With an effective date of July 13, 2008, the Massachusetts Legislature last month passed a rigid new law, the effect of which will automatically triple the damages, plus add court costs and attorney fees, for employees who win payment of wage disputes against their employers.
That's right, with one stroke of the pen, the Legislature said to small business owners: we don't care whether or not you have a good faith defense... we intend to punitively punish you for misinterpretations, simple mistakes, unintended misclassifications and just plain error, as though you acted with evil motive or reckless indifference!
And Attorney General Martha Coakley's office is ready to enforce it. What's affected by this new law is any wage dispute including final pay upon separation, vacation and holiday pay, commission payment and misclassification of employees as independent contractors.
So, what's a beleaguered entrepreneur to do?
First, don't panic. Take a deep breath and take stock. Chances are, you are in compliance and likely to remain that way in the future. This simply provides motivation for you to review and confirm that. For those who are not, you probably know it and this is your last chance to do some housekeeping and bring your company into compliance.
Second, review your holiday and vacation policies for clarity. Any ambiguities will be strictly construed against you by the Courts, so don't give them that opportunity. You know you're a good employer, now be a smart one and act defensively.
Do you have written policies and procedures? If so, pull them out and read them carefully. For example, if your vacation policy is a one-liner which simply states that all full-time employees are entitled to two weeks vacation every year, the employee who leaves on January 2 might very well demand two weeks vacation pay. [Hint: if your policy describes an accrual rate of 1+ day per month, this will have a very different outcome.]
Third, review your employee classifications. Are you paying overtime (not compensatory time) to all "non-exempt" employees who work more than 40 hours each week? If you are not because you believe those employees are "exempt," are you sure of those categories and have you reviewed the state and federal rules lately?
Do you have "independent contractors" on the payroll and are they truly "independent contractors?" The Attorney General's Office has just published an Advisory on the independent contractor law which addresses many of the questions raised by confused employers since its passage four years ago. [For insomniacs, read the Advisory for yourself.]
Fourth, when in doubt, pay the wages claimed. Believe me, it is not worth it to argue with a departing employee about the extra day or two of claimed vacation. If your policy is not absolutely, crystal clear as to vacation accrual, do not attempt to clarify it with the employee on the way out the door. Pay the claimed vacation and then fix your policies - clearly, in writing - and distribute it to all employees with the next payroll.
Many employment lawyers will tell you that the Legislature will need to revisit this new law. (Some have already raised constitutional issues. Massachusetts is the first and only state in the nation to eliminate the concept of a good faith defense by employers and that is not a distinction which covers us in glory.)
Keep in mind, however, that the employer community also expected the Legislature to "fix" the independent contractor law when it was first passed. And yet it remains the same, implacably opposed to the concept that an employer can, through ignorance or neglect, misclassify an employee.
Therefore, and as always when the rules of the game change and the offense is lined up against you, putting your best defensive play on the field seems a prudent response to this new law.
There's a New Sheriff in Town... and She's Taking No Prisoners! - To learn more about this author, visit Marijo McCarthy's Website.
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