A recent ruling by the Massachusetts Supreme Judicial Court (SJC) highlights the explosive impact of the mandatory treble damages provision that is assessed against companies for wage-and-hour violations.

The case arose when an employer failed to pay a fired employee for her accrued but unused vacation time on her final day of employment. Massachusetts law requires that when a termination is involuntary, all wages up to the date of termination, including vacation pay, must be paid on the final day of employment.

The employer instead corrected its mistake and made the payment three weeks after her termination date – well before the one-year period she waited to file her claim of unpaid interest on the late vacation pay.

In Massachusetts, non-payment-of-wages claims are enforced in the following manner. An employee must file a complaint alleging non-payment of wages with the Attorney General’s Fair Labor Division (FLD). Once received, one of two things happens: either the FLD pursues a claim against the employer on behalf of the employee, or the FLD takes no action and returns the claim to the individual worker who may pursue a private right-of-action to recover the unpaid wages.

The treble damages provision only applies in private right-of-action claims.

The statute is a strict liability one, meaning it does not matter whether the non-payment was an accident, or arose in some other inadvertent manner such as a delay caused by forces of nature as happened in 2021 when employees paychecks were delayed by ice storms for a day or two.

The Massachusetts Legislature enacted this law in early 2008. Then-Governor Deval Patrick proposed an amendment allowing employers to avoid the treble damages penalty if the employer could show by clear and convincing evidence that the employer acted in good faith.  The legislature rejected that amendment, and the law took effect on July 13, 2008 without the governor’s signature.

The recent case began when the employer terminated the employee in 2013 after she was convicted of larceny. The employer failed to pay accrued but unused vacation at the time of termination but corrected its error and paid the employee within three weeks. The unpaid interest was not paid until a year later in response to a demand letter seeking the money.

The employee then filed suit in the Superior Court seeking full treble damages, attorneys’ fees, and interest. The Superior Court, following precedent, entered judgment only for the attorneys’ fees and interest. The decision was appealed by the former employee to the Supreme Judicial Court.

In a unanimous opinion, the SJC stated that the issue “was not whether the employer violated the Wage Act by failing to pay the plaintiff for her vacation time on the day she was fired, as it clearly did.” Rather the question before the court was the proper measure of the damages for violating the law when the employer pays wages after the deadlines provided in the Act but before the employee files a complaint.

In deciding the case, the SJC determined that the statutory remedy was clear in that the purpose of the law was to “require prompt payment of wages and the trebling of those wages as liquidated damages when they are paid late. The remedy for late payment is therefore not the trebling of interest payments on those wages as found by the trial judge, but the trebling of the late wages.”

This decision makes clear that the requirement that final wages (including accrued but unused vacation time) be paid on the day of an involuntary termination presents significant consequences to employers if the employer makes the final payment late. In any instance where the payment is late for any reason, that late payment will violate the law.

Employers need to evaluate their termination processes to avoid situations like this. Some considerations:

Direct deposit – consider requiring employees to participate in your direct-deposit program. If you don’t have a direct-deposit program, consider establishing one. Having a direct-deposit program in place may help expedite getting funds to the employee following a termination and will prevent shipping delays that can affect delivery of paychecks.

Extend the time – if unable to pay the money on the day of termination, consider extending the employee’s employment for one or two days and sending the final payment within that extended employment period.

For example, if you terminate an employee on Wednesday pay the employee through Thursday or Friday to ensure that the money reaches them within the timeframe required by the law. In instances where the termination is unscheduled, consider suspending the employee for the time necessary to process any final payments owed to the employee.

One cautionary note: if the final pay is to be made electronically, be certain that the funds do not transfer to the employee prior to the conversation about the employee being terminated.

There is a possibility that the courts may apply this decision retroactively to similar claims filed over the past three years (the statute of limitations under the wage and hour laws). If you are concerned that may impact your business, now is the time to go back and evaluate whether any prior terminations could qualify to be reviewed for compliance.

Cases like this compel employers to go back and review their termination process in general to ensure that it complies with the law. Issues likely to arise include:

• Effective communication across management so that all the relevant parties are informed when someone is being terminated.
• Clarity about who makes the decision about how to handle the final payment, which can require a manual check or a period of suspension as discussed above.

AIM members with questions about this or any other human resources issues may contact the Employer Hotline at 1-800-470-6277.