Articles Posted in Severance

While traditional severance pay falls outside of the Wage Act in Massachusetts, not all payments pursuant to a termination of employment are excluded. This is significant because, in a dispute with an employer, courts may award up to treble damages as well as reasonable attorney’s fees and costs under the Wage Act.

It is not uncommon with start-up companies and businesses facing financial difficulties in this tough economy that employees are asked to take pay cuts with the promise of making up the difference when finances get better. This can be tricky when the employment relationship is terminated and the employee has not recouped her wage concessions.

Example Employee and Employer voluntarily agreed to reduce the Employee’s compensation by 25% but this amount would accrue as deferred compensation until the employee left the company, provided the company returned to certain levels of financial performance. This arrangement was documented in a letter signed by a corporate officer and the Employee.

The Employee left the company just as the company hit the performance threshold, and the Employer refused to honor the deferred payment arrangement. The Employee has filed suit in Superior Court under the Massachusetts Wage Act for the wrongful withholding of wage payments, seeking treble damages, attorney’s fees and costs.

Issue Does the post-termination payout arrangement contained in the Employee-Employer letter constitute a “wage” whose timely payment was mandated under the Massachusetts Wage Act?

Answer Yes. The post-termination payout letter was drafted in order to compensate the Employee for her regular job performance for a period where she received a reduced rate of pay.

Courts throughout Massachusetts, as well as the United States District Court (D-Mass.), have held that such deferred amounts are ‘vested wage equivalents,’ properly due the employee under the Wage Act. Although it is recognized that executive bonuses and additional, achievement-driven modes of compensation fall outside the scope of the Wage Act, the overall profitability of a company is not a contingency that removes deferred or substituted wage earnings from the Act’s scope. Finally, no successful argument has yet been made that a deferred or substituted payment of wages constitutes Continue reading

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