Massachusetts SJC Takes Interest in Wage Act Claims

On June 26, 2017, the Massachusetts Supreme Judicial Court issued its decision in the case of George, et. al. v. National Water Main Cleaning Company, which addressed the question of whether statutory prejudgment interest is available for claims brought under the Massachusetts Wage Act. The underlying case involved a class action brought by a group of employees against their employer for nonpayment of wages. The SJC, which heard the case as a certified question of law from the United States District Court for the District of Massachusetts, held that interest should be added to the amount of lost wages and other benefits awarded as damages, but not to the additional amount of the award arising from the trebling of damages under the statute.

In issuing its decision, the Court considered the legislative history of the Wage Act and its damages provisions. In particular, it noted that in 2008, the statutory interest language was amended to make treble damages mandatory as “liquidated damages.” The debate between the parties was whether the characterization of the damages as “liquidated” precluded the application of statutory prejudgment interest. The Court found that it did not, holding that to interpret “liquidated” in a way that would preclude prejudgment interest would be to impliedly repeal the interest statutes. Instead of taking such a drastic measure, the Court found that the two statutes could be read in harmony by applying prejudgment interest only to the portion of the award reflecting lost wages and benefits, not to the portion reflecting liquidated damages.

Although the Court’s holding means employers won’t be hit with interest on the treble damages portion of a Wage Act claim, Massachusetts employers should still take great care to comply with the requirements of the Wage Act in order to minimize potential liability.

– Lauren Corbett

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Massachusetts Governor Signs New Pay Equity Bill Into Law

On August 1, 2016, Massachusetts Governor Charlie Baker signed into law a bill replacing the state’s existing Equal Pay Act (M.G.L. c. 149, § 105A), which was first enacted in 1945. The new Act clarifies the concept of “comparable work” and expressly prohibits employer conduct that – intentionally or unintentionally – has historically contributed to the wage gap between male and female employees.

The new Act prohibits all employers from discriminating “on the basis of gender in the payment of wages, including benefits or other compensation, or pay[ing] a person a salary or wage rate less than the rates paid to employees of a different gender for comparable work.” The new Act clarifies the concept of “comparable work” by defining it as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions.” An employee’s job title or job description, by itself, will not determine comparability. Variations in compensation and benefits are not prohibited if based upon a bona fide seniority or merit system; a system under which earnings are measured by quantity or quality of production or sales; geographic location; education, training, or experience, provided such factors are reasonably related to the job and consistent with business necessity; or travel, if the travel is a regular and necessary condition of the particular job.

The new Act also expressly prohibits employers from engaging in the following:

  • Forbidding employees from inquiring about, discussing, or disclosing information about either their own compensation and benefits or those of other employees (already prohibited under the National Labor Relations Act);
  • Screening applicants based on their compensation and benefits or salary histories, including by requiring that an applicant’s prior compensation and benefits or salary history meet minimum or maximum criteria;
  • Requesting or requiring an applicant to disclose prior wages or salary history;
  • Seeking an applicant’s salary history from a current or former employer before making a job offer and without the applicant’s written authorization; and
  • Retaliating against an employee for opposing any act prohibited under the new law or participating in any action to enforce rights under the law.

The new Act also broadens the remedies available to aggrieved employees. It increases the statute of limitations from one year to three and creates a continuing violation provision under which a new limitations period will be triggered each time an employee is paid in violation of the law (similar to the federal Lilly Ledbetter Fair Pay Act of 2009). Employees may file an action directly in court, without having to first file with the Massachusetts Commission Against Discrimination or the Attorney General’s Office. Employers found to be in violation of the new law are automatically liable for double damages and reasonable attorneys’ fees. The Attorney General may also bring an action on behalf of one or more aggrieved employees.

Finally, the new Act creates an affirmative defense for an employer who, within three years of the commencement of an action, has completed a good faith self-evaluation of its pay practices and can demonstrate that reasonable progress has been made towards eliminating gender-based pay differentials in accordance with such evaluation. An employer may design its own self-evaluation as long as it is reasonable in detail and scope in light of the employer’s size. Employers may also utilize templates and forms to be issued by the Attorney General’s Office.

The new Act does not become effective until July 1, 2018. This gives employers plenty of time to review their current pay practices and make any changes necessary to comply with the new statutory requirements. Beck Reed Riden’s experienced employment lawyers are available to assist employers with this task.

New Mandatory Sick Time for Mass. Employees

Last week, Massachusetts voters approved Ballot Question Four, which amends the Massachusetts Wage Act and creates new mandatory sick time for Massachusetts employees. Beginning July 1, 2015, private employers must allow their Massachusetts employees to earn and use up to 40 hours of sick time per calendar year.

Whether the sick leave is paid or unpaid depends on the size of the employer. Employers with 11 or more employees must provide paid sick leave, while employers with ten or fewer employees must provide unpaid sick leave. Full-time, part-time, and temporary employees all count toward the 11-employee threshold. Unfortunately, the new law does not specify whether employees who work outside of Massachusetts should be included in the employee count.

