Until now, it has been unclear whether Massachusetts courts would allow employers to obtain a release of claims under the Massachusetts Wage Act, M.G.L. ch. 149, §§148, et seq., by having an employee sign a severance or separation agreement or other document that contains a general release of all claims against the employer. On Dec. 17, 2012, the Massachusetts Supreme Judicial Court (“SJC”) clarified this issue in Crocker v. Townsend Oil Co., Inc., SJC-11059 (Dec. 17, 2012). The good news is that the SJC has now provided a road map that employers can use to obtain a valid release of Wage Act claims. Specifically, Wage Act claims are releasable, so long as the release 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 bad news is that most employers have not been using releases that comply with Crocker, and thus should take steps immediately to modify their releases to ensure that they follow Crocker’s dictates.
The Massachusetts Wage Act
The Massachusetts Wage Act is one of the most pro-employee wage statutes in the U.S. In addition to defining what a “wage” is, the Wage Act governs when wages must be paid to employees, and establishes penalties that will be imposed on employers who violate the Act. The Wage Act also provides for mandatory triple damage and attorneys’ fees awards against employers who violate the Act, and holds a wide range of individuals personally liable for Wage Act violations. The Act also establishes the nation’s most difficult test for independent contractor classifications. Although the Act itself does not govern the payment of overtime to nonexempt employees, failure to pay overtime is considered a violation of the Act. Given the statute’s strong remedial scheme and pro-employee substantive provisions, there has been an explosion of Wage Act litigation against Massachusetts employers, as well as many attempts to apply the Wage Act extraterritorially to employees in other states.
The Crocker Decision
In Crocker, the plaintiffs, Charles Edward Crocker and Joseph Barasso, were delivery truck drivers for Townsend Oil Company, a home heating oil company in northeastern Massachusetts. Crocker and Barasso worked as independent contractors for Townsend, pursuant to contractual carrier agreements. Pursuant to the agreements, Crocker and Barasso did not receive hourly wages, but rather were paid based on the amount of oil they delivered on Townsend’s behalf. In January 2007, Crocker and Barasso were terminated by Townsend. In exchange for the payment of several thousands of dollars, both Crocker and Barasso signed termination agreements that included general releases of all claims against Townsend.
The plaintiffs filed a complaint against Townsend in 2009, arguing, notwithstanding the fact that they had executed general releases that, under the Wage Act’s tough independent contractor test, they were improperly classified as independent contractors and, therefore, that Townsend owed them wages and overtime under the Wage Act. Townsend moved to dismiss, in relevant part, on the ground that both plaintiffs had executed general releases and thus waived their right to bring such claims against Townsend.
The SJC disagreed, holding that a general release would not be interpreted to include a release of claims under the Wage Act, opining that such a release would simply endorse the view that “the strong protections afforded by the Wage Act could be unknowingly frittered away under the cover of a general release in an employer-employee termination agreement.” However, recognizing the strong public policy in favor of enforcing general releases, the SJC concluded that Wage Act claims can be released, so long as the release is “stated in clear and unmistakable terms,” 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.”
Take Away From Crocker: Modify Your Releases
As the SJC noted in Crocker, its ruling follows the lead of its decision in Warfield v. Beth Israel Deaconess Med. Ctr., Inc., 454 Mass. 390 (2009), in which the SJC held that general discrimination claims will only be subject to an arbitration agreement if the agreement “state[s] clearly and specifically that such claims are covered by the contract’s arbitration clause.” 454 Mass. at 400. Similarly, claims under the federal Age Discrimination in Employment Act must be specifically referenced in any agreement purporting to release such claims.
Given that it has been unclear to date whether Wage Act claims could be released by a general release in a termination agreement, the Crocker decision is good news for employers. However, the downside is that the SJC has now clarified that if such a termination agreement does not contain clear and unambiguous language referring to the Wage Act, Massachusetts courts will not interpret such an agreement to cover claims brought by employees pursuant to the Wage Act. Most employers are not currently using releases that comply with Crocker.
The take away message for employers is clear: update the release portion of any termination agreement to include plain, specific and unambiguous language making clear that the release serves to release of claims under the Wage Act. Failing to do so, even when the employer pays severance in exchange for a general release of claims, will leave employers subject to potential claims for Wage Act violations.
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This article was originally published by Bingham McCutchen LLP.