Pius Awuah & Others 1 v. Coverall North Am. Inc.

Decision Date31 August 2011
Docket NumberSJC–10829.
Citation952 N.E.2d 890,18 Wage & Hour Cas.2d (BNA) 145,460 Mass. 484
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court


Shannon Liss–Riordan (Hillary Schwab, Boston, with her) for the plaintiffs.Michael D. Vhay, Boston, (Norman M. Leon, of Illinois, & Matthew Iverson, Boston, with him) for the defendant.The following submitted briefs for amici curiae:Catherine Ruckelshaus, of New York, & Audrey R. Richardson, Roslindale, for Brazilian Immigrant Center & others.Eric H. Karp, Boston, Doris M. Fournier, Robert K. Sawyer, Jr., Randolph, & Adam N. Lewis, Newton, for International Franchise Association & others.Martha Coakley, Attorney General, & Karla E. Zarbo, Assistant Attorney General, for the Commonwealth.Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, & DUFFLY, JJ.BOTSFORD, J.

A judge of the United States District Court for the District of Massachusetts ruled in a case filed in that court that the defendant, Coverall North America, Inc., misclassified as independent contractors those plaintiffs who are Massachusetts residents. He has certified to this court questions related to calculation of damages for one such plaintiff, Anthony Graffeo. The certified questions relate to whether, under Massachusetts law, an employer may use a system of customer accounts receivable financing to pay its employee at the time the customer pays the employer for the employee's work rather than when the work is performed; and whether, under the Massachusetts Wage Act, G.L. c. 149, §§ 148, 150 (Wage Act), an employer and an employee may agree that the employee will pay the cost of workers' compensation and other work-related insurance coverage. We conclude that the accounts receivable financing system at issue improperly defers payment of the employee's earned wages, and that an employer may not deduct the insurance costs from an employee's earned wages. In response to the judge's invitation to provide additional guidance, we also address the question whether Coverall may deduct “franchise fees” from such wages, and conclude that the Wage Act forbids the deductions.2

1. Background. The plaintiffs are individuals who have entered into contracts, called “janitorial franchise agreements,” with Coverall for the provision of commercial janitorial services to third-party customers. See Awuah v. Coverall N. Am., Inc., 707 F.Supp.2d 80, 81 (D.Mass.) ( Awuah I ), S.C., 740 F.Supp.2d 240, 241 (D.Mass.2010) ( Awuah II ). They commenced this case in the Federal District Court for the District of Massachusetts in 2007 as a class action, alleging that Coverall misclassified the named plaintiffs and other similarly situated individuals as independent contractors. See Awuah I, supra at 81; Awuah II, supra at 241. On March 23, 2010, in Awuah I, the judge ruled that the Massachusetts “franchisees” of Coverall were misclassified as independent contractors under the Commonwealth's misclassification statute, G.L. c. 149, § 148B, and accordingly were “employees.” 3,4 See Awuah I, supra at 84–85. After further proceedings not relevant here, the judge ruled on the remaining parties' cross motions for summary judgment regarding damages suffered by one misclassified worker, the plaintiff Graffeo.5Awuah II, supra at 241.

In Awuah II, supra at 242–243, the judge addressed several types of costs and fees, the substance of which are described in more detail below. He concluded that Coverall properly could deduct from payments to Graffeo certain amounts related to “franchise fees,” 6 royalty and management fees, and the cost of supplies and equipment, so long as Graffeo was paid at least the minimum wage. Id. at 243. However, the judge also concluded that Coverall was statutorily mandated as the employer to provide and pay for workers' compensation insurance; to the extent Graffeo paid for insurance premiums that Coverall was required to pay, Graffeo was injured by his misclassification and could recover the premium costs as “damages incurred” under the enforcement section of the Wage Act, G.L. c. 149, § 150 ( § 150). Id. at 241–243. The judge further determined that Coverall's “accounts-receivable financing” protocol violated another provision of the Wage Act, G.L. c. 149, § 148 ( § 148), requiring that employers pay employees within a week of the weekly or biweekly pay period during which wages were earned. Id. at 244–245. The judge ruled that, although Coverall eventually repaid to Graffeo the “chargebacks” it collected from him to offset customers' unpaid bills under this protocol, Graffeo is owed interest on the chargebacks for the period of time they were outstanding. Id. at 243 n. 2, 245. Finally, the judge concluded that the resolution of Graffeo's claims presented issues of Massachusetts statutory law, and, accordingly, stated his intent to certify questions to this court pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981). Id. at 245.

