Be Prepared to Pay All Wages and PTO on the Day You Terminate An Employee – No Matter What the Reason For Termination

As the Supreme Judicial Court recently ruled in Reuter v. City of Methuen, while this rule may seem harsh and offers no “good faith exception,” that is what the legislature intended. Indeed, Reuter is a cautionary tale from which in-house counsel should take note.

After having worked for the City of Methuen for 25 years, Beth Reuter was convicted of larceny, prompting the City to terminate her employment. At the time of her termination, Reuter was owed $8,952.15 for accrued vacation time, which the City did not pay until three weeks later. Eventually, Reuter’s counsel noted that the City’s conduct violated the Wage Act and demanded triple the accrued vacation pay and attorneys’ fees (less the $8,952.15 already paid). Reuter filed suit, and the City took the position that because it paid the accrued vacation amount before any demand had been made and prior to the lawsuit being filed, the most for which it could be liable was the statutory interest of 12% on the late payment, amounting to $185.42 (which it then paid).

The trial court agreed with the City, and Reuter appealed that ruling. While prior lower court rulings had allowed employers to avoid the multiple damages aspect of the Wage Act if an employer paid the disputed amount prior to suit, in Reuter, the Supreme Judicial Court expressly rejected that concept, noting that  the Wage Act was a statute of strict liability, and explaining that:

[T]his rule puts employers in a difficult position when immediately terminating employees for misconduct as in the instant case. Because wages and other benefits are due to employees on the day they are discharged, and it may be unclear how much an employee must be paid on short notice, employers would be liable for treble damages if they miscalculated the amount owed.

However, the Legislature appears to have considered the differences between involuntary discharges and other separations from employment, and apparently the consequences of differential treatment. Section 148 expressly distinguishes between an “employee leaving his employment,” who must “be paid in full on the following regular pay day or, in the absence of a regular pay day, on the following Saturday,” and an “employee discharged from such employment,” who must “be paid in full on the day of his discharge.” In the former case, the employer does not control when an employee quits and may not have advance notice. The employee also controls when he or she leaves and likely has secured replacement employment or otherwise considered the consequences of a short delay in receiving his or her pay. … The Legislature’s command is clear: if you choose to terminate an employee you must be prepared to pay him or her in full when you do so.

While Reuter may present in-house counsel with a Hobson’s choice if a company employee is in the midst of wrongdoing that could cause serious harm to the business, The SJC recognized such dilemmas and suggested that:

This may mean that employees who, like the plaintiff, have engaged in illegal or otherwise harmful conduct may have to be suspended rather than terminated for a short period of time until the employer can comply with § 148.

In any event, there no longer is any doubt about the consequences of failing to pay an employee every penny that they are owed on the day they are terminated, and in-house counsel must be prepared to deal with that reality.