April 7, 2022

No Safe Harbor for Late Payments to Massachusetts Employees: Pay on Time or Pay Triple

On April 4, 2022, the Massachusetts Supreme Judicial Court (“SJC”) issued its decision in Reuter v. City of Methuen, holding that an employer must pay treble (triple) damages if the organization is late in paying the wages of a Massachusetts-based employee. This decision overrules the “safe harbor” created by a Superior Court decision, Dobin v. CIOview Corp., and followed by at least two subsequent court decisions, which Massachusetts employers have relied on for over two decades. Under Dobin, if an employer paid wages to an employee after the payment was due but before the employee filed a lawsuit, the employer’s exposure was limited to the unpaid interest on the late payment. After the Reuter decision, Massachusetts employers can no longer “cure” a late wage payment by paying the accrued interest to the employee.

The facts in Reuter illustrate how a late payment can result in substantially greater exposure for the employer. Beth Reuter was terminated from employment by the City of Methuen (the “City”), after being convicted of larceny. Under the Massachusetts Wage Act (the “Wage Act”), employers are required to pay involuntarily terminated employees like Reuter their final wages on the date of termination. The Wage Act defines “wages” broadly to include accrued vacation pay and commissions (once “definitely determined” and “due and payable”), as well as an employee’s base wages. 

Under the Wage Act, Reuter’s final wages (including her vacation pay) were due on the date of termination. However, the City did not pay Reuter’s accrued vacation pay of $8,952.15 until three weeks after her termination from employment. A year later, after her legal challenge to the termination of her employment was rejected by the Civil Service Commission, Reuter’s lawyer sent a letter to the City demanding trebling of the late vacation pay (less the amount paid) plus nearly $6,000 in attorney’s fees. The City paid Reuter $185.42, representing the 12% annual interest accrued during the three week payment delay. Reuter sued for three times the late payment, arguing that paying the interest on the late payment did not absolve the City from strict liability under the Wage Act, which mandates an award of treble damages, as liquidated damages, for any “lost wages or other benefits.” The SJC agreed, holding that late payments are “lost wages,” and awarded Reuter three times her late wages plus interest (with a set off for the amount already paid), as well as her attorneys’ fees (which by then totaled over $75,000) as the “prevailing party” in the litigation as provided for by the Wage Act.

Massachusetts employers are now at risk of steep multiple damages liability and attorneys’ fees for late wage payments. While the holding applies to any late payment of wages, the most challenging aspect of the decision for employers will be same-day payments to involuntary terminated employees. In certain circumstances, it may be difficult for an employer to arrange for same-day payment, or to immediately calculate wages such as accrued vacation. In those situations, it would be prudent to delay termination until full payment is possible.  Indeed, the SJC suggests the possibility of suspending employees who have engaged in “illegal or otherwise harmful conduct” to allow time to arrange for payment. 

Please contact your Goodwin Employment team with any questions or to discuss the implications of Reuter for your organization.