When it comes to payment of wages, the old saying “better late than never” does not apply. A case recently issued by the Massachusetts Supreme Judicial Court provides an important reminder of the need to pay terminated employees on the date of discharge for all wages owed, including unused accrued vacation time.
The case, Dixon v. City of Malden, 464 Mass. 446 (2013), involved a city employee who had fifty days of unused accrued vacation time amounting to more than $13,000 when he was terminated from his job as a nursing home administrator in 2007. The employee’s final paycheck did not include payment for these unused vacation days. (At the time, the city had a policy that employees terminated for fault would not be paid for unused vacation time—a policy that has since been rendered invalid under Electronic Data Systems Corp. v. Attorney General, 454 Mass. 63 (2009). The mayor, perhaps intending to avoid a lawsuit, authorized the continuation of the employee’s salary and benefits for another two months after his termination, to the tune of nearly $20,000. In his testimony at trial, the mayor described the salary continuation as “an attempt to settle [the plaintiff’s] claims.” However, at the time the additional salary payments were being made, there was no indication that the payments were meant as compensation for the unused vacation time. In fact, the last paystub the employee received when the salary continuation ended still reflected a vacation balance of fifty days.
The Superior Court judge who heard the case found that, by not paying all wages due on the termination date, the city had not complied with the Wage Act. However, the Superior Court judge awarded no damages because he found that, after taking the salary continuation into account, the employee “came away with more from the city than was owed.”
On appeal, the Supreme Judicial Court reversed the Superior Court’s judgment and held that the city’s failure to pay unpaid wages on the day of discharge “cannot be mitigated by gratuitous, after-the-fact payments.”
The SJC has adopted the position of the Attorney General, as stated in Advisory 99/1, that the Massachusetts Wage Act requires that terminated employees be paid for earned, but unused vacation time on the day of their discharge. The SJC held that failure to pay all wages due on the day of discharge is a violation of the Wage Act that results in damages, even if the employer pays all of the wages owed before a claim is filed. In a footnote, the Court noted that if the city had designated all or a portion of the salary continuation as payment for unused vacation time, the city might have been able to use those payments to offset some of the plaintiff’s damages. But because the salary continuation was not specifically identified as repayment for the unused vacation time, the SJC rejected the city’s attempts to recast the payments as such retrospectively. The Court also rejected the city’s argument that awarding additional damages to an employee who already received almost $20,000 in salary continuation would result in a windfall to the employee. Rather, the Court pointed out that, in wage cases, just like with employee misclassification, “the ‘windfall’ the Legislature appeared most concerned with is the ‘windfall’ that employers enjoy from the … avoidance of holiday, vacation, and overtime pay.”
This case serves as a clear warning to employers to ensure that their policies relating to final paychecks for terminated employees comply with the law, and that those policies are consistently followed in every case. As the Court observed, the Wage Act imposes “strict liability” on employers who must “suffer the consequences” of violations regardless of intent. And after the 2008 amendment to the Wage Act, those consequences include a mandatory award of triple damages, attorney’s fees and costs.