition payments and seek to hold their employers responsible for such consequences. The majority did not take a position on this issue, as it was not properly before the Court in Reuter.
It remains to be seen whether the holding will be applied retroactively, but if so, it will impact ongoing litigation and past disputes. For purposes of avoiding future liability, employers in the Commonwealth should take all available steps to minimize the potential for payroll errors or delays, including creating contingency plans for unavoidable and unexpected payroll issues.