The Massachusetts Supreme Judicial Court recently ruled in Mui v. Massachusetts Port Authority that payment for accrued, unused sick time is not a “wage” under the state wage act, M.G.L. c. 149, s. 148, and therefore a failure to pay for sick time upon a termination of employment is not subject to the Act’s treble damages and other remedies. Importantly, the state’s highest court also reinforced its position that it is not inclined to expand the reach of the Wage Act to types of compensation beyond the express language of the statute.
Under Massport’s sick pay policy, eligible employees were paid a percentage of the value of their accrued, unused sick time upon their separation from the company, unless they were discharged for cause, wherein they would receive no payment. Massport paid Mui the value of his unused sick time, but not until after the completion of a disciplinary grievance process, over one year after his separation date from the company. Mui filed suit against Massport alleging a Massachusetts Wage Act violation because the sick pay was paid well outside the timeframe mandated by the statute (i.e., within the next regularly scheduled payroll or on the date of termination if an involuntary termination).
Vacating the lower court’s finding of a Wage Act violation, the SJC held that sick pay was not encompassed by the Wage Act for multiple reasons. First, the statute does not mention sick pay and the SJC had previously declined to expand the meaning of wages under the statute to include other types of compensation not expressly mentioned in the statute, such as discretionary bonuses, tax-exempt deferred compensation and severance pay. Second, citing the Massachusetts Earned Sick Time Law, the Court noted that sick time is not a wage under the Wage Act because the usage of sick time, unlike vacation time, is conditional and not compensable under a “use it or lose it” policy. Third, turning to Massport’s sick time policy, the Court stated that because accrued unused sick time was paid on termination only where the employee was not discharged for cause, the Court viewed the sick time as a contingent bonus, which the Court had previously held was not a wage. Moreover, even if sick time was a wage, the payment of accrued unused sick time under Massport’s policy was dependent on other factors, such as the resolution of a grievance process or determination of a retroactive retirement date by the retirement board, that would have made it impossible for Massport to pay any accrued unused sick time within the Wage Act’s required timeframe. Thus, sick time was not a wage that needed to be paid out on termination in accordance with the Wage Act.
While the failure to pay accrued unused sick time is outside of the Wage Act and therefore not subject to the treble damages and other costs typically associated with such a statutory violation, employers are reminded that they could face liability – and costly litigation – for a breach of contract claim for failure to pay accrued unused sick time consistent with terms of their policy.