Under the new law, sick time is to be earned at the rate of a minimum of one hour for every 30 hours worked, up to 40 hours per calendar year. For purposes of accrual, employees exempt from overtime under the Fair Labor Standards Act will be presumed to work 40 hours per week unless their normal workweek is less than 40 hours. Employees may only begin to use the accrued sick time after 90 days of employment. Employees may carry over up to 40 hours of earned sick time into the next calendar year, but may not use more than 40 hours of sick time in a given calendar year. Importantly, employers are not required to pay out earned, unused sick time upon termination of employment.

Employees may use earned sick time to: 1) care for the employee’s child, spouse, parent, or parent of a spouse with a physical or mental illness; 2) care for the employee’s own physical or mental illness; 3) attend routine medical appointments for the employee or the employee’s child, spouse, parent, or parent of a spouse; or 4) address the psychological, physical, or legal effects of domestic violence.

If the use of earned sick time is foreseeable, an employee must give his or her employer advance notice of it. An employer may require an employee to provide written certification from a relevant health care provider if the employee uses more than 24 consecutive scheduled work hours of sick time. However, the employer is not permitted to delay the employee’s use of earned sick time or delay paying for the period in which earned sick time was taken based on the employee’s failure to provide certification for the absence.

The Massachusetts Attorney General will enforce this new law, which also prohibits employers from interfering with an employee’s right to earn or use sick time and retaliating against an employee for supporting another employee’s exercise of such rights. Aggrieved employees can, after filing a complaint with the Attorney General, bring a private right of action in court for sick time violations. Complying with the new law is important because failure to do so entitles employees to mandatory treble damages, litigation costs, and attorneys’ fees for proven violations.

An employer with paid time-off policies equivalent to, or more generous than, those required under the new sick time law are not obligated to change their existing policies and/or provide additional paid sick time. However, in advance of the July 1, 2015 effective date, employers with Massachusetts employees should: ensure that they have the proper procedures in place to calculate, monitor, and document the accrual, use, and carry over of sick time; carefully evaluate and, if necessary, update their relevant paid time-off policies for compliance with the new law; and provide corresponding training to their managers and HR staff.

Authored by Shannon Lynch with help from Stephanie Cipolla and Faith Hill.

SJC Finds LLC Managers Individually Liable Under Massachusetts Wage Act

On June 13, 2013, the Massachusetts SJC issued its decision in Cook v. Patient EDU, LLC (SJC–11272), holding that a manager of a limited liability company (“LLC”) may be held individually liable under the Massachusetts Wage Act (G.L. c. 149, §§ 148, 150) the same way that the president, treasurer, or other officers with management responsibilities of a corporation may be held individually liable.

In Cook, the plaintiff sued his former employer – an LLC – and its two managers for unpaid wages under the Wage Act. The Act requires “[e]very person having employees in his service” to pay those employees their wages on either a weekly or bi-weekly basis, or on a less frequent basis in certain circumstances. Violation of the Act results in mandatory treble damages and the award of reasonable attorneys’ fees and costs to the successful plaintiff. The Act provides that the president and treasurer of a corporation, as well as “officers or agents having the management ” of the corporation, “shall be deemed to be the employers of the employees of the corporation within the meaning of this section.” G.L. c. 149, § 148. Similarly, the Act imposes individual liability on “‘[e]very public officer whose duty it is to pay money, approve, audit or verify pay rolls, or perform any other official act relative to payment of any public employees’ who fails to do so.” This means that individuals in those roles may be held personally liable for violations of the Act, including for treble damages, attorneys’ fees, and costs.

In moving to dismiss the plaintiff’s complaint against them, the two managers argued that because the Act does not specifically mention managers of LLCs, they could not be held individually liable for failing to pay the plaintiff his wages. The Court rejected the managers’ argument. It refused to read the language of the Act as “an effort to single out for individual liability only the officers or managers of the specific types of entities mentioned in the statute.” Instead, the Court wrote, “We discern from the inclusion [in the Act] of the provisions regarding corporate and public officer liability a clear legislative intent to ensure that individuals with the authority to shape the employment and financial policies of an entity to be liable for the obligations of that entity to its employees.” The Court concluded that the legislative purpose of the Act would not be served by holding officers and agents of a corporation liable for failure to pay wages but not managers of an LLC, who likewise control the policies and practices related to the timely payment of wages to employees. “To interpret G.L. c. 149, § 148, so as to distinguish between such actors would produce a result at odds with the intent of the statute.”

While not necessarily a shocking result, Cook clarifies an issue that has been the subject of opposing decisions in the superior court. With Cook, there is no longer any doubt that the Massachusetts Wage Act imposes individual liability on managers of an LLC and other limited liability entities. Individuals in these types of roles must recognize their exposure in the event the LLC itself is unable to pay a damages award. This is yet another reason why employers – and their most senior leaders – must insure that they are complying with the strict requirements of the Wage Act.

