The Hon. Deval Patrick, Governor
Office of the Governor
State House
Boston, MA 02133

RE: Effort to Clarify the Massachusetts Wage Act

Dear Governor Patrick:

I wrote to you in December 2006, as you were assembling your transition team, about a piece of bi-partisan legislation that passed both the House and Senate without objection and had been vetoed by Governor Romney in his final days in office. The bill garnered unanimous support in the Legislature, and the Governor’s veto would likely have been overridden had the bill not been enacted during informal legislative session under rules that preclude veto overrides.

The good news is that the House and Senate have enacted the exact same piece of legislation again, and it is finally on your desk. The legislation is S.1059. It is important legislation – important to our workers, who depend upon their wages, important to the state, which depends upon the tax withholdings, and important to our businesses, which depend on an environment without competition from other businesses who neglect to pay their employees. It is the reason for this letter.

Failure to pay employees their earned wages in a timely manner is a serious problem. It injures employees, undermines our competitive economy and deprives the Commonwealth of revenue. It is an act with serious consequences, especially for employees, and it warrants triple damages.

Employers hire their employees, set the wage rates, set the hours and know when wages are due. Without mandatory triple damages, irresponsible employers can delay payroll, leave their employees without needed paychecks, underbid honest competitors, damage the Commonwealth’s support systems and then pay single wages late, without any compensation to employees for their losses.

Some might say that automatic treble damages are punitive in nature and should not be imposed on companies who make “honest” mistakes. But, this mischaracterizes the legislation. Treble damages are not punitive in nature. They are liquidated damages. They are not intended to punish, but rather they are tied strictly to the wage itself and intended to compensate employees for their losses.

As you know, punitive damages are determined by focusing on the company. They are meant to punish the corporation. But this form of treble damages are focused on the employee and tied strictly to the actual unpaid wage amount, an amount roughly determined to compensate an employee for her losses.

As for the concept of “honest” mistake, this too mischaracterizes the intent of this legislation. Employees suffer greatly without their wages. One can only recover treble damages after going through a process of filing a complaint with the Attorney General, waiting up to 90 days, then filing a case in court and proving that the employer failed to pay wages. Only then, would an employee be entitled to treble damages, and only for those wages she could prove were still due. Most, if not all, “honest” mistakes would be cleared up long before then. So, the term honest mistake really means careless employer, and no employee should suffer the damages of such carelessness without compensation.

For those who propose amending the statute to change the standard from “evil intent or reckless indifference,” to “willful,” they too miss the point of this legislation. “Willful” failure to pay wages is a crime punishable by imprisonment and fines under MGL c. 149, §27C. The pending legislation is not criminal legislation, rather it is designed to compensate employees for their loss.

The pending legislation ensures proper interpretation and application of the Wage Act so that employees, employers and the Commonwealth are protected. It seeks to undo a recent decision by the Supreme Judicial Court which constricted the original intent of the legislature and made triple damages discretionary. Wiedmann v. The Bradford Group, Inc., et al., 444 Mass. 698, 709-710 (2005).

Since the passage of the private right of action for wage violations, and the addition in 1993 of the “including treble damages” language (M.G.L., c. 149, § 150), as well as the introduction of criminal penalties for non-payment of wages, (M.G.L., c. 149, § 27C), the Massachusetts Legislature has impressed upon employers that failures to pay wages will be taken seriously. The intent was to keep regular wage payments from turning into negotiated events and to compensate employees for their losses in those cases. Thus, if a company failed to pay an employee, the employee could sue under the Wage Act and recover triple damages, costs and attorneys fees, and most courts held such damages to be mandatory. However, in 2005, the Supreme Judicial Court in Wiedmann disagreed, and interpreted the Wage Act as requiring the employee to show that the employer’s failure was “outrageous, because of the [employer’s] evil motive or his reckless indifference to the rights of others.” A tough burden.

S.1059 seeks to restore the original intent of the legislature.

To understand the need for this legislation, speak to our working class families. Many often live pay check to pay check, and are devastated when their earned wages are withheld. Careless or irresponsible employers who promise but fail to pay wages, undermine the ability to pay rent, student loans, taxes, health insurance premiums, medical care, tuition, car payments and groceries – for which anything less than multiple damages could never compensate. Such non-payment also creates a ripple effect throughout each family’s economic health and through the commercial entities which rely on promised payments.

Moreover, there simply is no excuse to justify the far reaching effects of missed payrolls with the institution of payroll services, easy to use computer programs, accountants and plenty of other ways to make sure employers never miss payments – many of the same systems that ensure proper withholdings for state and federal tax payments. In recognition of this, the Legislature has long given working people the right to timely payment of wages, and until Wiedmann, the law provided strong protections to compensate employees for those losses and motivated employers to make timely payments.

