In Massachusetts, a commission is a wage subject to the Wage Act when the amount of the commission “has been definitely determined and has become due and payable.”  Accordingly, an employer’s failure to pay a commission which had not yet become due and payable generally does not implicate the Wage Act, and employers cannot be held liable for treble damages stemming from the failure to pay such a future commission.  However, last week in Parker v. EnerNOC, Inc., the Supreme Judicial Court created an exception to this rule, holding that an employee is entitled to treble damages on an unpaid future commission as lost wages where the employer’s unlawful retaliation was the reason the commission did not became due and payable.

Parker concerned an employee’s Wage Act claims based upon her prior employer’s failure to pay her certain commissions.  The employee earned commissions on software sales contracts she secured for her employer.  As a result of a particular contract, the employee earned two different commissions – one payable when the sales contract first became guaranteed and another when the time period for the client to opt out of the contract had passed.  After the deal became guaranteed, the employee complained that she had not been paid the full amount of the first commission to which she was entitled.  After the employee complained, the employer terminated her employment.  After the termination, the opt-out period passed.  Had the employee remained employed with the employer, she would have been entitled to the second commission.  The employee sued, alleging that she had been terminated in retaliation for her complaints and that she had been denied her commissions in violation of the Wage Act.  She ultimately prevailed.  The trial court judge granted the employee treble damages on the first commission, but not on the second, on the basis that the second commission had not “become due and payable” as of the employee’s last day of employment.

The SJC reversed the trial court, ruling that the employee was entitled to treble damages on the unpaid portions of both commissions.  According to the SJC, nothing in the Wage Act required a commission to be due and payable as of the date of termination to be subject to the Wage Act.  Because the Wage Act prohibits retaliation against employees raising Wage Act claims, the SJC ruled, “commissions that are not yet due to be paid may nonetheless constitute lost wages if the employer’s violations of the act prevent payment of those commissions.”  As such, the employee was entitled to treble damages on those lost wages as a remedy for the employer’s retaliation prohibited by the Act, regardless of whether the commission was due and payable.

In light of the decision in Parker, employers should exercise caution when terminating employees who have earned commissions that have not yet been paid.  Parker makes clear that unpaid commissions – even if they are not due and payable at the time to termination – constitute lost wages under the antiretaliation provisions of the Act, and employees are entitled to treble damages on future commission where an employee can show that the commission did not become due and payable as a result of an employer’s retaliation prohibited by the Act.

Jonathan Keselenko, James Fullmer, & Chris Feudo
Foley Hoag LLP
Boston, MA

By Jonathan Keselenko, Chris Feudo, and Emily Nash
Foley Hoag LLP
Boston, MA

Massachusetts law requires that non-exempt employees be paid at least 1.5 times their hourly rate for hours worked beyond the first 40 hours per week, and that certain employees be paid at least 1.5 times their hourly rate for all hours worked on Sundays.  However, there has been confusion as to how these laws apply to employees who are paid exclusively by commissions.  Late last week, the Massachusetts Supreme Judicial Court  ruled in Sullivan v. Sleepy’s LLC that non-exempt employees paid entirely on commissions or advances are eligible for overtime and Sunday pay, regardless of how much they make in commissions.  Thus, even if employees make the equivalent of or more than 1.5 times the minimum wage in commissions, non-exempt employees are still entitled to overtime pay for hours worked over 40 in a work week and, if eligible, Sunday premium pay for hours worked on Sundays.

The plaintiffs in the case, sales employees at Sleepy’s mattress stores, were paid a $125.00 daily draw plus any commissions they earned in excess of the draw.  When the employees worked more than 40 hours in a work week or on Sunday, they were not paid any additional compensation.  However, their compensation always equaled or exceeded the minimum wage for the employee’s first 40 hours worked plus 1.5 times the minimum wage for all hours worked over 40 hours and on Sundays.  In 2017, the plaintiffs sued in state court for unpaid overtime and Sunday pay.  The defendants claimed that the employees were not entitled to any additional compensation beyond what they had received, because their commissions and advances always equaled or exceeded the minimum wage for the first 40 hours worked plus 1.5 times the minimum wage for hours worked in excess of 40 and on Sundays.

