Regrettably, situations can arise which require an employee to be terminated immediately. Though it is sometimes difficult to think about calculating and generating a final paycheck when emergencies happen and an employee needs to be separated with no notice, it is important to remember that there are certain wage laws that vary by state. These wage laws need to be followed during or immediately following an employee’s termination. If not, the employer exposes itself to liability, attorneys’ fees and potentially enhanced damages for late payment of those wages.
Paying out employees following termination and potential pitfalls to avoid
Sometimes, wage laws give employers at least some time to give employees their final paycheck after terminating them. For example, in Vermont, an employer must give the employee their final paycheck within 72 hours of the employee’s termination. In Massachusetts, however, the law is significantly more complex and has become much stricter after a recent court decision. An employer should familiarize itself with the correct wage payout procedures for each state in which it has employees, in order to avoid unnecessary and expensive wage claims against it.
Massachusetts Wage Act and the consequences of Reuter v. Methuen
The Massachusetts Wage Act (the “Act”) requires employers to pay wages to their employees within designated periods. The Act defines “wages” to include not only pay for time worked, but also holiday or vacation payments due to an employee. If an employee resigns their employment, they must be paid in full on the following payday or, in the absence of a following payday, the following Saturday. If an employee is terminated by the employer, they must be paid in full on the day of their discharge.
The Wage Act further provides that an employer who violates the Act must pay triple, or treble, damages for any lost wages and other benefits, as well as costs of litigation and reasonable attorneys’ fees to the employee.
In 2022, the Massachusetts Supreme Judicial Court (“SJC”) released an opinion that contains important and potentially explosive ramifications for the Act. The SJC held that the Act requires that employers that fail to pay wages owed to employees by the date required must pay treble wages as liquidated damages, even if the employer paid those wages to the employee before the employee brings suit.
This departs from previous rulings and interpretations of the Act, which did not allow for treble damages prior to an employee bringing suit.
What happened in Reuter v. Methuen?
Beth Reuter (“Ms. Reuter”) was discharged from her employment with the city of Methuen (the “City”). The City paid Ms. Reuter for her hours worked on the day of discharge, but it also owed Ms. Reuter $8952.15 in accrued vacation time. The City paid this to Ms. Reuter three weeks after her termination. Ms. Reuter brought suit for $23,872.40, which included treble damages as well as attorney’s fees.
On appeal, the SJC ruled that paying employees late is the equivalent of not paying them at all. Therefore, employees are entitled to treble damages if they are not paid on time, with no exceptions. The SJC reasoned that employers are the ones who should “bear the cost of such delays and mistakes, honest or not.”
How should employers with Massachusetts employees move forward after this ruling?
This new interpretation of the Act is binding on all Massachusetts employers and is not something that should be taken lightly, especially when terminating employees. Though it is sometimes difficult to focus on details such as calculating and generating a final paycheck when emergencies happen and an employee needs to be immediately terminated, it is important to remember the Act and the potential repercussions of being hasty. The best course of action when deciding to immediately terminate an employee may be to suspend her, rather than terminating her in that moment. This allows time for an employer to calculate wages, including vacation time and generate a paycheck before formally terminating her. Proceeding cautiously could help an employer from having these types of claims brought against it.
A lesson for all employers is to take time to understand the wage laws in every state in which you have employees, so you will be prepared in the event you need to take quick action.
Please contact Heather Hammond (firstname.lastname@example.org) at Gravel & Shea PC if you have questions or would like assistance.