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Employers Beware: The Scope of the Wage Act Continues to Expand

Valerie Samuels February 18, 2011

Does The Wage Act Cover Severance Pay?

The Massachusetts Superior Court has issued a decision which expands the scope of the Massachusetts Wage Act, Chapter 149, Section 148, et seq.  In Juergens v. MicroGroup, Inc., Superior Court Associate Justice Dennis Curran held that the Wage Act should be construed expansively to include severance pay.

Juergens was hired by MicroGroup on October 15, 2008.  During the discussions leading up to his employment, he received a written employment offer as well as an e-mail from the company’s Chief Executive Officer agreeing to pay six months severance upon a “not for cause” termination.  On February 3, 2010, MicroGroup informed Juergens his position was being eliminated.  He was never advised of any reason for his termination and MicroGroup did not pay Juergens any severance.  Juergens filed a wage complaint with the Attorney General and, on June 4, 2010, the Attorney General authorized him to bring suit under the Wage Act.  Juergens filed suit against MicroGroup on November 3, 2010.  MicroGroup then filed a motion to dismiss his Wage Act claim arguing that severance payments are not included within the definition of “wages” under the Wage Act.  The Superior Court denied MicroGroup’s motion to dismiss, relying upon the Supreme Judicial Court (“SJC”) case Wiedmann v. Bradford Group, Inc., 444 Mass. 698 (2005).  In Wiedmann, the SJC held that the Wage Act covered commission payments when they were definitely due and determined.  The Wiedmann Court took an expansive view of the Wage Act, refusing to follow two Massachusetts Appeals Court cases, Prozinski v.Northeast Real Estate Services, LLC, 59 Mass. App. Ct.  599, (2003) (holding that severance payments are not subject to Wage Act) and Commonwealth v. Savage, 31 Mass. App. Ct. 714, 716 (1991) (holding that real estate broker’s commission not covered by Wage Act).

Although the Juergens’ decision is not binding on other Massachusetts courts, it points to an inconsistency in the way in which judges view the Wage Act.  Several judges, including two in the Business Litigation Session, have taken the opposite position and ruled that the Wage Act does not cover severance payments.  Moreover, in 2010, U.S. Magistrate Judge Marianne Bowler held that bonus payments in an employee retention plan are not subject to the Wage Act.  See Doucot v. IDS Scheer, Inc., U.S. District Court, Docket No. 09-11482-MBB (August 10, 2010).

Given this uncertainty, what is the safest course of action for employers?  Until the SJC issues a definitive ruling on whether severance pay is subject to the Wage Act, employers are well advised to honor their commitments to pay severance to departing employees in order to avoid the Wage Act’s draconian penalties.  The Wage Act provides for mandatory treble damages and attorneys’ fees as well as individual liability under certain circumstances.  Employers should make sure they carefully define the specific circumstances under which employees are entitled to severance and that both parties sign a written agreement setting forth these terms.  We also suggest that employers condition any severance payment upon the employee’s release of all claims.

Employers Who Deduct Cost of Damages From Wages Do So At their Peril.

The SJC recently affirmed a decision by the Division of Administrative Law Appeals against a recycling and waste hauling company for illegal deductions from employees’ wages.  In Camara v. Attorney General, No. SJC-10693, 2011 WL198644 (Mass. Jan. 25, 2011), the Court held that the Wage Act prohibits deductions based upon an employer’s unilateral determination of an employee’s fault and damages.  The Attorney General pursued Michael Camara and his company, ABC Disposal, Inc., for illegal deductions from their employees’ wages, in violation of the Massachusetts’ Wage Act.  ABC deducted money from drivers’ wages for the cost of damage to company trucks pursuant to a policy that employees found to be at fault in an accident could either accept disciplinary action or agree to have the damages deducted from their wages.  The drivers’ pay never fell below the minimum wage, including set-offs for damage to company property.

The Attorney General contended the Wage Act prohibits employers from withholding or deducting payments of earned wages even in those situations where an employer obtained the employee’s prior consent.  According to the Attorney General, regardless of an employee’s agreement, there may be no deduction of wages unless the employer demonstrates the existence of a valid attachment, assignment or “set-off” as described in the Wage Act.  The Attorney General took the position that ABC’s set-off policy was invalid, cited ABC and Camara, individually, for violating the Wage Act and ordered them to pay restitution to employees in the amount of $21,487.96, plus a $9,410.00 penalty. 

ABC and Camara appealed the administrative law decision.  The SJC sided with the Attorney General and held that ABC’s policy was unlawful because it allowed the company to make a unilateral assessment of fault and damages with no role for an independent decision maker and no opportunity for an employee to challenge the result.  The SJC held that this was not a “clear and established debt owed to the employer by the employee.”  Thus, the SJC found that ABC’s policy permitting employees to choose between disciplinary action or a wage deduction was unlawful.

The SJC’s decision makes it extremely difficult for employers to make wage deductions for damages or loss attributed to an employee, even where the employee has authorized the deduction in writing.  This is a departure from prior Massachusetts’ practice and signals a very strict, pro-employee interpretation of the Wage Act by both the Attorney General and the SJC.  Massachusetts employers must tread carefully.  If they institute a policy authorizing deductions for damages or losses caused by employees, they must make sure safeguards are built into the policy, including an independent decision maker and opportunity for the employee to appeal the determination.  Of course, the cost of these safeguards and the administrative headache of implementing them will cause most employers to refrain from making any deductions from wages whatsoever.

If you have any questions or need additional information regarding this, please contact Valerie C. Samuels or any other attorney in our Employment Group.

This Alert is provided for information purposes only, and does not constitute legal advice.  According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2011 Posternak Blankstein & Lund LLP.  All rights reserved.

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