The defendants removed the case to federal court, where the judge subsequently stayed the proceedings and certified two questions of first impression under Massachusetts law to the SJC:

1. Is an employee paid on commission entitled to additional compensation for overtime hours if the employee’s draws and commissions are equal to or greater than 1.5 times the employee’s regular rate or at least 1.5 times the minimum wage for all hours worked over 40 hours in a work week?
2. Is a commission retail employee who works on a Sunday entitled to any additional compensation for Sunday premium pay when the employee’s draws and commissions compensate the employee in an amount equal to or greater than 1.5 times the employee’s regular rate or at least 1.5 times the minimum wage for all Sunday hours worked?

The SJC answered both questions in the affirmative.  While the Court agreed that the minimum wage constitutes a commission-only employee’s “regular rate” for the purposes of calculating his or her overtime or Sunday pay, the Court explained that commission-based compensation cannot be retroactively allocated as hourly and overtime compensation, even if that compensation equaled or exceeded the minimum wage for the first 40 hours worked and 1.5 times the minimum wage for all hours worked over 40 hours and on Sundays.  Instead, employees are entitled to separate and additional payments of 1.5 times the minimum wage for every hour worked over 40 hours in a week and on Sundays.

To the extent employers have maintained policies by which they did not pay overtime rates or, if applicable, Sunday rates for their non-exempt commission-only employees when their commissions equaled or exceeded the overtime compensation, these policies must now change.  These employees must be compensated for their overtime or Sunday hours worked, regardless of their weekly draws and/or commissions.

By Jonathan Keselenko, Foley Hoag LLP, Boston, MA

The Massachusetts Attorney General Maura Healey (the “AG”) recently released her long-awaited guidance regarding the 2016 overhaul of the Massachusetts Equal Pay Act (the “Act”), which takes effect on July 1, 2018.  The Act, which, among other things, prohibits employers from paying employees of different genders differently for comparable work, has left employers with many questions as to how its provisions would be interpreted and enforced.  While the AG’s guidance does not provide the concrete interpretation of the Act many employers were hoping for, it does give employers greater clarity on many of the Act’s more ambiguous provisions.  In particular, the guidance shows that the AG will interpret the terms of the Act broadly and highlights the important role employer self-evaluations of pay practices will play in defending against claims under the Act.

Covered Employees

While the Act provides that employees who have a “primary place of work” in Massachusetts are subject to the Act, it was unclear at the time of the Act’s passage how that statutory term would apply to employees with non-traditional working arrangements, such as employees who travel extensively, telecommute, or work in multiple locations.  The guidance provides further explanation as to how the AG will apply the law in these scenarios, offering an expansive view of what it means to have a “primary place of work” in Massachusetts.

According to the AG, an employee who travels for work has a “primary place of work” in Massachusetts if he or she returns regularly to a Massachusetts “base of operations” before resuming his or her business travel.  Similarly, a telecommuting employee whose work arrangements are made through a Massachusetts work site will be covered by the Act, even if the employee is not physically present in Massachusetts while telecommuting.  The guidance also explains that an employee will be covered if he or she spends a plurality of his or her time in the Commonwealth; Massachusetts does not need to be the place where the employee does a majority of his or her work for the Act to apply.  Finally, the AG will deem employees who permanently relocate to Massachusetts to have a primary place of work in Massachusetts on their first day of actual work in Massachusetts.

Comparable Work

The concept of “comparable work” is the centerpiece of the Act, but the statute’s definition of the term as work that requires “substantially similar skill, effort, and responsibility” is far from precise.  Accordingly, the AG’s guidance endeavors to provide more clarity as to what “comparable work” means.

