Employment defense lawyers say a new damage provision in the Massachusetts Wage Act is so bad for businesses that some companies likely will pack up and leave.
Seeking to protect employees in disputes with larger, better-funded employers, the Legislature in April passed a bill making Massachusetts the first state in the country to impose automatic treble damages against any business that violates wage and hour laws.
Previously, under a 2005 Supreme Judicial Court decision, treble damages were available only if an employer had willfully and intentionally committed an infraction.
“Once this law becomes effective [on July 13], the potential for damages in Massachusetts is greater than in any other state,” said Boston business attorney Richard L. Alfred of Seyfarth Shaw. “This statute is going to do enormous harm to the Massachusetts economy. There’s no question it has caused an uproar in the business community.”
Because federal courts and all other states allow an employer to assert a good-faith defense to a Wage Act damage claim, Alfred predicted Massachusetts will become the most sought-after jurisdiction in the country for class-action plaintiffs.
Superior Court Judge Ralph D. Gants, who heads the Massachusetts Business Litigation Session, acknowledged that the law has an element of “unfairness for those people who commit a violation despite acting in good faith and that there is reason [for defense lawyers] to be unhappy.”
But the judge downplayed the overall impact of the law: “The sky is not falling. While the statute is not a model of clarity, and there is still a good deal of confusion even within the courts as to what constitutes a violation, most of these problems can be dealt with by having employment counsel available.”
Gants – noting that plaintiffs in recent years have more frequently filed Wage Act claims in Superior Court – said, “Ninety-eight percent of these issues can be avoided if businesses are cognizant up front about the Wage Act. If employers weren’t thinking about it before, I imagine this would get their attention.”

Head for the hills

Alfred said his clients are not only aware of the new law, they are angered by it and contemplating whether Massachusetts is the right place for them to operate a business.
“I have talked to clients who have told me straight out that if they had to do it over again and knew that this kind of bad policy would be on the books, they never would have opened their operation in Massachusetts,” he said.
Facing penalties that could increase potential damage awards by the millions, Alfred added that some companies considering expansion to Massachusetts likely will decide to settle elsewhere.
“I have class-action cases where the damages are deep into the eight and nine figures, potentially,” he said, “and now you’re talking about a new law that provides no flexibility for an employer who acts in complete good faith. It’s really a troubling proposition to think [an employer] who seeks an opinion from a lawyer or the Department of Labor – that a jury at some point down the road happens to disagree with – would automatically be hit with triple damages.”
Alfred said many employers will ask: “Why shouldn’t we move to southern New Hampshire or North Carolina or some other state where we don’t face these types of Draconian penalties?”
Terence P. McCourt of Greenberg Traurig said companies need to audit their pay practices as soon as possible.
“Employers should pay particular attention to what their vacation policies and commission plans look like,” said McCourt, an employment law specialist. “If, for example, an employer has a commission plan that contains some ambiguities and could be read either way, they need to look at it and really try to make it as clear as possible to avoid getting dragged into litigation.”

Settlements up, trials down

With the new law sending shockwaves in the business community, lawyers and judges say it will also significantly change how such disputes are litigated.
James W. Bucking, an employment lawyer at Boston’s Foley Hoag and author of “Massachusetts Wage and Hour Laws: What Every Manager Should Know,” said the new statute is part of a continuing trend of “criminalizing [human resources].”
“In the past, the employee’s leverage for triple damages in settlement talks only came when there were willful violations,” he said. “But now, even when you’re talking about a ticky-tack violation, it’s automatic that every $1,000 case is a $3,000 case, and every $10,000 case is a $30,000 case.”
While the added leverage will likely increase the number of Wage Act complaints filed in Massachusetts, it also means the number of trials will decrease.
“What this does is eliminate the prospect of trials on the damages issue,“ said John F. Tocci, who represents employers and employees.
Prior to passage of the new Act, damages were often the only disputed issue remaining in a case, said Tocci.
“While you may see an uptick in litigation by removing damages as an issue for trial,” said Boston-based Tocci, “you’re also going to see an uptick in settlements. That kind of sledgehammer for plaintiffs’ lawyers is going to lead a lot of employers to seek a settlement on reasonable terms.”
Gants agreed the new law will create an incentive to settle during the early stages of litigation.
“But the Legislature would say that’s exactly what they want to happen,” the judge said. “Lawyers will recognize that it may be better to promptly settle and pay up with a slight premium rather than impose the cost of going to trial and getting treble damages. I don’t think the Legislature would be upset with that result.”