Viability of Employee's Claim for Severance Pay Under Massachusetts Wage Act Uncertain

May 3, 2012

Generally, when an employee is entitled to severance payments under an employment contract, and the employer fails or refuses to make those payments following the employee's termination, the employee would have a claim against the employer for breach of the employment agreement.

Some Massachusetts employees have endeavored to take the employers' liability one step further - by coupling a claim for breach of the employment contract with a claim for violation of the Massachusetts Wage Act. Employers, on the other hand, have a significant interest in thwarting such endeavors. Who wins?

Under the Wage Act, any employee who is discharged from employment must be paid his or her earned wages (including holiday or vacation payments due) in full on the date of discharge. A violation of this provision subjects the employer to liability for treble damages, attorneys' fees, and litigation costs. A claim under the Wage Act, then, is attractive to employees who would otherwise be limited to only single damages in a successful breach of contract claim.

One Massachusetts superior court has held that an employer's failure to make severance payments may constitute a violation of the Wage Act, and allowed the claim. Recently, however, a different Massachusetts superior court disagreed, ruling that the Wage Act provides no protection for an employee's right to severance pay under an employment agreement, and dismissed that plaintiff-employee's Wage Act claim.

These contrasting results stem from the contested issue as to whether severance pay owed to an employee pursuant to an employment contract is part of the "earned wages" due to the employee on the date of discharge under the Wage Act.

Without a definitive decision from a higher court on this issue, confusion grows, leaving employers and employees only to guess at the future viability of a claim under the Wage Act for severance payments.