The Massachusetts Supreme Judicial Court recently issued three decisions with significant implications for employers in the commonwealth, holding that (1) when an employer pays wages to an employee after the deadlines provided in the Massachusetts Wage Act, the proper measure of damages is three times the amount of late wages, even if paid before “the bringing” of a complaint; (2) the three-prong “ABC test” set forth in the independent contractor law applies to the relationship between a franchisor and a franchisee; and (3) the remedies under the Massachusetts Wage Act are not available when an employee’s claim for overtime wages rests only on the Fair Labor Standards Act.
In a decision issued April 4, 2022, Reuter v. City of Methuen, the Massachusetts Supreme Judicial Court (SJC) held that when an employer pays wages after the deadlines provided in the Massachusetts Wage Act, MGL c. 149 (Wage Act or Act), § 148, it is liable for treble (i.e., three times) the amount of late wages—even if it pays the employee before the employee brings a complaint. The Act requires employers to pay “treble damages, as liquidated damages, for any lost wages and other benefits” to aggrieved employees. While the SJC recognized “that the word ‘lost’ creates some ambiguity” as late wages are not truly “lost,” it nonetheless held that “lost wages” encompass all payments made after the deadlines provided in the Act.
The SJC upended long-standing lower court precedent, which had held that employers need only pay treble interest damages as long as the late wage payment was made before “the bringing” of a complaint. In doing so, the SJC found that “interest is not in any way mentioned” in the Act and that awarding only treble interest “would essentially authorize, and even encourage, late payments right up to the filing of a complaint.”
Recognizing that employers who are terminating employees for cause on a short timeframe may have difficulty calculating and finalizing a wage payment on the discharge date, as required by the Act, the SJC suggested that an employer could suspend an employee “for a short time” until the employer can make the final wage payment. The court did not address whether such a suspension could be without pay, but it appears that in many circumstances, an unpaid suspension would be permissible.
The SJC’s ruling makes clear that “treble damages” means treble the amount of “lost” wages and that late payment of lost wages, even before “the bringing” of a complaint, is not a defense under the Act. Businesses operating in the commonwealth must pay their employees timely and otherwise in accordance with the Act, as the Act’s imposition of strict liability places the burden of any mistake or delay on the employer—regardless of the employer’s intent or remedial measures. In situations where an employer needs to terminate an employee immediately, the employer either “must be prepared to pay him or her in full” or must suspend the employee until the employer can comply with the Act’s payment requirements.
In a decision issued April 14, 2022, Devaney v. Zucchini Gold, LLC, the SJC held that when an employee’s sole claim for the untimely payment of overtime wages rests on the Fair Labor Standards Act (FLSA) overtime provisions, 29 USC § 207, the employee is limited to the remedies provided in the FLSA, 29 USC §§ 201 et seq., and may not pursue remedies under the Wage Act. The Wage Act requires the timely payment of “wages earned.” While the SJC acknowledged that other decisions have interpreted the phrase “wages earned” to include overtime wages due under the FLSA (and concluded that the Wage Act provided an alternative remedy for violations of the FLSA overtime provisions), it nonetheless held that the FLSA’s comprehensive remedial scheme precludes an employee from pursuing Wage Act remedies for violations of only the FLSA overtime provisions.
The FLSA “authorizes workers to file private actions against employers, in State or Federal court, to recover . . . liquidated damages in an additional equal amount.” That said, an employer may escape such double damages by showing that it acted in good faith and with a reasonable belief that it did not violate the statute. While the Wage Act also grants employees a private right of action against employers who violate the Act, aggrieved employees are entitled to a mandatory award of treble, rather than double damages for any lost wages, and employers who violate the Wage Act are held strictly liable, regardless of any good faith or reasonable belief. Based on these differences, the SJC concluded that “if the wage act is construed to permit application of its remedial scheme for violations of the Federal law, a conflict between the two laws may arise.”
Because the remedies provided under the Wage Act differ from the remedies allowed under the FLSA, and because state laws must be construed so as to avoid such conflict, the SJC held that Wage Act remedies are not available where an employee’s claims for overtime wages are based only on the FLSA. Allowing an aggrieved employee to elect Wage Act remedies for untimely payments of wages due solely under the FLSA “would amount to circumvention of the remedy prescribed by Congress.”
The SJC’s ruling provides clarity to the interplay between the Wage Act and the FLSA by making clear that treble damages are not available when an employer violates only the FLSA overtime provisions. Businesses operating in the commonwealth should nonetheless make every effort to pay their employees in accordance with the FLSA, so as to avoid double damages.
In a decision issued March 24, 2022, Patel, et al. v. 7-Eleven Inc., et al., the SJC held that the three-prong “ABC test” for determining whether an individual is an employee or an independent contractor for purposes of Massachusetts wage and hour laws applies to the relationship between franchisees and franchisors. The certified question before the SJC was whether the independent contractor statute, MGL c. 149 § 148B, which sets forth the ABC test, also applies to determine whether a franchisee is an employee or an independent contractor, where the franchisor must also comply with the Federal Trade Commission (FTC) Franchise Rule (a series of franchise-related regulations), 16 CFR § 436.1, et seq.
The independent contractor statute sets a baseline presumption that “an individual performing any service” for someone they claim is their employer is an employee. To rebut this presumption, a putative employer must establish each of the three prongs of the ABC test: (1) the individual is free from control and direction in connection with the performance of the service, both under the individual’s contract for the performance of service and in fact; (2) the service is performed outside the usual course of the business of the putative employer; and (3) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. While the FTC Franchise Rule, on the other hand, “does not concern employee misclassification,” it requires certain presale disclosures by a franchisor upon one of two elections by the franchisor: “either to exert a significant degree of control over the franchisee’s method of operation or to provide significant assistance in the franchisee’s method of operation.”
The SJC determined that the first prong of the ABC test does not conflict with, and is not preempted by, the FTC Franchise Rule. While the FTC Franchise Rule may be triggered by a franchisor exerting “a significant degree of control over the franchisee’s method of operation,” the SJC noted that this determination is not the same as the first prong of the ABC test. “Indeed, ‘significant control’ over a franchisee’s ‘method of operation’ and ‘control and direction’ of an individual’s ‘performance of services’ are not necessarily coextensive.”
Dismissing “7-Eleven’s dire predictions that application of the ABC test to franchise relationships will end franchising in the Commonwealth,” the court noted both that franchisors have satisfied all three prongs of the ABC test or their equivalents in numerous cases and that findings that franchisees are employees, where supported by the particular facts, will not destroy franchising in Massachusetts. The SJC did not decide whether the plaintiff in Patel was properly classified as an independent contractor, so the case (which was at the SJC on a certified question from the US Court of Appeals for the First Circuit) has returned to the federal courts for resolution of that issue. Franchisors operating in the commonwealth should continue to monitor the Patel proceedings and be guided by that case and other cases applying the ABC test.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Boston
Keri L. Engelman
David A. McManus
Siobhan E. Mee
Douglas T. Schwarz