In Awuah v. Coverall North America, Inc., the SJC placed significant restraints on lawful deductions from wages and timely payment of wages.
The Coverall class action plaintiffs are individuals who entered into contracts with Coverall for the provision of commercial janitorial services to third-party customers. Those contracts included provisions in which the plaintiffs allowed several types of fees to be deducted from their pay, including franchise fees, fees for offsetting the costs of workers compensation coverage, and other insurance costs including comprehensive liability insurance. In addition, the plaintiffs consented in their contracts to “accounts receivable financing” whereby the Company paid the plaintiffs “interest fee advances” of the amounts billed to customers. If the customers did not pay their bills within ninety days, the employee was required to repay the employer for the amount of the advance.
In response to questions certified to the SJC by the U.S. District Court for the District of Massachusetts, the SJC held that an employer may not use accounts receivable financing systems to pay an employee at the time the customer pays the employer for the employee’s work rather than when the work is performed, even with the employee’s consent. Instead, the SJC held that wages are “earned” and due within a fixed period after the employee completes his or her labor, and not when the employer receives the customer’s payment.
In addition, the SJC held that employers violate the Wage Act when they deduct the costs of worker’s compensation and other work-related insurance coverage from an employee’s pay, even if the employee consents to the deduction and still receives at least the minimum wage. The SJC held that the purpose of the Worker’s Compensation Act would not be fully realized unless the cost of workplace injuries falls squarely on the employer because the Worker’s Compensation Act makes such injuries part of the employer’s “cost of business.”
The SJC further determined that other insurance costs, such as those for comprehensive liability insurance, may not be passed on to employees. While employees can sometimes be liable to employers for property damage, such liability must only be assigned after the employee has received a “procedurally fair” adjudication of responsibility. “An employer may not deduct insurance costs from an employee’s wages where those costs are related to future damages that may never come to pass, and if they do, may not be the responsibility of the employee.” Similarly, employers may not lawfully deduct franchise fees from wages because such fees are “special contracts” in which employees purchase their jobs from employers and therefore violate public policy.
Employers should exercise caution in the aftermath of Coverall, as the scope of permissible deductions and the latitude on timely payment of wages are both significantly constrained by this decision.