According to the AG, “substantially similar” means “alike to a great or significant extent,” but does not mean “identical or alike in all respects.”  As such, “[m]inor differences in skill, effort, or responsibility will not prevent two jobs from being considered comparable.”

“Skill,” the AG explains, includes the “experience, training, education, and ability required to perform the job.”  For example, the AG opines that janitors and food service staff in a school setting may require comparable skills, even if the jobs are substantively different, because neither job requires prior experience or specialized training.  Moreover, skill is measured only by skills that are necessary to the job, not the skills an individual employee happens to have.

“Effort” means the amount of physical and mental exertion required to perform the job.  Thus, according to the AG, a job that requires standing all day and an office job where workers spend their day seated do not require substantially similar effort, but two jobs involving substantively different work, such as janitorial and food service jobs, may be comparable because they often require the same amount of physical exertion.  Effort also looks to job factors that cause mental fatigue or stress.

“Responsibility,” the AG provides, is to be measured by the degree of discretion or accountability in a job, and includes factors such as how much supervision the employee receives or gives others and how much the employee is involved in decision-making.  For example, a job that requires an employee to sign legal or financial documents may not be comparable to a job that merely requires employees to draft such documents without being personally accountable for errors contained in them.

When comparing working conditions, the AG advises that the physical surroundings to be considered include the elements regularly encountered by a worker while performing a job, such as extreme temperatures and noise, and the intensity or frequency of those elements.  The AG also advises that an employer should consider the frequency with which workers come across workplace hazards such as chemicals, fumes, electricity, heights, dangerous equipment and other factors, and the severity of injuries that these hazards could cause.  Importantly, the guidance affirms that shift differentials are permissible under the Act where they are based on meaningful differences between the days and times of scheduled shifts.

Permissible Variations in Pay

The AG’s guidance clarifies the six permissible bases for pay differentials that are set forth in the Act.  According to the AG:

• A “system that rewards seniority with the employer” must recognize and compensate employees based on length of service with the employer.
• A “merit system” must provide for variations in pay based on legitimate, job-related criteria.
• A “system that measures earnings by quantity or quality of production, sales, or revenue” is a system that provides for variations in pay based upon the quantity or quality of the employee’s individual production (e.g. piecemeal pay or hours worked) or sales and other revenue generation (e.g., commissions) in a uniform, reasonably objective fashion.
• The geographic location of the job may constitute a valid reason for variation in pay if the cost of living or the relevant labor markets differ from one location to another.
• Employee travel will justify a pay differential if it is a regular and necessary condition for the job. Variations in pay based on travel are not permitted where there are alternatives to that travel, the travel is part of an employee’s regular commute, or the travel is based on the employee’s preference to travel.
• Education, training, and experience will justify variations in pay if they are reasonably related to the job in question and, at the time the employee’s wages were determined, a reasonable employer could have concluded the skills would be valuable in the particular job.

Further, the AG clarifies that a “system” is a “plan, policy or practice that is predetermined or predefined; used by managers or others to make compensation decisions; and uniformly applied in good faith without regarding to gender.”  In other words, ad hoc explanations for pay differentials will not pass muster under the Act.

Importantly, the AG plainly states that changes within a labor market or other market forces will not justify unlawful pay differentials.  Nor will the fact that the employer lacked the intent to discriminate based on sex be a defense to a claim that the Act has been violated.

Prohibition on Seeking Pay History

The AG’s guidance confirms that the Act’s prohibition on seeking the pay history of prospective employees will be broadly interpreted.  Employers cannot avoid the prohibition by obtaining pay history information from an agent, such as a recruiter or staffing company, nor can they request that prospective employees “volunteer” information about their pay history.  Moreover, multistate employers who search for employees nationally cannot ask about applicant pay history if there is a possibility that the individual will be chosen or assigned to work in Massachusetts.

