This week, the Massachusetts Supreme Judicial Court ruled that unused accrued sick time does not constitute “wages” that must be paid upon termination under the Massachusetts Wage Act.  This decision, Mui v. Massachusetts Port Authority, resolves a previously unsettled question in Massachusetts wage and hour law.

Under Massachusetts statutory law, employers must pay terminated employees in full for all “wages” earned by the employee.  For employees who resign, the payment is to be made by the next regular pay day.  For employees who are “discharged,” the payment is due on the day the employee is discharged.  The Wage Act imposes strict liability for triple damages if the required payments are not made in a timely manner.

Interestingly, the Wage Act does not provide a comprehensive definition of what constitutes “wages” under the law—something which has been a source of frustration and confusion for employers trying to determine what must be paid out to employees upon termination.  The statute does provide that “wages” includes holiday or vacation payments due to an employee under an oral or written agreement, as well as commissions which are due and payable and if the amount of such commissions is definitely determined.  There is no mention of sick time in the Wage Act, and in this week’s decision, the SJC held that there was no reason to interpret the law to include it within the definition of wages.

In coming to this decision, the SJC noted the similarities and differences between vacation time and sick time.  The Court pointed out that, like vacation time, sick time is often accrued as an employee works for an employer.  However, unlike vacation time, which can be used for any reason that the employee chooses, sick time may only be used when an employee or an eligible family member is ill.  Accordingly, the SJC held that sick time is not wages, but a contingent benefit.

The particular case in which this new rule was announced involved MassPort, which had a policy that provided a partial payout for unused accrued sick time to employees leaving on good terms.  Employees terminated for cause were not entitled to any payment for unused sick time under the policy.  The SJC likened the payout under MassPort’s policy to other types of “contingent compensation”—like stock options—which have previously been held not to be wages under the Wage Act.

The SJC’s decision is consistent with the provisions of the Massachusetts Earned Sick Time Law, which was enacted by a voter referendum and went into effect in 2015.  Under that law, all employees are entitled to accrue up to forty hours of earned sick time.  Employers with eleven or more employees must pay employees for earned sick time that they use, but employees are not entitled to be paid for any unused sick time accrued under the law.

Because of the complexity of these issues, and the potential consequences for violations of the Wage Act, employers are always advised to consult with employment counsel when considering changes to their policies, or dealing with individual wage and hour issues.