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Sick Pay Is Not
"Wages" under Massachusetts Law
Massachusetts Supreme Judicial Court, in Tze-Kit v. Massachusetts
Port Authority, held that sick pay does not constitute wages
under the Massachusetts Payment of Wages Law. Accordingly,
Massachusetts employers are not required by the statute to pay out
accrued, unused sick pay to employees upon termination of employment.
Background. In Tze-Kit, the employer initiated
disciplinary proceedings against the plaintiff. The next week,
the plaintiff filed for retirement. The plaintiff was
ultimately terminated for cause and, as a result, based on its sick
leave policy the employer did not pay the plaintiff for his accrued,
unused sick time. The employer's sick leave policy provided
that, upon termination, eligible employees receive payment of a
percentage of the value of their accrued, unused sick time. The
policy further provided that no payment of accrued, unused sick time
would be made to employees discharged for cause.
An arbitrator overturned the employer's termination decision,
determining that the employee had retired before he was
terminated. Although the employer eventually paid the plaintiff
the full value of his accrued, unused sick time, the payment was not
made until one year after the plaintiff's last day of employment (due
to the lengthy grievance and arbitration proceedings).
In response, the plaintiff sued the employer under the Massachusetts
Payment of Wages Law because the payment was not made within the
timeframe required for final wage payments. At trial, the court
ruled for the plaintiff and the employer appealed.
Law. Under the Massachusetts Payment of Wages Law,
employees who resign must be paid in full on the next regular pay
day. However, employees that are discharged must be paid in
full on the day of discharge. In both instances, the timing
requirement only applies to "wages."
Supreme Judicial Court. The Court found that the statute
did not define "wages" but instead provided that wages
include: (i) any holiday or vacation payments due an employee under
an oral or written agreement; and (ii) commissions that have become
definitely determinable and are due and payable to the
employee. However, the Court noted that the mere fact that the
statute does not specifically include sick pay as wages doe not
exclude sick pay from this law. Nevertheless, the Court
ultimately concluded that the statute was not intended to include
sick pay as wages.
In reaching its determination, the Court found that employees
"do not have an absolute right to spend down their sick
time." Rather, sick time can only be used when an employee or
family member is ill. The court noted that employees are not
typically compensated for accrued, unused sick time, and it is common
for employers to have "use it or lose it" sick leave
Next, the Court observed that under the employer's sick leave policy,
the payout of accrued, unused sick leave is "essentially, a
contingent bonus paid to separating employees for not having used all
of their sick time and not engaging in conduct warranting termination
for cause." In view of this fact, the Court concluded that
commissions were the only contingent compensation recognized as wages
under the statute.
Employer Takeaway. The Tze-Kit case confirms
that under the Massachusetts Payment of Wages Law, "wages"
means hourly or salary wage, plus accrued unused vacation time and
certain commissions that have become due and payable to the
employee. Moreover, the case serves as a reminder to
Massachusetts employers that:
who resign must be paid in full on the next regular pay date.
who are terminated must be paid in full on the day of
Employers that fail to meet
their obligations under the statute may be liable for mandatory
awards of treble damages and attorney's fees.