In Crocker v. Townsend Oil Company, the Massachusetts Supreme Judicial Court (SJC) clarified the circumstances in which employers can obtain an enforceable release of claims under the Wage Act, Mass. Gen. Laws c. 149, §§ 148, et seq. The Crocker decision is important for all employers who seek releases of wage and hour claims from employees or independent contractors. Failure to adhere to the SJC's ruling could result in an employee being able to assert claims against an employer even after having accepted payments (such as severance) in consideration for a general release.
The plaintiffs in Crocker were delivery truck drivers for Townsend Old Company. Townsend hired the plaintiffs as independent contractors and signed contractual carrier agreements with them. Pursuant to these agreements, Townsend paid the plaintiffs based on the amount of oil delivered; plaintiffs did not receive an hourly wage and were not eligible for overtime.
In 2007, Townsend terminated its agreements with the plaintiffs. Pursuant to termination agreements signed with the plaintiffs, Townsend agreed to pay them several thousand dollars each in consideration for, among other things, a general release of claims. In 2009, the plaintiffs filed a putative class action lawsuit against Townsend, claiming that Townsend had misclassified them and others as independent contractors, rather than employees, and that as a result Townsend owed them wages and overtime. Townsend moved to dismiss, arguing that the plaintiffs' claims were barred by the general release. The case ultimately was transferred to the SJC.
The Wage Act prohibits "special contracts" by which an employer seeks to exempt itself from the Wage Act's provisions, which can be quite onerous. For example, successful plaintiffs are entitled to mandatory treble damages and attorneys' fees, regardless of whether an employer makes a mistake in good faith. At the SJC, Townsend argued that the general release within the termination agreements should be afforded full force and affect, and should bar the plaintiffs' Wage Act claims, because the termination agreements were negotiated at arms' length, the general release applied all potential claims, and Massachusetts law generally favors the enforcement of general releases. In contrast, the plaintiffs argued that the general release was unenforceable under the Wage Act because it constituted a "special contract."
The SJC took the middle ground. Although it ruled that employees can release Wage Act claims, it held that the general release contained within the termination agreements was not enforceable as to Wage Act claims because it did not explicitly refer to the rights and claims under the Wage Act. The SJC held that a release of Wage Act claims "must be plainly worded and understandable to the average individual, and it must specifically refer to the rights and claims under the Wage Act that the employee is waiving."
The Crocker decision is good news for employers because it establishes that Wage Act claims can be released. However, employers should review and update their termination agreements to ensure that the release contains explicit and plain language referring to rights and claims under the Wage Act.