Massachusetts Amends Holiday Premium Pay Law and Tips Act as Part of Economic Stimulus Package

On January 14, 2021, Massachusetts Governor Charlie Baker signed into law an economic stimulus bill, H.5250, An Act Enabling Partnerships for Growth, which includes two significant changes to Massachusetts wage and hour laws. First, the new legislation amended the law pertaining to holiday premium pay on New Year’s Day, Columbus Day, and Veterans Day (M.G.L. c. 136 § 16) to phase out the premium pay requirement by 2023. Second, the legislation enacted a sweeping amendment to the Massachusetts Tips Act (M.G.L. c. 149 § 152A) to broaden significantly the definition of “wait staff employee.” These changes will offer significant economic relief to the retail and hospitality industries.

In 2018, the Massachusetts legislature enacted sweeping legislation, also referred to as the “grand bargain” bill, which, among other things, increased the minimum wage and phased out the Sunday and holiday premium pay requirements with respect to all state holidays except New Year’s Day, Columbus Day, and Veterans Day. Those holidays were unaffected by the “grand bargain” legislation and were not subject to the phasedown.

Under Sections 74 and 75 of the new economic stimulus legislation, which amends M.G.L. c. 136 § 16, those three holidays are now included in the “grand bargain’s” phase out of the Massachusetts holiday premium pay requirement. The new legislation did not apply to New Year’s Day this year because the holiday had already passed at the time the governor signed the bill. However, the holiday premium pay rate for work to be performed in 2021, on both Columbus Day and Veterans Day will be lowered from 1.5 to 1.2 times workers’ regular hourly rates, in line with the rates that apply to work performed on all other state holidays. In 2022, the holiday premium pay rates for work performed on these three holidays, as well as on all other state holidays, will be 1.1 times the regular hourly rate. In 2023, the holiday premium rates will be eliminated altogether on all state holidays.

The new economic stimulus legislation fixes the glitch in the “grand bargain” bill, which left out New Year’s Day, Columbus Day, and Veterans Day, and ensures that by 2023, holiday premium pay will no longer be required on any state holiday. This is welcome news to retailers in Massachusetts, who will no longer be required to pay extra wages for work performed on Sundays or state holidays. The Office of the Attorney General has created a guide for employers including a chart, which identifies the new holiday premium pay rates for all state holidays. Retailers should remember that during and after the phase out of the Sunday and holiday premium pay requirements, they will still be obligated under Massachusetts law to pay overtime wages to their commissioned sales employees, via separate compensation and not commissions, since Massachusetts law does not contain a retail exemption from the overtime requirements. Given the lower premium rates that now apply to work performed on Sundays and holidays, those premium payments cannot perform double duty as overtime payments.

The amendments to the Massachusetts Tips Act are also welcome news for the hospitality industry. Pursuant to Section 77 of the new economic stimulus legislation, the statute’s definition of “wait staff employee” is significantly broadened to include an individual “in a quick service restaurant who prepares or serves food or beverages as part of a team of counter staff or any other counter employee” who performs such tasks. This means that an individual who works in a donut shop or fast food restaurant on a sandwich assembly line with other employees may now be able to receive tips from customers and/or share in a tip pool, even though they may not be the person directly interfacing with the customers at the cash register. Under the prior version of the law, it was unclear whether counter staff who may not have interfaced directly with customers (e.g., at the cash register) were allowed to share in a tip pool.

The more significant change, however, is that the new economic stimulus legislation significantly relaxes the prohibition on individuals with managerial responsibilities being allowed to receive tips. Pursuant to the amendment, wait staff employees can now receive tips as long they have “no managerial responsibility during a day in which the person serves beverages or prepared food or clears patrons’ tables.” (Emphasis added.) Prior to this amendment, the law provided that only individuals who had “no managerial responsibility” were allowed to receive tips or share in a tip pool, and Massachusetts courts had long interpreted that prohibition as meaning individuals could only share in a tip pool if they did not have any managerial responsibilities at any time. The new definition allows individuals with managerial responsibilities to receive tips or share in a tip pool effective January 14, 2021, as long as they do not have any managerial responsibilities that day. This would mean that a manager who, because of business needs, spends the entire day preparing and serving food to customers, and who does not perform any managerial responsibilities that day, is now allowed to receive tips or share in a tip pool on that particular day. It is unclear how the Massachusetts Attorney General’s Office and courts will interpret this new amendment. Employers are also still required to comply with federal law, specifically the Fair Labor Standards Act, which was amended by the 2018 Appropriations Act, and prohibits managers and supervisors from sharing in tip pools even if they provide service to guests.

Notwithstanding the uncertainty with how they will be interpreted by the Massachusetts Attorney General’s Office and courts, the amendments enacted as part of the new economic stimulus legislation promise important economic relief to the retail and hospitality industries, both now and in the future. However, the changes to the Massachusetts Tips Act are likely to generate confusion and possibly litigation. While the Massachusetts Attorney General’s Office has not yet issued any guidance on the new definition of “wait staff employee” in the Tips Act, it likely will in the future. In the meantime, employers interested in allowing counter staff and individuals with managerial responsibility to receive tips and/or share in a tip pool may want to carefully consider the options before they do so, as violations of the Tips Act have been a major focus of the Massachusetts plaintiff’s class action bar for many years, resulting in treble damages and attorneys’ fees. Violations of federal law regarding tipping are also a concern and carry with them the possibility of liquidated damages and attorneys’ fees.