The SJC’s ruling in the Wiedmann case weakened the Wage Act to the detriment of all. Despite the fact that the Wage Act’s damage provision is tied strictly to the actual wages due, the SJC nevertheless created a giant loophole for unscrupulous employers to legally avoid paying their employees. This imposes a chilling effect on individuals who now find it difficult to engage an attorney to represent them through the SJC’s new “intent” hurdle – exactly the group of workers the statute was designed to protect. Employers now simply use their spending power on attorneys hired to create doubt and argue “innocent” intent, while dragging a case on for years and making it extremely difficult for an employee to recover or to even hire an attorney at the outset to represent them.

The Wiedmann decision also subverts the marketplace. Up until the SJC ruling, the vast majority of judges interpreted the statute to require mandatory treble damages, and during the decade plus years the law was in effect, there was no outcry from the general business community or from employers who were found at fault for not paying their employees. That was simply because the vast majority of employers treat their employees fairly and pay their employees all amounts due on time, both because of the law and because employers recognize the importance of employee retention. Thus, it was only those employers who repeatedly violated the rights of employees, created climates of distrust and refused to provide redress, who found themselves subject to the provisions of the statute.

S.1059 is also a natural and important extension of the General Court’s recent focus on wages, health care and corporate tax loopholes, because the bill serves to enforce provisions of the law that guarantee that every worker in Massachusetts (minimum wage earners and beyond) be paid for their work.

Clarifying the Wage Act is beneficial to employers as well. When a company fails to pay its employees proper wages, it can utilize the illegal “savings” to underbid its competition or lower the costs of its products or services. Especially for small businesses, the ramifications from dishonest competition can be devastating, an unfair result to those businesses abiding by the law. This legislation squares with a concern raised by the business community that General Court set to address in the context of health care reform, namely that businesses (through higher premiums charged by insurers) and government (via the uncompensated care pool and Medicaid) were subsidizing employers who could, but didn’t provide health care to their employees. Thus, the legislation would similarly level the playing field for all businesses in Massachusetts by prohibiting businesses from using payroll funds to underbid their competitors in the marketplace. It is important to keep in mind that this proposed change in the law has no bearing on employers who follows the law and pay their employees when their wages are due- period.

It is for that reason that, in addition to having bipartisan support of members on the Labor and Workforce Development Committee, the bill had remained consistently unopposed by key business groups. These business organizations pride themselves on having members who value the importance of paying wages in full and on time and responsible business owners interested in a level playing field, where they won’t be underbid by unscrupulous competitors who fail to pay their employees. Although it is our understanding that some of these organizations have begun to wage a more concerted effort in opposition, none of these groups have testified openly before any of the committees that have considered the bill.

I appreciate the opportunity to call this effort to your attention and to be of any assistance that I can to both you and the rest of the Patrick-Murray administration. Of course, please let me know if you have any questions or comments. I look forward to working with you.

Very truly yours,

Philip J. Gordon

and

H. 3775 – An Act to Protect Employees from Unscrupulous Employers
Introduction (by Philip J. Gordon)

Chairman McGee, Chairman Rodrigues and distinguished members of the Committee. Good morning. We are here today to ask you to clarify Massachusetts law so there is no mistake that when an employer fails to pay an employee their wages, that employee is entitled to three times the amount owed – not as a punishment for employers, but rather as compensation for the great harm employees suffer when employers skip payroll. Doing so will also help level our business playing field, by making certain that when businesses operate in our Commonwealth, they aren’t competing against dishonest employers who cheat their employees and use their payroll stash to unfairly underbid competition.

We testify before you today in support of S.928 and H.3775, Acts clarifying the provisions of the Wage Act in Massachusetts. My name is Philip Gordon, and I am an attorney with the firm Gordon and Balikian, LLP. I am joined on this panel today by Mr. Ara Balikian and Mr. Dennis Rugoletti.

Mr. Balikian is an attorney and my law partner. We practice in the area of employment litigation with a specialty in wage and hour law, and we represent many individuals who have been victimized by unscrupulous employers who fail to pay their employees for the work they have performed. Mr. Rugoletti is one of those individuals.

Mr. Rugoletti will tell you his story – one where his employer not only failed to pay his salary, but also promised him health insurance and then failed to pay the premiums. Mr. Rugoletti’s wife was just diagnosed with cancer. So, not only is his family without his pay, but they have no health insurance for her care. Their story is one of thousands of employees victimized each year that underscore the need for legislation clarifying the important and strong protections afforded under Massachusetts law.

