When are Releases of Wage Act Claims Valid and Enforceable?

January 3rd, 2013

When an employee signs a general release of claims, the hope and expectation is that you will not hear from the employee again. In fact, that is the primary purpose of the release, especially when the employee is compensated in exchange for signing it. However, a recent decision issued by the Massachusetts Supreme Judicial Court offers guidance to employers to ensure when a release of Wage Act claims will be found valid and enforceable in Massachusetts.
In Crocker v. Townsend Oil Company, Inc., Plaintiffs, two former oil delivery truck drivers, claimed that they were owed compensation, including overtime pay, under the Wage Act based on their classification as employees, rather than independent contractors. The employer responded, along with a statute of limitations defense, that a general release contained in a termination agreement signed by plaintiffs barred any Wage Act claims. Though the SJC struggled with its policy to broadly enforce general releases, it disagreed.
The SJC concluded that the general release contained in the contract carrier termination agreement did not explicitly include the release of Wage Act claims. The Court continued that a release of Wage Act claims will be enforceable, only when such an agreement is stated in “clear and unmistakable terms”. Offering further guidance, the SJC stated that the release must be plainly worded and understandable to the average person, and it must specifically refer to the rights and claims under the Wage Act that the employee is waiving. Absent express language that Wage Act claims are being released, a general release is ineffective to waive them.
It is important to note that the SJC also stated that this case only dealt with retrospective release of claims – in other words, claims that existed at the time of the Agreement. This means and the Court strongly suggested that waivers of prospective wage act claims would be void under the Wage Act. This likely is an effort by the SJC to give weight to the Wage Act language that expressly states that employers cannot exempt themselves from obligations under the Wage Act by “special contracts with employees.”
As most employers are aware, damages under the Massachusetts Wage Act, including overtime pay, are automatically trebled. Given the potential risk, it is even more important that employers obtain a valid and enforceable release of Wage Act claims. The decision is an important reminder to employers to make sure they expressly state in plain and understandable language the rights and claims that the employee is waiving under the Wage Act. What constitutes “plain and understandable” and “clear and unmistakable terms” will likely be subject to further interpretation by the courts. In the interim, however, employers should proceed carefully and consult employment counsel if they want assurance that their employee’s release of Wage Act claims will be valid and enforceable.

-Kavita Goyal

posted by: joelrosen in EMPLOYMENT & DISCRIMATION | No Comments

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