On April 4, 2022, the Massachusetts Supreme Judicial Court (SJC) determined that an employer's payment of accrued, unused vacation three weeks after terminating an employee violated the Massachusetts Wage Act and imposed treble damages for the late-paid vacation time. In doing so, the SJC upended a common practice for employers, routinely applied and endorsed at the trial court level, that late payment of wages before a lawsuit was filed would cure a Wage Act violation and shield employers from treble damages (while leaving employers subject to the typical de minimis interest on the late payment and attorney's fees). The SJC has now rejected this "cure" practice.
In Reuter v. City of Methuen, the employer paid the employee accrued vacation three weeks after terminating her. The employee demanded payment of the entire vacation pay trebled, plus attorneys' fees. In response, the employer tendered the plaintiff a check representing the interest for the late vacation payment multiplied by three. The SJC concluded that the plaintiff employee was entitled to treble the full amount of the vacation pay. The court noted the Wage Act is intended to protect employees, and violations are subject to treble damages, regardless of the employer's fault or intent. Interpreting the language of the Wage Act, it held that once a violation occurs, the right to treble damages has vested in the employee, rather than once the employee has initiated a complaint. As a result, the plaintiff was entitled to treble damages of the late-paid vacation time and attorneys' fees for prevailing on her Wage Act claim.
This decision highlights the risk to employers in not calculating and paying all wages and vacation when terminating Massachusetts employees to ensure that payment of all wages, including vacation time, is made on the date of termination. The SJC decision impacts employers when an employee engages in substantial misconduct warranting immediate, unplanned dismissal. These employees must be paid in full all wages and vacation on the termination date. To mitigate the risk to employers, the SJC suggested suspending, rather than immediately terminating, these employees while final wages are calculated. Employees voluntarily departing must be paid all wages, including accrued unused vacation time, by the next regular pay period after employment ends. The SJC places the onus squarely on the employer to satisfy its obligations under the Wage Act.
It is also imperative that employers have clear written vacation time/PTO policies enforced uniformly and eliminate any ambiguities or discrepancies in what employees have accrued in vacation time/PTO. Errors in calculating vacation time will lead to mandatory treble damages for such errors. If an employee does not receive the total amount of accrued and unused vacation at the moment of termination, the SJC decision provides full incentive to pursue such a claim, along with the recovery of treble damages, attorneys' fees, and litigation costs.
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