Massachusetts Supreme Judicial Court Rules That Independent Contractor Statute Applies To Out-Of-State Workers

On May 17, 2013, the Massachusetts Supreme Judicial Court ruled that out-of-state individuals working as independent contractors for Massachusetts-based companies are protected by the Massachusetts independent contractor statute and wage act. In Taylor v. Eastern Connection Operating, Inc., 465 Mass. 191 (2013), the plaintiffs lived in New York and worked there as couriers for Eastern, which is headquartered in Woburn, Massachusetts. The plaintiffs entered into identical independent contractor agreements with Eastern, which contained a Massachusetts choice-of-law and forum selection clause. In 2010, the plaintiffs sued Eastern in Massachusetts Superior Court, claiming that they were misclassified as independent contractors in violation of the independent contractor statute and that, as employees, they were owed unpaid wages and overtime under the wage act. The Massachusetts independent contractor statute contains a very strict three-part test for determining whether a worker is an independent contractor or an employee. The test is so strict that it is virtually impossible for a Massachusetts employer to lawfully classify a worker as an independent contractor under the statute. Workers who should properly be classified as employees are entitled to the protections of the Massachusetts wage act, which provides for mandatory treble damages and the award of reasonable attorneys’ fees to prevailing plaintiffs. The Superior Court dismissed the plaintiffs’ suit, ruling that the independent contractor statute did not apply to non-Massachusetts residents working outside of Massachusetts. Consequently, it determined that the plaintiffs were not entitled to the protections of the wage act.

On the plaintiffs’ appeal to the SJC, Eastern argued that the choice-of-law clause in its independent contractor agreement “cannot imbue the [independent contractor] statute with extraterritorial effect it otherwise lacks.” In rejecting Eastern’s argument, the Court relied on established case law to hold that “where no explicit limitation is placed on a statute’s geographic reach, there is no presumption against its extraterritorial application in appropriate circumstances.” The Massachusetts independent contractor statute is silent as to its extraterritorial application. Accordingly, the Court looked to the particular circumstances, finding that the parties had agreed that the independent contractor agreement would be construed in accordance with Massachusetts law and that application of the independent contractor statute did not offend the fundamental public policy of New York. It therefore concluded that there was no apparent reason to disregard the parties’ choice of law and held that the independent contractor statute governed the plaintiffs even though they were out of state.

The practical implication of the Taylor decision for Massachusetts-based companies is that they now face even greater exposure under the independent contractor statute and the wage act. With mandatory treble damages and the award of attorneys’ fees, the penalties for misclassifying employees as independent contractors are severe. Massachusetts-based companies with out-of-state independent contractors should examine whether those individuals truly meet the strict three-part test set forth in the independent contractor statute. Where the test is not met, those workers should be reclassified as employees and paid in accordance with the wage act.

Massachusetts SJC Allows Release of Wage Act Claims

The Massachusetts Supreme Judicial Court in December 2012 clarified an issue that has been in dispute between plaintiff-side and management lawyers for some time: whether claims under the Massachusetts Wage Act (“Wage Act”), M.G.L. c. 149, § 148, may properly be released in a settlement or severance agreement between an employer and an employee. The SJC held that Wage Act claims may be released, provided that the release is stated in “clear and unmistakable” terms.

In Crocker v. Townsend Oil Company, Inc., SJC-11059 (December 17, 2012), the two plaintiffs, former delivery drivers who were misclassified as independent contractors, brought suit against their former employer under the Wage Act for unpaid wages. They did so, though, after signing termination agreements with their employer containing a general release of claims. The release language stated:

[Each plaintiff] hereby forever releases, remises and discharges [Townsend] and its shareholders, directors, officers, employees and agents . . . of and from any and all debts, demands, actions, causes of action, suits, accounts, covenants, contracts, agreements, damages, and any and all claims, demands, obligations and liabilities whatsoever of every name and nature, both in law and equity . . . that [the plaintiffs] now have or ever had (or may in the future have, arising out of or in connection with any events occurring on or prior to the date hereof) against [Townsend] . . . . The foregoing release is intended to be a general release of all Claims, to the maximum extent permitted by law, whether or not the subject matter of any such Claim has been the subject of a previous claim or threatened claim made by [the plaintiffs].

In analyzing this release language, the SJC was faced with balancing two competing interests: the Wage Act’s strong language that “no person shall by a special contract” exempt himself from the requirements of the Act, and the equally strong public policy of enforcing general releases and allowing parties to settle employment claims, including Wage Act claims, when that is their intent.

The SJC struck a balance by holding that Wage Act claims may be released in settlement or severance agreements, provided the release language is “plainly worded and understandable to the average individual, and … specifically refer[s] to the rights and claims under the Wage Act that the employee is waiving.” The SJC stated that “[s]uch express language will ensure that employees do not unwittingly waive their rights under the Wage Act. At the same time, this course preserves our policy regarding the broad enforceability of releases by establishing a relatively narrow channel through which waiver of Wage Act claims can be accomplished.”

The Court found that because the general release quoted above did not contain clear and unmistakable language that the employees were releasing their Wage Act claims, those claims were not released and could continue.

In light of Crocker, employers must review their settlement and severance agreements to insure that the release language contained in those agreements specifically addresses claims under the Wage Act. Employers must also keep in mind that claims under the Fair Labor Standards Act may not be released without the approval of a court or the Department of Labor.