On Your Six, Boss!

The relationship between employer and employee in small businesses is often a very personal one. There is more camaraderie, more trust and more interaction than one typically finds in a large company. Small business employers know the stories behind their employees and see them as people with families, mortgages, college tuitions, etc.

Under these circumstances, an employee layoff is the last thing a small business owner wants to do and most of them hang on much longer (sometimes too long) to their staff than do their large company counterparts.

But sometimes, if all else fails, there is no other viable choice… at least for the short-term survival of the business. And because of the more personal relationship between small business employer and employee, most employees understand the economic realities, appreciate the regular communication as the year progresses, accept the layoff and hope for better days to return.

This is where it gets tricky, however. As former employees head out into the unknown, it's reasonable for them to scramble for every dollar they feel they are owed. You, in turn, believe you have met your obligations and in all good faith, are paying your departing employees everything they have coming, including commissions to those whose compensation includes such.

But, are you sure? Is your policy as to when and how that commission is due, crystal clear?

A year ago June, I shared with you a new Massachusetts law, the effect of which automatically tripled the damages, plus added court costs and attorney fees, for employees who win wage disputes against their employers. Prior to that law, Court interpretation of the then-existing law held that treble damages could be awarded in such cases only if an employer had "willfully and intentionally" violated the wage payment laws.

The old law made sense, right? Bad employers were punished… good employers were given the benefit of the doubt when they made an unintentional mistake.

All that changed last year. The Courts have now lost their discretion to actually judge the nature of the offense and must now impose automatic treble damages for wage payment violations. Employers who make good faith mistakes are punished as severely as the truly bad ones!

As with most new laws, particularly one as draconian as this, current litigation is beginning to define the parameters. For example, judges and lawyers are now beginning to look at the issue of retroactivity — should the new law apply to cases begun prior to the new law, but decided after the new law took effect? There are already two conflicting Court views of this.

Litigation is also clarifying what is included in the payment of wages. For instance, in certain industries, employers often pay employees a base salary and commissions on a sale made for the company, all of which actually constitute compensation. Thus, it is essential that employers carefully and specifically define the terms of those commissions, including such details as when they are actually earned.

In practice, it comes down to this. All wage claims will receive the same rigid, inflexible treatment, if disputed, litigated and won by a former employee. In those involving commissions in particular, having to pay disputed compensation times three is expensive.

Smart employers will apply an ounce of prevention through carefully-written commission policies distributed to and acknowledged by commission-based employees.


Marijo McCarthy is principal of Widett and McCarthy, a Boston-area law firm that helps small business owners grow their businesses with pragmatic legal advice, mentoring and a solid team of professional advisors.

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