Terminated employee awarded 3x late-paid wages

(AndreyPopov/Deposit Photos)

Terminating an employee in Massachusetts? Have a check in hand. That’s the takeaway from a Massachusetts Supreme Judicial Court (SJC) ruling that recently awarded an employee triple damages for late payment of some accrued benefits.

When Beth Reuter was terminated from her custodial job with a Massachusetts school district, she received her regularly due wages on her termination date. However, it took three weeks before her employer paid her the $8,952 she had accrued in unused vacation time.

Now, under a strict interpretation of the state Wage Act, the SJC has said Reuter is entitled to three times that amount, plus fees and costs.

Under the Wage Act, employers must pay terminated employees all owed wages on their termination date. That includes earned salary, accrued time off, earned commissions, and other compensation. Employers that don’t comply with the Wage Act risk significant penalties, including actual and triple damages.

Under earlier court decisions, an employer was not required to pay triple damages for late wages if the employer paid those wages before the employee filed a lawsuit. Rather, the employer only had to pay triple the amount of interest owed, plus attorney fees.

In Reuter v. City of Methuen, the SJC disagreed with earlier decisions. In the court’s opinion, Justice Scott L. Kafker wrote, “Awarding only interest for late payment is … inconsistent with the fundamental purpose of the act.”
The judge pointed out that employees rely on those payments for basic necessities, such as housing, food, and transportation. “Much more is therefore at stake than the loss of the time value and depreciation of sums owed,” he wrote.

Maintaining compliance. In light of the ruling, organizations will need careful coordination when terminating an employee. All wages, benefits, and other compensation due should be calculated and ready for payment upon an employee’s termination.

In some situations, organizations may wish to delay a termination or place an employee on paid administrative leave until the final wage payment is ready. This may require attention to the timing of direct deposits or coordination with third-party payroll providers.

Criticism. Critics say the ruling creates zero tolerance for errors. Even organizations that make an error in good faith, and promptly correct that error, could be liable for 300% of the amount at issue. Further questions center around whether the decision will have retroactive impact and how disputed commissions should be handled.

Further, in situations where the employee has not been paid the full compensation owed, the ruling may create a disincentive for employers to correct that mistake. That’s because the outcome of litigation would ostensibly be similar for those who take quick corrective action and those who wait-and-see whether the employee will sue.

Some are calling for an amendment to the Wage Act to add a safe harbor or good-faith defense. Still others say the decision rightly recognizes the financial perils employees can face in an involuntary termination.