Federal Courts Bar Application of Independent Contractor Law to Courier Drivers

The federal court system in Massachusetts is taking a bite out of the state’s independent contractor statute. Beginning last Fall and continuing through last month, three otherwise valid class action suits seeking to apply the law to courier drivers have turned in favor of the courier companies involved. The most recent decision involves a courier association’s contention that one of three prongs of the independent contractor statute  is preempted as applied to its industry by federal law. Though things went poorly for that argument early on, the tide recently turned in a big way.

On July 8, the court in Mass. Delivery Assoc. v. Healy issued a ruling after a remand by the First Circuit Court of Appeals. Following its instructions, the U.S. District Court issued judgment in favor of the delivery association. It concluded that a key component of the independent contractor law, Mass. Gen. L. ch. 149, §148B, was preempted as applied to courier drivers by the Federal Aviation Administration Authorization Act (FAAAA).  That law bars application of any state law that affects the prices, routes or services of motor carriers involved in interstate commerce.

Though the import of the decision is unmistakable, it may not fully foreclose the application of the independent contractor statute to couriers and other motor carriers. Class action lawyers argue that, even if one of the three prongs of the law cannot be applied, courier drivers still must be treated as employees, not contractors, because the two remaining elements of the statute require it. In a separate U.S. District Court decision earlier this year, that argument was rejected. Though the court’s logic seems sound – it makes no sense to separate one prong of the Ch. 149, §148B test from the other two, since the conflict with federal law will remain – counsel have not given up. FAAAA issues have yet to play out in the state court system.

The preemption question is a huge one for motor carriers. Numerous courier companies have been hit with class action suits in recent years, and many have paid substantial settlements because meeting the rigid requirements of the independent contractor law is virtually impossible. Courier companies generally use an independent contractor model under which drivers are paid for deliveries, receive no benefits, and are considered independent contractors, not employees. When those drivers are found to have been misclassified under Mass. Gen. L. ch. 149, §148B, the law’s mandatory triple damage and legal fee awards frequently means that damages in class action suits rise into the multi-millions.

Superior Court Ruling Reminds Employers to Quickly Pay Wages Owed to Departing Employees

A recent superior court decision reminds employers how important it is to be sure that departing employees receive all the wages they earn, and fast. It also makes the point that, even if the payment requirements of the Massachusetts Wage Act are violated, correcting such a mistake can dramatically reduce the risks that an employer will suffer the rather draconian penalties of the Act.

The Wage Act requires employers to pay fired employees all the wages they are owed on the date they are let go. For those who quit, wages must be paid on the next regular pay date. Failure to do so exposes employers to mandatory triple damages — that is, three times the amount of the unpaid wages — along with reimbursement of a former worker’s legal fees. The Act provides that employers cannot defend against a triple damages claim by paying wages due “after the bringing of the complaint.”

Because the Wage Act requires employees to first file complaints for unpaid wages with the Massachusetts Attorney General, the meaning of this phrase is a bit foggy. In the case Littlefield v. Adcole Corp., the employee contended, as many do, that filing with the AG triggers the triple damages provisions of the Act. As of that date, he had not received his wages, which were later paid prior to the date he filed his superior court suit. Still, the employee argued, he was entitled to triple damages because payment was made after his AG complaint was filed. Rejecting this contention, the court found that the employer is not required to pay triple the wages due and instead is liable only for triple the amount of interest lost by the employee during the period of delay of his wage payment. In so doing, the court interpreted the Act to require payment in full before a civil lawsuit is filed.

Proposals to Bar Noncompetition Agreements Make Little Progress in State Legislature

Proposed bills that would ban the enforcement of noncompetition agreements continue to be considered by the Massachusetts Legislature, though little progress has been made toward their approval. One proposed measure would ban the covenants while permitting non-solicitation restrictions as to customers and employees along with other covenants that often appear alongside competition limitations. Another would simply make unlawful “any contract that serves to restrict an employee or former employee from engaging in a lawful profession, trade, or business of any kind” while permitting employers to enforce agreements that protect trade secrets. Both proposed bills along with a third that would enact the Uniform Trade Secrets Act are currently being considered by the Committee on Labor and Workforce Development.

