‘No Mercy’ Ruling Leaves Employers Sweating Late Paychecks

Massachusetts attorneys are advising businesses to rethink the way they pay and fire employees in the wake of a state top court decision that put them on the hook for triple damages when they’re late on a paycheck.

Compliance trainings for managers and monitoring payroll providers are just some of the things companies are doing to mitigate legal risk after the Massachusetts Supreme Judicial Court’s game-changing 2022 ruling, attorneys say. Some companies have also eliminated heat-of-the-moment firings that now carry significant risk—since employees must be paid the day of their termination.

The state court’s ruling in Reuter v. City of Methuen has been the status quo for one year now. That order holds employers liable for the damages even when an error in payment occurs through no fault of their own. And businesses are still grappling with the ramifications.

“It’s really a no mercy standard for companies,” said Michelle De Oliveira, a director for Kenney & Sams who represents businesses in employment disputes.

Management-side attorneys have worried the decision would embolden employees to sue for mistakes an employer isn’t at fault for. Plaintiffs’ attorneys, employment law scholars, and the Supreme Judicial Court itself say the strict penalty is necessary to protect employees from late wage payments and that squabbles over good-faith mistakes will be few and far between.

“Delayed paychecks can be costly and devastating, ranging from late fees to being unable to purchase groceries to employees losing their homes,” said Raven Moeslinger, a partner at the Law Office of Nicholas Ortiz who represents plaintiffs in wage and hour cases.

“Basic necessities, creditors, and landlords don’t disappear when an employee doesn’t receive their paycheck on time,” he said.

Wage Act

The Supreme Judicial Court’s April 2022 decision in Reuter revised its interpretation of the Massachusetts Wage Act, which stipulates that employers must pay their workers within six or seven days of the end of the pay period when they earned their wages. The law also requires that employees who are fired be paid wages and accrued vacation time in full that day.

In the past, case law suggested that employers could satisfy the Wage Act by paying an employee the wages they were owed, plus triple the interest on their damages, before the worker filed suit, said Donald Schroeder, a partner at Foley and Lardner who represents management in labor and employment issues.

That amount was “a largely meaningless remedy that often amounted to a few dollars,” Moeslinger said.

Now, employers are on the hook for triple the damages, rather than triple the interest—as well as litigation costs and attorney’s fees. Those damages are “owed upon violation and not upon the filing of a court complaint,” said Joshua Nadreau, a labor and employment partner at Fisher Phillips who represents employers.

Payroll Oversight

A handful of states offer workers triple damages as a remedy to their employers’ wage act violations, said Molly Mooney, an associate at Seyfarth Shaw who practices employment law. “What other states don’t have is triple damages for any single violation” and “the absence of a good faith defense,” she said.

Under the Massachusetts Wage Act, “it doesn’t really matter what the trigger was for nonpayment of wages,” said Mark Burak, a shareholder at Ogletree Deakins who represents employers in labor disputes. They’re accountable for late payments even in “circumstances beyond their control,” Burak said.

Mooney said she worked on a case pre-Reuter involving an employer who mailed out a paycheck that got lost in the mail. Because “the employee didn’t have that check in their hands when they were supposed to have it, that’s a Wage Act violation,” even though the employer had no intent to keep wages from their worker, Mooney said.

Some businesses are now more closely overseeing payroll providers to mitigate late payments and resulting violations, De Oliveira said.

Companies, for example, can run into difficulties with federal holidays. When the Fourth of July was in the middle of a week, a payroll provider for a company De Oliveira worked with ended up delaying mailing checks by a day. That kind of error “can really be costly,” she said.

If businesses speed up their payroll, from collecting time sheets to printing checks, it could give them an extra day of wiggle room if something goes awry, Barry Miller, a partner at Seyfarth Shaw who defends wage and hour claims, said in a webinar.

Companies are also worried about rare events like large-scale outages in their payroll system or bank failures causing checks to bounce. “The liability and the risk here is huge,” Mooney said, but some areas of liability are out of an employer’s control.

“We did a lot of briefings for our clients on this topic, and those were some of our most attended webinars ever for Massachusetts employers,” Mooney said.

“Management training when it comes to employee terminations and payments has never been more important,” De Oliveira said.

Workplace Dynamics

Late final payments to terminated employees pose an even greater risk for companies, because they must pay out accrued vacation—making the paycheck, and potentially the damages, larger, Mooney said.

But Reuter “doesn’t really take into account the realistic dynamics that occur when somebody is fired for cause immediately and may not have received their final paycheck,” Schroeder said.

For example, a business may choose to get an employee “out the door almost immediately” if they’ve engaged in egregious misconduct, even though they may not be administratively prepared to pay out their final paycheck that day, Schroeder said.

On-the-spot firings used to “happen all of the time” in industries like construction, where managers might become frustrated by a worker who does something “grossly inappropriate” or misses work several days in a row and say “that’s it, I’ve had it, don’t come back to work,” said De Oliveira, who chairs the Massachusetts Bar Association’s Labor & Employment Section Council.

De Oliveira tells her clients that managers “can no longer and should no longer be making these decisions to just let somebody go on the spot.”

Employers do have a workaround.

“If you’re not ready to pay a person but you need to get them off your worksite immediately because you’ve discovered some sort of misconduct, suspend them,” said Gavriela Bogin-Farber, an associate at Segal Roitman and who represents employees, and former president of the Massachusetts Employment Lawyers Association.

The statute is also difficult to implement when terminating workers, because “you need to get that pay into their hands, but you also need to tell them they’re going to be terminated,” Nadreau said.

This puts employers in the potentially awkward position of having to direct deposit a worker’s earned wages before breaking the news to them, he said.

Businesses Bear Cost

The question of who should absorb the cost for accidental late payments is answered head on in Reuter: “employers rather than employees should bear the cost of such delay and mistakes, honest or not,” the opinion said.

“The court is basically saying, if we’re going to see a little unfairness once in a while, we think the employer is better situated to absorb the cost of that unfairness,” said Maria O’Brien, professor of Law at Boston University.

If employers would like to see a change, they’ll ultimately need to “persuade the legislature to address the problem,” Burak said.

“I understand how employers would find Reuter tiresome,” O’Brien said, “but the notion that when you terminate someone you have to pay them out every bit you owe them on the day you terminate them is pretty clearly enshrined in the statute.”

The case is Reuter v. City of Methuen, Mass., No. SJC-13121, Opinion 4/4/22.