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Sick Pay Is Not “Wages” under Massachusetts Law

On Behalf of | Feb 14, 2018 |

The Massachusetts Supreme Judicial Court, in Tze-Kit v. Massachusetts Port Authority, held that sick pay does not constitute wages under the Massachusetts Payment of Wages Law. Accordingly, Massachusetts employers are not required by the statute to pay out accrued, unused sick pay to employees upon termination of employment.

Background. In Tze-Kit, the employer initiated disciplinary proceedings against the plaintiff. The next week, the plaintiff filed for retirement. The plaintiff was ultimately terminated for cause and, as a result, based on its sick leave policy the employer did not pay the plaintiff for his accrued, unused sick time. The employer’s sick leave policy provided that, upon termination, eligible employees receive payment of a percentage of the value of their accrued, unused sick time. The policy further provided that no payment of accrued, unused sick time would be made to employees discharged for cause.

An arbitrator overturned the employer’s termination decision, determining that the employee had retired before he was terminated. Although the employer eventually paid the plaintiff the full value of his accrued, unused sick time, the payment was not made until one year after the plaintiff’s last day of employment (due to the lengthy grievance and arbitration proceedings).

In response, the plaintiff sued the employer under the Massachusetts Payment of Wages Law because the payment was not made within the timeframe required for final wage payments. At trial, the court ruled for the plaintiff and the employer appealed.

Law. Under the Massachusetts Payment of Wages Law, employees who resign must be paid in full on the next regular pay day. However, employees that are discharged must be paid in full on the day of discharge. In both instances, the timing requirement only applies to “wages.”

Supreme Judicial Court. The Court found that the statute did not define “wages” but instead provided that wages include: (i) any holiday or vacation payments due an employee under an oral or written agreement; and (ii) commissions that have become definitely determinable and are due and payable to the employee. However, the Court noted that the mere fact that the statute does not specifically include sick pay as wages doe not exclude sick pay from this law. Nevertheless, the Court ultimately concluded that the statute was not intended to include sick pay as wages.

In reaching its determination, the Court found that employees “do not have an absolute right to spend down their sick time.” Rather, sick time can only be used when an employee or family member is ill. The court noted that employees are not typically compensated for accrued, unused sick time, and it is common for employers to have “use it or lose it” sick leave policies.

Next, the Court observed that under the employer’s sick leave policy, the payout of accrued, unused sick leave is “essentially, a contingent bonus paid to separating employees for not having used all of their sick time and not engaging in conduct warranting termination for cause.” In view of this fact, the Court concluded that commissions were the only contingent compensation recognized as wages under the statute.

Employer Takeaway. The Tze-Kit case confirms that under the Massachusetts Payment of Wages Law, “wages” means hourly or salary wage, plus accrued unused vacation time and certain commissions that have become due and payable to the employee. Moreover, the case serves as a reminder to Massachusetts employers that:

  • Employees who resign must be paid in full on the next regular pay date.
  • Employees who are terminated must be paid in full on the day of discharge.

Employers that fail to meet their obligations under the statute may be liable for mandatory awards of treble damages and attorney’s fees.