Premier New England Trial Attorneys

Post-Termination Salary Payments to Former Employee Did Not Discharge Employer’s Obligation to Pay Accrued Vacation Time

Employers should take care to comply with the Massachusetts Wage Act when discharging employees. Recent Massachusetts Supreme Judicial Court opinions have strictly interpreted the Wage Act in employees’ favor. Most recently, the Court held that an employer’s undifferentiated gratuitous weekly payments to an employee after he was discharged did not cover the employee’s claim for unpaid vacation days under G.L. c. 149, §§ 148, 150 (Wage Act). Dixon v. City of Malden, 464 Mass. 446 (2013).

On March 21, 2007, the City of Malden notified the plaintiff, Gary Dixon, that his employment as director of a city-owned nursing home was terminated. As of that time Mr. Dixon had accrued fifty days of unused vacation time, amounting to $13,615. Mr. Dixon was not paid for those vacation days on the day of his termination. However, the city continued to make salary payments to Mr. Dixon totaling $19,700 through June 29, 2007. The city did not communicate to Mr. Dixon that the continuing salary payments were vacation pay. Mr. Dixon received weekly payments, which included standard deductions for taxes, retirement, insurance, and the like, through the regular payroll system. His final pay stub from this period shows fifty days of accrued vacation time.

Mr. Dixon brought an action to recover unpaid vacation time under the Wage Act. The city responded that it fully compensated Mr. Dixon for his accrued vacation because its post-discharge salary payments totaled more than the amount of the accrued vacation time. The trial court agreed with the city and dismissed Mr. Dixon’s claim. The SJC transferred the case from the Appeals Court on its own motion.

The SJC noted that it had previously interpreted the language of the Massachusetts Wage Act in Electronic Data Sys. Corp. v. Attorney Gen., 454 Mass. 63 (2009). The Court indicated in that case that the Wage Act states that wages “shall include any holiday or vacation payments due an employee under an oral or written agreement,” and that employers must pay unused, earned vacation time to discharged employees. The SJC noted that “[u]pon separation from employment, employees must be compensated by their employers for vacation time earned… [A]n employer may not enter into an agreement with an employee under which the employee forfeits earned wages, including vacation payments.”

In Dixon the SJC held that the city’s payment of salary and benefits after Dixon’s termination did not substitute for payment for accrued vacation time. It stated that the city did not characterize the continued salary payments as payment for vacation accrual, or communicate that the salary continuation was payment for accrued vacation time. It noted that the city’s payroll system reflected fifty days of accrued vacation time as of the plaintiff’s final paycheck of June 29, 2007, and that the vacation balance on the pay stubs was not decreased when the city paid the salary continuation. 

The SJC also noted that the Wage Act requires employers to pay discharged employees earned wages “on the day of [their] discharge.” Here, however, the city paid Dixon on a continuing basis after his last day of employment. The court said that the plaintiff’s receipt of salary after his termination did not diminish the fact that he was not paid for his accrued vacation time on the day of his discharge. No provision of statute allows an employer, after terminating an employee with our without cause, to claim that later payments compensate for earned and unused vacation time.

The court concluded that the failure to pay unpaid wages, as defined in the Wage Act, cannot be mitigated by gratuitous, after-the-fact payments, and that employees who have not received payment for unused vacation to which they are entitled may seek relief pursuant to the Wage Act.

In light of Dixon employers should ensure that they: 1) compensate employees for vacation time; 2) at the time of their termination and; 3) designate such compensation accordingly. Payments not designated as compensation for vacation time will not discharge an employer’s obligation to pay terminated employees for accrued vacation time. Also, payment of wages, including accrued vacation time, after the date of termination may violate the Wage Act.