The Massachusetts Wage Act, G.L. c. 149, § 148, governs the payment of wages.
Employers who fail to comply with the Wage Act may be required to pay an aggrieved employee treble damages, attorneys’ fees and costs, so it’s important to understand what forms of compensation constitute “wages” under the Wage Act. Salaries and fixed hourly wages present the easiest cases for protection under the Wage Act. Incentive payments, in the form of commissions and profit-sharing, require a closer look.
Commissions – The Wage Act specifically provides that commissions are “wages” under the Wage Act if two conditions are met: (1) the amount of the commission has been “definitely determined” and (2) the commission has become “due and payable” to the employee. The classic example of a commission subject to the Wage Act is money owed to a salesperson for completing a sale. The commission due in this example could be a specified percentage of the sale price or a flat fee.
Profit-Sharing – The Wage Act does not specifically address profit-sharing arrangements, but Massachusetts state and federal courts have repeatedly held that profit-sharing arrangements are not commissions and, therefore, are not subject to the Wage Act. The rationale behind these decisions appears to be that commissions are dependent on an employee’s individual effort, whereas a company’s overall profit is dependent on a broader set of factors.
A recent Superior Court decision dismissing a Wage Act claim based on a profit-sharing arrangement provides a useful summary of relevant case law distinguishing commissions subject to the Wage Act from profit-sharing arrangements not subject to the Wage Act. See Mehra v. Boston Globe Media Partners.