The Massachusetts Supreme Judicial Court recently took the unexpected action of unanimously ruling in favor of an employer in a case brought pursuant to the Massachusetts Wage Act.
In Calixto v. Coughlin, the SJC held that back pay awards for violations of the WARN Act do not constitute “earned wages” and therefore do not trigger individual liability and treble damages under the Massachusetts Wage Act.
The background of Calixto v. Coughlin is a familiar one. Due to economic conditions, the struggling defendant employer ISIS Parenting, Inc. was forced to shut down its operations and immediately terminate its workforce. Termination without notice in these circumstances constituted a violation of the federal Worker Adjustment and Retraining Notification Act, which requires employers with 100 or more employees to provide affected employees with 60 days’ written notice of a plant closing or mass layoff. Generally, employees terminated without the required WARN notice are entitled to recover back pay equal to the wages they would have earned for each day they would have worked during the 60-day notice period.
A group of employees filed a putative class action in federal court on behalf of the Company’s over 200 employees alleging violations of the WARN Act. Presumably lacking resources, the Company did not defend the action, resulting in a default judgment of nearly two million dollars in back pay. When the Company failed to pay the judgment, the employees filed suit in Massachusetts Superior Court pursuant to the Massachusetts Wage Act, seeking these “unpaid wages” and naming officers of the Company as individual defendants.
The Superior Court granted the Company’s motion to dismiss and, on appeal, the SJC affirmed the dismissal, rejecting the employees’ argument that back pay damages for WARN Act violations constitute unpaid earned wages. The employees relied on federal bankruptcy cases classifying WARN Act damages as wages for the purposes of creditor priority. In support of its decision, the SJC cited case law in which it previously held that wages are only “earned” where “an employee has completed the [required] labor, service, or performance,” as well as that an employee is only entitled to payment of earned wages for “work or service actually performed.” The SJC reasoned that the back pay award in Calixto was not payment for work performed, but rather payment for work that would have been performed had the proper WARN Act notice been provided. The SJC acknowledged the Wage Act’s extraordinary relief of individual liability and treble damages is reserved for egregious behavior, most notably, the failure to pay wages for work actually performed.
While future Massachusetts courts may interpret Calixto as strictly limited to the WARN Act, there is a larger takeaway for employers. The reasoning that “back pay is not the same as wages earned but not paid under the Wage Act” is a strong indication that the SJC will not treat any back pay awards as wages, thereby discouraging similar lawsuits arising out of statutes other than WARN. Further, because of the Massachusetts Wage Act’s availability of treble damages and attorneys’ fees awards to prevailing plaintiffs, creative lawyers and determined employees often seek to expand its reach. This decision limits “wages” to payments for work that has actually been performed where payments are “presently” due.