Supreme Judicial Court Rules That Company’s Policy of Deducting Cost of Damage to Company Property From Employee Paychecks Violates the Massachusetts Wage Act

On January 25, 2011, the Supreme Judicial Court of Massachusetts issued a decision that strictly enforced a provision of the Massachusetts Wage Act, Mass. Gen. Laws c. 149, § 148, which requires prompt and full payment of wages due to an employee. This decision confirms that Massachusetts employers must pay careful attention to their obligations under the statutory scheme governing the payment of wages, as these provisions are being strictly construed by the Massachusetts Attorney General and courts.

The Case

In Camara v. Attorney General, the SJC held that an employer, ABC Disposal Service, Inc. (“ABC”), violated the Wage Act by deducting a total of $21,488 from the wages of 27 employees that it determined were at fault for motor vehicle accidents involving company vehicles. ABC made the deductions pursuant to a company policy under which an employee that ABC deemed to be at fault for a motor vehicle accident involving a company vehicle could either accept disciplinary action or agree to a deduction of the damages from earned wages. To determine whether an employee was at fault for an accident, ABC conducted an internal investigation (with no involvement by an independent decision maker). ABC’s decision as to an employee’s liability was final and was not subject to any appeal process.

Section 148 of the Wage Act requires prompt and full payment of wages due to an employee. It also provides that “[n]o person shall by a special contract with an employee or by any other means exempt himself from this section or from one hundred and fifty.” (emphasis added). Section 150 of the Wage Act authorizes the Attorney General to “make complaint” against an employer who violates the Wage Act, and states that the employer has a defense for failure to pay where there has been a valid attachment of the employee’s wages by trustee process, a valid assignment, or a valid set-off.

The SJC determined that ABC’s policy of deducting from employees’ paychecks damages arising out of motor vehicle accidents for which ABC determined they were at fault amounted to unenforceable “special contracts” prohibited by the Wage Act. The SJC rejected the plaintiffs’ argument that the deductions constituted valid set-offs under Section 150 of the Wage Act, reasoning that a policy under which ABC was “the sole arbiter, making a unilateral assessment of liability as well as amount of damages with no role for an independent decision maker, much less a court,” and under which there was no opportunity, even within the company, for the employee to appeal the result, did not amount to the type of “clear and established debt owed to the employer by the employee” required for a set-off to be valid under the Wage Act.

Broader Implications

Like other recent cases, Camara v. Attorney General demonstrates that the Attorney General and Massachusetts courts are strictly construing the provisions of the Wage Act. Given this trend of stringent enforcement, an employer considering deducting a portion of an employee’s wages should be especially cautious, and should ensure a thorough understanding of the varied technical requirements of the Wage Act before doing so. Some common examples of situations in which an employer may be tempted to deduct a portion of an employee’s wages, but where doing so may violate the Wage Act, include deductions to recover the cost of company property improperly retained by the employee, deductions to cover personal charges made by the employee on a company credit card, or deductions to cover the cost of cell phone service plan charges incurred as a result of personal calls made by the employee. Any employer contemplating making these or any other deductions from an employee’s paycheck would be wise to consult legal counsel before doing so.

Generally, employers would be wise to familiarize themselves with and fully comply with the complex requirements of the Wage Act, including ensuring that employees are paid earned wages in full in a timely manner. Following are several key components of the Wage Act which employers should be mindful of:

• Employees must be paid weekly or bi-weekly, and within six or seven (depending on the number of weekdays employed) days of the pay period during which the wages were earned.
• Only bona fide executive, administrative, or professional employees may be paid semi-monthly, and only they may elect, at their option, to be paid monthly.
• Wages, including accrued vacation days, must be paid on the day of termination when an employee is involuntary terminated. Employees departing voluntarily must be paid on the next payday.
• Accrued but unused vacation, and commissions, are considered wages.
• Overtime pay is wages, so misclassified employees have a remedy that includes mandatory triple damages and legal fees.
• The Act applies to all individuals who should properly be designated as employees, regardless of whether any such individual has been designated as a consultant or independent contractor. Massachusetts has an especially narrow definition of independent contractor for purposes of the Wage Act.
• Individuals can be personally liable for violation of the Wage Act. Such individuals include a company’s president, treasurer, and any officer or agent “having the management” of the company.
• The Wage Act imposes criminal penalties and substantial civil fines as well as civil monetary damages, including treble damages and legal fees.

For more information on this alert, please contact any of the lawyers listed below:

Boston
John Adkins, john.adkins@bingham.com, 617.951.8551
Jenny Cooper, jenny.cooper@bingham.com, 617.951.8473
Louis Rodriques, Co-chair, Labor and Employment Group, lou.rodriques@bingham.com, 617.951.8340

Los Angeles/Orange County
Jacqueline Cookerly Aguilera, jackie.aguilera@bingham.com, 213.229.8439
Debra Fischer, debra.fischer@bingham.com, 213.680.6418

San Francisco
James Severson, james.severson@bingham.com, 415.393.2242

New York
Douglas Schwarz, douglas.schwarz@bingham.com, 212.705.7437

Tokyo
Mie Fujimoto, mie.fujimoto@bingham.com, 81.3.6721.3138