What you need to know

The Massachusetts Supreme Judicial Court has clarified what constitutes a valid set-off to an employee’s wages, finding that the Wage Act prohibits deductions based on an employer’s unilateral determination that an employee was at fault in an accident.

What you need to do

Employers should consult counsel before implementing policies that provide for deductions or offsets from employees’ pay.

The Massachusetts Supreme Judicial Court recently clarified a murky area of the law in addressing the question of when an employer is permitted to make deductions or set-offs from an employee’s pay. Under the Massachusetts Wage Act, an employer may deduct wages if the deduction is deemed to be a “valid set-off”, a term that is not defined in the statute. The case of Camara v. Attorney General has brought some clarity to what constitutes a valid set-off, finding that the Wage Act prohibits deductions based on an employer’s unilateral determination that an employee was at fault in an accident.

In Camara, the Supreme Judicial Court considered the written policy of ABC Disposal Services, Inc., a recycling and waste hauling company located in New Bedford. In an effort to promote safety and decrease careless driving amongst its employees, ABC adopted a policy whereby drivers who were determined to be at fault for accidents had the choice of either accepting discipline or entering into an agreement to set-off the damages from their wages. Notably, the determination of fault and the amount of damages was made by an ABC safety manager whose decision was final and not subject to appeal. The Massachusetts Attorney General investigated ABC’s policy and issued a civil citation for intentional violation of the Wage Act. The Superior Court then invalidated the citation and upheld the company’s policy. On appeal, the Massachusetts Supreme Judicial Court reversed the lower court, holding that the policy, whereby ABC deducted wages based on its unilateral determination of employees’ fault and damages, violated the Wage Act.

The Court’s Analysis

The Supreme Judicial Court reasoned that ABC’s policy was not a valid set-off because the company was unable to establish that its deductions were based on a “clear and established debt”. Although ABC argued that the debt was “clear and established” based on its thorough investigations and findings of fault before entering into such agreements with employees, the court found that these protections were not sufficient to ensure the amounts were truly owed. ABC’s policy was invalid because 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.” Additionally, employees had no opportunity to challenge the company’s final decision.

In striking down ABC’s policy, the court noted that valid set-offs must include “some form of due process through the court system, or occur at an employee’s direction and in the employee’s interests.” According to the court, some examples of “valid set-offs” include:

  • proof of an undisputed loan or wage advance,
  • determination of theft based on an “independent and unbiased proceeding” with due process protections for the employee and
  • a court judgment finding that the employee owed the employer a specific amount.

Guidance for Employers

If an employer believes that it is necessary for business reasons to have a policy that provides for deductions or offsets from employees’ pay, the employer should ensure that its policy is in writing, that all employees have sufficient notice of the policy, and that any decisions relating to employees’ liability or damages are made by an independent third party whose decisions are subject to appeal.