However, the AG guidance indicates that certain compensation-related inquiries are still permissible.  First, an employer may still ask a prospective employee about their salary requirements or expectations without violating the Act.  Second, an employer may ask about the prior volume or quantity of previous sales by a prospective employee in a sales field, as long as the inquiry does not touch upon the individual’s earnings from the sales.  Third, an employer may consult public sources to learn about an employee’s pay history.

Affirmative Defenses for Employers

Finally, the AG’s guidance provides some explanation of the affirmative defenses to liability available to employers.  Under the Act, an employer has a complete defense to liability if it can show that it undertook a “good-faith self-evaluation of its pay practices” that was “reasonable in detail and scope” within the previous three years and before an action is filed and that it has made “reasonable progress” towards “eliminating unlawful pay disparities.”  If the self-evaluation is not “reasonable in detail and scope” but meets all other requirements, the employer has a partial defense that allows it to escape liability for liquidated damages.  Although still somewhat amorphous, the AG elaborates on the key statutory language:

• Good faith: To be in “good faith,” the self-evaluation must be conducted in a genuine attempt to identify unlawful pay disparities. A self-evaluation conducted to achieve pre-determined results or justify disparities is not a good faith self-evaluation.
• Reasonable in detail and scope: Whether an evaluation is reasonable in detail and scope will depend on the size and complexity of the employer’s workforce, looking at factors such as (1) whether the evaluation includes a reasonable number of jobs and employees; (2) whether the evaluation takes into account relevant information; and (3) whether the evaluation is reasonably sophisticated in its analysis of comparable jobs, employee compensation, and the permissible reasons for pay disparities set forth in the Act. The guidance also provides useful templates and checklists to guide employers in conducting reasonable self-evaluations, including a Pay Calculation Tool employers may use to detect pay disparities within comparable job classifications.  These documents make clear that some level of statistical analysis is necessary for a self-evaluation to be reasonable in the eyes of the AG.
• Reasonable progress: Reasonable progress, for the purposes of the affirmative defense, means that the employer has taken meaningful steps toward eliminating unlawful pay disparities.  Such a determination will depend on (1) how much time has passed since the evaluation; (2) the degree of progress made compared to the scope of the problems identified, and (3) the size and resources of the employer.
• Eliminating unlawful pay disparities: The AG interprets this phrase to mean adjusting employee’s pay so that employees performing comparable work are paid equally, but eliminating unlawful pay disparities does not require employers to pay employees retroactively for historical disparities.

Importantly, the guidance states that a self-evaluation must address the employee or job at issue in order for the employees to make use of the affirmative defense to a claim under the Act or the Massachusetts anti-discrimination statute.

Conclusion

While some provisions of the Act remain vague, the AG’s guidance answers many of the questions employers have had since the passage of the Act, and gives employers a preview of how the AG will enforce it.  Attorney General Maura Healey has made pay equity one of her top priorities, so employers should expect robust enforcement efforts beginning on July 1, 2018.  In the meantime, employers should take advantage of the time before the Act goes into effect to review their compensation and handbook policies to make sure they are compliant with the Act.  Moreover, employers will want to consult with their counsel to determine whether conducting a self-evaluation makes sense for their organization and, if so, to begin taking steps to design and conduct a self-evaluation that can potentially shield them from liability under the Act.

On June 27, 2017, the U.S. Department of Labor (DOL) made two announcements that signal a change of direction for the new Administration.  First, the DOL announced in a press release that it would return to its decades-long practice of issuing “opinion letters,” which provide employers formal, written guidance on specific labor law issues.  Second, the DOL began the process for seeking public notice and comment on the Obama DOL’s rule increasing the salary threshold for overtime exemptions, indicating that the DOL is considering eliminating or changing the controversial rule.

Opinion Letters

For over 70 years, the DOL issued opinion letters, which were official administrative guidance that explained how the DOL would apply the FLSA, FMLA and a select few other laws in specific factual scenarios.  Employers could rely on the opinions and use them to defend actions taken in line with those opinions.  In 2010, however, the DOL stopped issuing opinion letters, opting instead for broader “Administrator Interpretations.”  These Interpretations were far fewer in number and offered more general guidance, and they were criticized by employers for their perceived pro-employee slant.  (The DOL under President Trump has since revoked two of these Interpretations.)