An order of certification followed. It poses four questions:

“1. Under Massachusetts law, may a franchisor lawfully use customer accounts-receivable financing to pay a franchisee who is characterized as an employee under [G.L. c. 149, § 148B]?

“2. Under Massachusetts law, do the ‘damages incurred’ for which a misclassified worker can seek recompense under [G.L. c. 149, § 150,] include costs that an employer statutorily must bear?

“3. Under Massachusetts law, may an employer lawfully withhold wages to an employee if the employer and employee agree that such wages are not earned until a customer remits payment?

“4. Under Massachusetts law, may an employee and his employer lawfully agree that the employee will pay some or all of the cost of workers' compensation or other insurance coverage procured to alleviate the liability of the employer?” 7

We summarize the facts of the case from the order of certification and the record before us. As previously stated, Coverall contracts in “franchise agreements” with individuals for the provision of commercial janitorial services to third-party customers. Awuah I, supra at 81. The contracts require the contracting employees to complete mandatory training programs and wear approved uniforms and identification badges. Id. at 82. Under the contracts, Coverall performs all billing and collection services, and remits payments to employees after deducting certain fees. Id. Graffeo, a Massachusetts resident, signed one such contract in 1995. He hired no employees, but instead provided cleaning services directly.

The contract between Coverall and Graffeo provided that Graffeo would pay Coverall fees in several categories; five of them are at issue between the parties.8 First, to secure an initial package of customer accounts, the contract required Graffeo to pay Coverall an initial “franchise fee” of $3,250, of which $1,700 was payable in cash on execution of the contract; the balance, plus interest, was to be paid in instalments over the following twenty-four months. The agreement also gave Graffeo the option of securing additional customer accounts by paying additional business fees to Coverall. 9

Second, the contract required Graffeo to pay monthly royalty and management fees equal to five per cent and ten per cent, respectively, for a total of fifteen per cent, of the amount Coverall billed customers assigned to Graffeo.10

Third, the contract made Graffeo responsible for all losses, damages, or personal injuries arising out of his janitorial services, and required him to maintain janitorial bonding, workers' compensation insurance for himself and any employees, unemployment insurance as required by law, and comprehensive liability insurance.11 All insurance policies were to name Coverall as an additional insured. The contract gave Graffeo the option of purchasing general liability insurance and bonding through Coverall and paying Coverall for the premiums and certain surcharges. He accepted this option.12 In January, 2004, Graffeo also opted into Coverall's “franchise owner job related accident program” (FOJ program), as Coverall required him to do unless he could demonstrate he had on-the-job accident insurance or workers' compensation insurance.13

Fourth, the contract required Graffeo to provide replacement supplies and equipment. Although he purchased supplies primarily from third parties, on at least one occasion, Graffeo purchased supplies from Coverall and Coverall deducted the cost from the amounts it paid him.14

Fifth and finally, the contract provided for “accounts receivable financing” whereby Coverall would pay Graffeo “interest-free advances” for amounts billed to, but not yet collected from, customers. If customers failed to pay Coverall within ninety days of the date the payment was due, the contract required Graffeo to “repay” Coverall the “advance.” These “chargebacks” are the final contested category of payments Graffeo made to Coverall.

2. Discussion. The Wage Act requires “prompt and full payment of wages due.” Camara v. Attorney Gen., 458 Mass. 756, 759, 941 N.E.2d 1118 (2011) ( Camara ). Section 148 of the Wage Act provides in pertinent part:

“Every person having employees in his service shall pay weekly or bi-weekly each such employee the wages earned by him to within six days of the termination of the pay period during which the wages were earned if employed for five or six days in a calendar week.... No person shall by a special contract with an employee or by any other means exempt himself from this section or from [§ 150]....”

G.L. c. 149, § 148. Section 150 allows an employee claiming to be aggrieved by a violation of § 148 to prosecute “a civil action for injunctive relief, for any damages incurred, and for any lost wages and other benefits” (emphasis added). G.L. c. 149, § 150. An employee who prevails in such an action shall be awarded costs and reasonable attorney's fees, and may be awarded treble damages.15


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