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The Supreme Judicial Court of Massachusetts has ruled that sick or vacation payments, when used to supplement workers' compensation payments, are not “regular compensation” for purposes of Massachusetts law.

The case

From Sept. 30, 1985, to July 7, 2012, Robert Vernava worked for the department of public works in the town of Swampscott, Mass. On June 13, 2010, Vernava was injured while working, and he began receiving workers' compensation benefits the same day.

In addition to workers' compensation benefits, Vernava also received two hours per week of sick or vacation pay (that is, supplemental pay) under Massachusetts law.

On Feb. 1, 2012, the town filed an application seeking to retire Vernava involuntarily for accidental disability, as allowed by law.

On June 28, 2012, the retirement board of Swampscott approved the application and voted to involuntarily retire Vernava due to accidental disability. He received his workers' compensation benefits and supplemental pay until July 7, 2012.

Following the board's decision to retire Vernava involuntarily, the Public Employee Retirement Administration Commission (PERAC) determined that Vernava's effective retirement date was July 7, 2012, because this was the last day he had received “regular compensation” in the form of his supplemental pay.

The division of administrative law appeals (DALA) reversed PERAC's decision, finding that Vernava's supplemental pay was not “regular compensation” under the law. DALA determined that Vernava had last received such compensation on June 13, 2010, the date of his injury.

Based on that determination, DALA set Vernava's effective accidental disability retirement date as Aug. 1, 2011. It reasoned that because the supplemental pay was not regular compensation, the latest occurring event became the date six months prior to the filing of the accidental disability application — Aug. 1, 2011 — and not the date Vernava had last received regular compensation.

PERAC appealed from DALA's findings to the Contributory Retirement Appeal Board (CRAB), which upheld DALA's decision. PERAC then sought judicial review of CRAB's decision. A trial court affirmed CRAB's decision, and the dispute reached the Supreme Judicial Court of Massachusetts.

Massachusetts law

The relevant section of the Massachusetts law defines regular compensation as “compensation received exclusively as wages by an employee for services performed in the course of employment for his employer.” The law also defines wages as:

the base salary or other base compensation of an employee paid to that employee for employment by an employer; provided, however, that “wages” shall not include, without limitation, overtime, commissions, bonuses other than cost-of-living bonuses, amounts derived from salary enhancements or salary augmentation plans which will recur for a limited or definite term, indirect, in-kind or other payments for such items as housing, lodging, travel, clothing allowances, annuities, welfare benefits, lump sum buyouts for workers' compensation, job-related expense payments, automobile usage, insurance premiums, dependent care assistance, [one]-time lump sum payments in lieu of or for unused vacation or sick leave or the payment for termination, severance, [or] dismissal … amounts paid as early retirement incentives or any other payment made as a result of the employer having knowledge of the member's retirement, tuition, payments in kind and all payments other than payment received by an individual from his employing unit for services rendered to such employing unit, regardless of federal taxability.

Under the statute, the effective date of an employee's accidental disability retirement is the latest of:

The date the injury was sustained;
The date six months prior to the filing of the written application for such retirement; or
The date for which the employee last received regular compensation for employment in the public service.

The Massachusetts Supreme Judicial Court's decision

The Supreme Judicial Court affirmed the trial court, explaining that the issue was whether any supplemental pay received was “regular compensation” as defined by the statute when received in conjunction with workers' compensation benefits.

The court then rejected PERAC's contention that recurring payments of accrued sick leave or vacation time constituted regular compensation in this situation. Rather, the court said, for payments to constitute “regular compensation,” they must be “ordinary” remuneration for work performed.

The court decided that the sick and vacation time Vernava used to supplement his workers' compensation payments while out on disability, which was “limited in amount,” was not regular compensation.

The court concluded that supplemental pay received while an employee was no longer able to provide employment services for the employer did “not constitute regular compensation.” In these instances, the court said, the employee was “not merely out sick or taking a vacation,” but was not able to perform services for the employer.

The case is Public Employee Retirement Administration Commission v. Contributory Retirement Appeal Board.

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal.

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Massachusetts top court limits definition of 'regular compensation' in workers' comp case

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