Background: In
Tze-Kit v. Massachusetts Port Authority, the employer’s sick leave policy provided that, upon termination of employment, eligible employees would receive payment for a percentage of the value of their accrued, unused sick time. The policy further provided for no payment of accrued, unused sick pay to employees discharged for cause.
Here, the employer initiated disciplinary proceedings against the plaintiff. One week later, the plaintiff applied for retirement. The employer ultimately terminated the plaintiff’s employment for cause. As a result, the employer did not pay the plaintiff for his accrued, unused sick time based on application of the policy.
An arbitrator overturned the employer’s termination decision, finding that the employee retired before he was terminated. In light of that decision, the employer paid the plaintiff the full value of his accrued, unused sick leave. However, because of the lengthy grievance and arbitration proceedings, the employer did not make this payment until over a year after the plaintiff’s last day of employment.
Plaintiff then sued under the Payment of Wages Law because the employer had not paid him within the time frame required by the statute for final wage payments. After the trial court ruled for the plaintiff, his former employer appealed.
The Court’s Decision: Under the Payment of Wages Law, employees who resign must be paid in full on the next regular pay day. In contrast, employees who are discharged must be paid in full on the day of discharge. These obligations apply only to “wages.” Thus, the key question on appeal was whether accrued, unused sick leave constituted “wages” under the Payment of Wages Law.
The Supreme Judicial Court began its analysis by noting that the Payment of Wages Law contains no definition of “wages.” The statute provides, however, that the term wages does “include any holiday or vacation payments due an employee under an oral or written agreement.” The term also includes “commissions . . . [that have] been definitely determined and ha[ve] become due and payable to [the] employee.” After reviewing this language, the court noted that the mere fact that the statute does not specifically include sick pay within the meaning of wages does not mean that it necessarily falls outside the scope of the statute.
However, the court concluded that the Legislature did not intend to include sick pay as wages under the Payment of Wages Law. Notably, the court observed that because employees’ use of sick time is conditional – it can only be used when an employee or family member is ill – employees “do not have an absolute right to spend down their sick time; employees are not typically compensated for accrued, unused sick time.”
Key Takeaways: The Tze-Kit decision is a helpful reminder to Massachusetts employers regarding their obligations under the Payment of Wages Law: (a) employees who resign must be paid their wages in full on the next regular pay day; and (b) employees discharged must be paid their wages in full on the day of discharge.
This decision also clarifies that accrued, unused sick pay does not generally constitute wages under the Payment of Wages Law. Although this case dealt with a sick pay policy put in place prior to Massachusetts’ adoption of its Earned Sick Time Law, the same conclusion should apply to sick leave accrued under the law. Indeed, the regulations issued by the Attorney General under the Earned Sick Time Law state that employers do not have to pay out unused earned sick time upon termination of employment.
That said, employers that utilize Paid Time Off (“PTO”) programs to satisfy their obligations under the Earned Sick Time Law should be aware that if PTO can be used for both vacation and sick time purposes—as is often the case—then accrued, unused PTO would likely be considered as wages and must be paid out upon termination of the employment relationship.
Call to Action: Employers in Massachusetts should consult with their Service Team and experienced employment counsel to review or adopt sick time and/or PTO policies consistent with the Tze-Kit decision.