On June 27, the DOL announced that it would resume issuing opinion letters.  Labor Secretary Acosta explained that the policy shift was intended to benefit employees and employers by providing “a means by which both can develop a clearer understanding of the Fair Labor Standards Act and other statutes” and allowing employers to focus on “growing their businesses and creating jobs.”

The DOL has set up a webpage where the public can view existing guidance or request an opinion letter.  The website contains specific instructions about how to request an opinion letter, what to include in a request, and where to submit the request.

Overtime Rule

On the same day, the DOL also announced that it sent a Request for Information (RFI) to the Office of Management and Budget (OMB) related to the Obama DOL’s overtime rule, which, among other things, increased the minimum salary for the executive, administrative and professional worker exemptions.  Once the RFI is published, the public has an opportunity to comment.

The new overtime rule had been scheduled to take effect on December 1, 2016, but a federal court in Texas granted a preliminary injunction delaying implementation of rule while a legal challenge to it was pending.  The Department of Justice appealed the decision on December 1, and the case remains on appeal in the Fifth Circuit Court of Appeals.

While the RFI could be the first step towards the rule’s official demise, the DOL may be considering modifying the rule in some way.  In statements to a Senate subcommittee on June 27, Secretary Acosta noted that the request “would ask the public to comment on a number of questions that would inform our thinking,” and, while the rule’s salary threshold would be “just too high for many parts of the country,” he urged the public to show the DOL “how to write a good overtime regulation.”

Together, these changes show that the new DOL is moving in a more employer-friendly direction than the agency had during the prior Administration.

Jonathan Keselenko, Foley Hoag LLP, Boston, MA

As the last post illustrates, states are adopting disparate rules concerning meal and rest breaks, and so employers need to pay attention to the laws of the each relevant jurisdiction.  Massachusetts is no exception, as a recent case demonstrates.

In Devito v. Longwood Security Services, Inc., a Massachusetts Superior Court judge held that, under state law, employers must pay their employees for meal breaks unless the employees are relieved of all work-related duties during that time.  In so holding, the Court rejected the application of the federal “predominant test,” which provides that meal breaks need only be paid when the employee’s meal break time is spent predominantly for the benefit of the employer.  The decision holds that the standard Massachusetts employers must meet to avoid paying employees for meal breaks is much stricter than the federal standard.

The Court based its conclusion on the language of the Massachusetts Department of Labor Standards’ regulations, which the Court held to be a source of authority for determining whether certain hours worked should be counted for the purpose of a Wage Act claim.  Those regulations provide that “Working Time” does not include “meal times during which an employee is relieved of all work-related duties.”  Further, they state that all on-call time is compensable unless the employee is not required to be on work premises and is “effectively free to use his or her time for his or her own purposes.”  Taken together, the Court found that meal breaks are compensable hours worked under the Wage Act unless employees are relieved of all work-related duties during the meal breaks.

The Court rejected authorities that applied the “predominant test” used under the federal Fair Labor Standards Act.  It ruled that there was no reason to look to interpretations of the FLSA for guidance in interpreting the governing Massachusetts law and regulations because the law and regulations are unambiguous.

While this trial court decision is not binding on other courts, the decision demonstrates the risks that employers face when providing meal breaks to employees without relieving them of all duties.  Prudent Massachusetts employers should review their meal break policies and pay employees for any meal breaks during which employees are expected to be available for work-related matters.  Only if an employee is truly relieved of all work responsibilities during the meal break can a Massachusetts employer avoid paying employees for break time without risking a potential Wage Act claim.

