Legal Updates

Massachusetts High Court Rules That Employees May Release Wage Claims

The Massachusetts Supreme Judicial Court (“SJC”) has ruled that an employee may release claims arising under the Massachusetts Payment of Wages Law (the “Wage Act”), provided that the release (1) is “voluntary and knowing,” and (2) includes “express language that Wage Act claims are being released.”

The decision, Crocker v. Townsend Oil Company, Inc., gives employers a “road map” for preparing valid releases of Wage Act claims.  Previously, it was unclear if Wage Act claims survived despite an employee’s execution of a general release upon separation from employment.

Factual Background

Townsend Oil Company, Inc. (“Townsend”) delivers home heating oil to customers in northeastern Massachusetts.  Townsend uses regular employees and independent contractors to operate its delivery trucks.  While Townsend pays its employees an hourly wage and overtime where appropriate, the company pays its independent contractors based solely on the amount of oil they deliver.  Townsend uses written agreements with its independent contractors, including the plaintiffs in this case, Joseph Barrasso (“Barrasso”) and Charles Edward Crocker (“Crocker”).

Eventually, Townsend ended its independent-contractor agreement with Barrasso.  The parties signed a termination agreement that included mutual general releases of claims.  Soon afterward, Townsend entered into a similar termination agreement with Crocker.  Nonetheless, Barrasso and Crocker proceeded to file a lawsuit against Townsend under the Wage Act.  They argued that they should have been classified as employees, not independent contractors, and that Townsend violated the Wage Act by failing to pay them the minimum wage and required overtime.

Townsend moved for summary judgment, arguing, in part, that the plaintiffs’ claims were barred by their general releases.  (Townsend also argued that the plaintiffs’ claims were untimely under the applicable statute of limitations, a topic beyond the scope of this article.)

A Superior Court judge awarded summary judgment to Townsend, but a second judge vacated the award, concluding that the general releases did not encompass the plaintiffs’ Wage Act claims.  The second judge relied on a provision of the Wage Act that bars employers from entering into “special contracts” to exempt themselves from the statute’s requirements.  The SJC decided to review the case.

SJC’s Decision

The SJC found that the general releases in the plaintiffs’ termination agreements did not encompass their Wage Act claims.  However, the SJC also held that, in general, claims under the Wage Act can be released retrospectively through a settlement agreement, provided that the release (1) is “voluntary and knowing,” and (2) includes “express language that Wage Act claims are being released.”  In explaining this new standard, the SJC clarified that the release must “be plainly worded and understandable to the average individual” and “specifically refer to the rights and claims under the Wage Act that the employee is waiving.”

This decision struck a middle ground between two competing policies.  On the one hand, the court observed that “the strong protections afforded by the Wage Age should not be able to be unknowingly frittered away under the cover of a general release in an employer-employee termination agreement.”  At the same time, the court noted that public policy favors the enforceability of releases, and that a sweeping prohibition on releases of Wage Act claims would undermine the ability of employers and employees to settle employment claims.

The SJC emphasized that its decision encompassed only retroactive releases of Wage Act claims, noting that prospective releases would be “far more problematic under the special contracts provisions of the Wage Act.”  Thus, Crocker does not permit an employer to exempt itself from future liability under the Wage Act at the outset of an ongoing employment relationship.

Recommendations For Employers

In light of Crocker, we encourage Massachusetts employers to take the following steps:

• Carefully review all separation agreements and other documents that include releases of employment claims;
• Confer with counsel to revise all such agreements to ensure that the release provisions (i) are set forth in plain, readily understandable language, and (ii) specifically state that claims under the Wage Act are being released; and
• Review, in consultation with counsel, current employment policies and practices to confirm that all overtime, minimum-wage, and similar requirements are being met, and that no employees are misclassified as independent contractors.

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If you have any questions about Crocker or would like guidance on these issues or other employment matters, please do not hesitate to contact us.