On March 4, 2013, the Massachusetts Supreme Judicial Court resolved a dispute regarding the effect of after-the-fact gratuitous payments on wages due under state law. In Dixon v. City of Malden, the court held that gratuitous, after-the-fact payments by the City did not extinguish the City’s obligation to pay an employee for the value of his accrued, unused vacation time.

The plaintiff in the case had been the director of a nursing home owned by the City of Malden. After over 20 years of employment, the City’s board voted not to reappoint him to the position. The City agreed to negotiate regarding retirement and severance issues, but the parties were unable to reach an agreement prior to the employee’s departure. At the time, he had accrued 50 days of unused vacation time, amounting to $13,615.54.

In the wake of the employee’s departure, the City authorized the continuation of his salary and benefits for an additional three months. At trial, the mayor testified that the City made these additional gratuitous payments in hopes that the employee would feel fairly treated and would abandon his claims. The employee had received a total of $19,700 in salary continuation, which exceeded the $13,615 in vacation pay he was owed.

The plaintiff filed suit, seeking payment under the Massachusetts Weekly Payment of Wages Law for the accrued, unused vacation pay. The court dismissed his claim, and the plaintiff appealed.

On appeal, the City argued that the employee had been fully compensated for the vacation pay due him via the $19,700 in salary continuation payments he had received, and that he would receive an impermissible windfall if he received an additional $13,615 (the value of the vacation pay). The Supreme Judicial Court rejected this argument and reversed the lower court’s dismissal, stating that “failure to pay unpaid wages . . . cannot be mitigated by gratuitous, after-the-fact payments.” The court noted that the City never designated any of the salary continuation payments as payment for the accrued vacation time and that, to the contrary, the paystubs he received during that timeframe continued to reflect the fact that he still had a balance of accrued vacation time. Significantly, the court stated that “had the city paid the plaintiff payments labeled as vacation pay, and merely been late in those payments, the city would not have been foreclosed from offsetting those payments from what was owed.”