Jonathan Keselenko, Foley Hoag LLP, Boston, MA

On August 1, 2016, Massachusetts Governor Charlie Baker signed a new pay equity act (the “Act”) into law. The Act, which goes into effect on July 1, 2018, is designed to close the wage gap between men and women. Although Massachusetts already had a pay parity law that prohibits wage discrimination, the Act provides greater clarity on what constitutes unlawful pay discrimination and imposes new rules and restrictions on employers.

First, the Act clarifies what it means to discriminate against workers who perform “comparable work” to others. While the current statute prohibits pay discrimination where workers perform “comparable work,” it does not define that term. Under the Act, comparable work is defined to be work that requires “substantially similar skill, effort and responsibility and is performed under similar working conditions.” The Act, however, does not define “substantially similar,” so that term will still be subject to interpretation by either the Attorney General’s Office or courts.

Second, whereas seniority was the only stated basis for paying variable wages under the old law, the Act recognizes six justifications for pay disparities where workers perform comparable work. Variations in pay are permissible under the Act if based upon: (1) a seniority system, provided that job-protected leave does not reduce seniority; (2) a merit system; (3) a system measuring quality or quantity of production, sales or revenue; (4) geographic location of where the job is performed; (5) education, training, or experience to the extent these factors reasonably relate to the job at issue; and (6) travel, if travel is a regular and necessary condition of the job.

Third, Massachusetts becomes the first state in the country to constrict what employers may ask prospective employees about their wage history. Under the new law, employers may not seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or require that applicants meet certain salary criteria to be eligible for a job. This  provision, however, includes an important caveat: prospective employees may authorize a prospective employer to verify salary history, and prospective employers may confirm salary history  after an offer with compensation has been negotiated and made to a prospective employee.

Fourth, the Act makes it unlawful for employers to prohibit employees from discussing or disclosing information about their own wages, or the wages of other employees.

Fifth, the Act establishes an affirmative defense for employers who have audited their pay practices within the prior three years. Specifically, employers who voluntarily evaluate their pay practices and “demonstrate that reasonable progress has been made towards eliminating wage differentials based on gender for comparable work,” have an affirmative defense to pay discrimination claims, so long as the evaluations were reasonable in detail and scope. At the same time, the law prohibits courts from drawing an adverse inference against employers who have not done a voluntary audit.

Sixth, the Act enhances the enforcement scheme of the previous law. The statute of limitations has been extended from one year to three years. The new law also allows employees to go directly to court with their pay discrimination claims without first bringing a complaint to the Massachusetts Commission Against Discrimination or the Attorney General’s Office.

Pay equity has been a topic of significant interest of late both locally and nationally. Massachusetts Attorney General Maura Healey in particular has made pay equity a priority of her office and has been using her enforcement powers to audit employer pay practices to detect and address discrimination. Accordingly, employers should expect that the Attorney General’s scrutiny of discriminatory pay disparities will only increase when the Act goes into effect. Now more than ever, employers should take time to review and evaluate their compensation practices to identify and remedy discriminatory pay disparities, and to take advantage of the new affirmative defense discussed above. They should also review hiring practices to ensure that they are not making impermissible inquiries into the pay histories of prospective employees. They also should review employee handbooks and other policies to ensure that they do not inhibit employees from discussing their compensation, as such a prohibition not only violates the Act, but also federal labor law.

Jonathan Keselenko
Foley Hoag LLP
Boston, MA

The comment period for the United States Department of Labor’s proposed new regulations regarding the white collar exemptions closed on Friday, September 4.   For more detail on the proposal, please see the excellent piece by our colleague Jason Reisman.

The WHDI submitted a comment regarding the proposed new regulations, which can be found here.

In short, we believe that the proposed new regulations are a bad idea.  Contrary to DOL’s rationale, the regulations do not simplify the interpretation of the FLSA, are seriously flawed, will lead to more (not less) litigation, have significant hidden administrative and employee morale costs, and, contrary to impression created by publicity, do not obligate employers to increase an employee’s total compensation under the FLSA when converting from exempt to non-exempt status.