In a surprising decision early this month, a superior court judge entered an expansive reading of the Massachusetts Wage Act that brings severance pay into the law’s ambit. If the thinking of Justice Dennis Curran is adopted by other judges or affirmed by the state’s appeals courts, it will leave employers who don’t make severance payments exposed to the Wage Act’s mandatory triple damages provision, its provision for individual management liability, and its requirement that defendants pay winning plaintiffs for all legal fees they expend.
Justice Curran’s decision came as a surprise because it has been largely accepted among employment lawyers that severance pay issues are not covered by the Wage Act. That law, which requires employers to pay their workers all wages they earn, including commissions, within specific and narrow time frames, appears on its face to apply only to money that an employee earns by appearing at work and performing job duties for his/her employer. Severance pay generally does not fit this description, coming as it does after an employee is terminated or quits and, therefore, after he/she stops coming to work. What’s more, severance is usually conditioned not on work performance but on a waiver of an employee’s rights to sue and other undertakings that have little to do with working. Apparently recognizing these distinctions between severance pay and wages, the state’s Appeals Court — a higher legal authority whose rulings must generally be followed by superior court judges — has already concluded that severance pay is not subject to the Wage Act’s strict penalty provisions.
Justice Curran apparently read a later Supreme Judicial Court decision to require a broader reading of the Wage Act and justify his decision not to follow the Appeals Court’s prior guidance. If it stands, the ruling will have broad implications for employers, who will need to tread carefully with severance payments, ensuring all are made absent extraordinary circumstances. Though this normally occurs anyway, occasions do arise where employers stop making severance payments because of perceived misconduct by former employees (such as violating confidentiality or anti-competition agreements, e.g.). As long as the Wage Act threat remains, employers will need to err on the side of making all severance payments, regardless how bad a former employee’s conduct might be, lest they face mandatory triple damages, etc., when a judge or jury rules that their conduct was unjustified for any reason.