I will submit written testimony from all of us at the conclusion of our panel, along with a couple of word changes to the filed legislation recommended by a member of this committee during a meeting we had prior to today’s hearing.

The written testimony below is of both Messrs. Gordon and Balikian, combined here for your convenience.

Current Law

Presently, Massachusetts’ statutory law assures that employees are paid wages at regular intervals for work performed, under what has come to be called the Wage Act (M.G.L. c.149). This requirement applies to wages in the form of hourly and prevailing wages, salary, earned commissions, accrued vacation, holiday pay and offered benefits (the corresponding statutes, c.151, regulates overtime pay). If a company fails to pay an employee, the employee must first file a claim with the attorney general, and then, after the attorney general has reviewed the claim or 90 days has passed, the law provides the Employee a private right of action directly against the employer. You should note that this does not apply to the relationship between businesses and independent contractors – only that relationship between employers and employees.

Intent of the Wage Act

When signed into law in 1886, the Legislature recognized the imbalance between employers and employees, as well as the competitive landscape among businesses, and enacted the Wage Act (1) to deter employers from denying their employees earned wages, (2) to impose a structure to compensate employees for their losses, and (3) to level the playing field among businesses operating in the Commonwealth.

In 1993, the Legislature strengthened the Act by inserting the words “including treble damages” as a required remedy for violation of the Act. The Legislature could have used the more flexible “may” language with respect to the treble damages, as they did in 1969 with the c.93A legislation, but they did not. Mandatory multiple damages requirement was not only necessary to protect employers and employees, it was also not unusual, particularly in the wage area. Federal law has required it for failure to pay overtime or minimum wages since 1977 and many other states do the same. But, the statutory language in Massachusetts has been misinterpreted.

Why mandatory, multiple damages? Because of the serious problems that arise when employees aren’t paid – missed rent, student loans, tax payments, health insurance premiums, car payments, groceries, etc. – and for which anything less than multiple damages could not compensate. With payroll services, easy to use computer programs, accountants and plenty of other ways to make sure employers never miss payments, there’s no excuse to justify the far reaching effects of missed payroll.

The undeniable original intent of our state law was for treble damages remedy to be mandatory. Treble damages obviously serves the purpose of deterring employers from taking advantage of their employees, compensating employees for their losses, and leveling the playing field for honest employers doing business against those who use their payroll cash to compete.

Problem

Unfortunately, while the vast majority of judges correctly interpret the statute, a certain few have been misinterpreting the awarding of treble damages to be at their discretion. What is presently just a few isolated cases of misinterpretations could however, lead to widespread confusion as to the intent of the statute, and the consequences for misinterpretation of the law are far reaching.

For those few cases that go to court, when judgment is awarded to the employee in a Wage Act case without the award of treble damages, the employer at fault benefits unfairly by essentially paying only what was originally owed to the employee. Thus, the employer gets the benefit of using unpaid wages to their advantage while employees are forced to hire a lawyer – that is, if they can afford an attorney. And then they must hope that months or years later they are able to recover the wages that were due. This leaves the employee without compensation for their suffering and has an extremely adverse effect on their families and the community. It also fails to deter future violations.

By passing S.928 and H.3775 and clarifying your intent, you also serve employers. When a company withholds wages, it can utilize the savings to underbid its competition or unfairly lower the costs of its products or services. The ramifications from dishonest competitors can be devastating, especially for small businesses abiding by the law, paying wages and taxes on wages. The Legislature has an interest in ensuring a level playing field amongst employers. By clarifying the Wage Act, all employers are protected.

Caveat

Finally, we would strongly caution against changing the statute, and our opinion weakening it, by including any provision that suggests that treble damages are mandatory only in cases where there is willful conduct or in cases of multiple offenses. In addition to being unwarranted and counter to the original intent of the law, such language would create a giant loophole for unscrupulous employers to legally avoid paying their employees, and impose a chilling effect on the class of individuals who could not hire an attorney to represent them through the “intent” hurdle – exactly the group of workers the statute was designed to protect. Employers would simply use their spending power on attorneys hired to create doubt and argue innocent intent, dragging a case on for years and making it extremely hard for an employee to prevail or to hire an attorney to represent them at the outset.

Solution

S.928 and H. 3775 clarifies the Legislature’s view that withholding pay from an employee is an act warranting treble damages, as compensation for damages and not subject to the interpretation of individual or legislative judges. This bill ensures proper interpretation and application of the Wage Act benefiting and protecting employees and employers – a win for all of your employers and constituents.

Thank you for the opportunity to testify in support this legislation. We look forward to getting a favorable review from the Committee.