Massachusetts Sick Leave Law Takes Effect Today

Effective today, July 1, 2015, all Massachusetts employees enjoy guaranteed sick leave benefits. The law that was approved by voter referendum last November mandates that every employee receive one hour of accrued sick leave for every 30 hours of work. The leave can be used for a variety of purposes — including worker or family illness, medical appointments, and dealing with domestic violence — and must be paid by employers with 11 workers or more. It is enforced by the Massachusetts Attorney General, which recently issued final regulations, a mandatory workplace poster, and a draft policy for employers to implement. Those materials can be found on the AG’s website at www.mass.gov.

Employers who have not implemented written policies that comply with the statute should do so promptly. The law was incorporated as a new section of the Massachusetts Wage Act, which provides substantial penalties for violations. It is illegal to refuse to provide sick leave, to require documentation under most circumstances, or to punish workers for using it. Employees can use leave in increments as small as one hour at a time. Though they are prohibited from abusing leave, employers should move cautiously before disciplining employees for improper sick leave usage.

 

Employers with PTO Policies to Get Brief Sick Leave Reprieve

In apparent response to concerns about implementing the new sick leave law set to take effect on July 1, 2015, the Massachusetts Attorney General’s office announced that some employers can delay doing so until January 1, 2016. According to the AG, any employer with an existing paid time off (PTO) policy in effect on May 1, 2015 will be in compliance with the sick leave statute if the policy provides workers with at least 30 hours of PTO during calendar year 2015. Time off must be job protected and retaliation for its use will, of course, be prohibited. Employers that take advantage of this delay opportunity must ensure that their PTO policies meet the AG’s guidelines on January 1, 2016.

States Highest Court Rules that Real Estate Agents can be Treated as Contractors, but Leaves Substantial Questions Unresolved

In a major decision that impacts a huge number of Massachusetts businesses, the state’s highest court today affirmed the concept that real estate salespeople may properly be classified as independent contractors and not employees. In doing so, the Supreme Judicial Court concluded that the Massachusetts Independent Contractor Statute, which generally governs classification issues and makes it extremely difficult for companies to properly treat workers as contractors, does not apply to real estate agents. Its reasoning relies on the existence of a distinct statutory scheme that governs real estate sales work and expressly provides that salespeople may be treated as either employees or contractors. Because the court saw major conflicts between the two sets of laws, it held that the more specific one dealing with the real estate industry governs.

The decision does not, however, resolve the ultimate issue whether real estate agents at work today are employees or contractors. Noting a lack of clarity on the question how to determine this question, the SJC left it for another day. It held simply that real estate sales people are not subject to the framework spelled out by the Independent Contractor Statute, Mass. Gen. L. ch. 149, §148B, a framework that would render every salesperson an employee. The SJC expressly permitted the plaintiffs to continue to pursue their misclassification claims, though without relying on Chapter 149. The court invited the Massachusetts Legislature to “clarify how a real estate salesperson may gain employee status under the real estate licensing statute.” It is patent that this cannot be done by simple declaration in a written contract.

The industry should stay tuned. The case is Monell v. Boston Pads, LLC, decided on June 3, 2015.

Attorney General Proposes Regulations to Govern Massachusetts Sick Leave Law

In accord with the new sick leave law passed by Massachusetts voters in November and set to take effect on July 1, 2015, the Massachusetts Attorney General’s office has issued draft regulations. Once adopted, the AG’s rules will govern sick leave issues in substantial respects by filling in gaps in the law and adding important interpretations. Following are some highlights of the AG’s current proposal.

— Sick leave accrual will apply to all employees, broadly defined to include anyone who “performs services for an employer” as set out in the state’s independent contractor statute. It is thus highly unlikely that businesses will avoid the accrual and pay requirements of the new statute by classifying workers as contractors.

— All employees whose primary place of work is in Massachusetts will be covered by the law, even if they also work in other states.

— Workers who are employed on April 1, 2015 will start accruing leave (at the rate one hour for every 30 worked) on July 1 and can use it as it accrues. Others will also accrue leave beginning July 1 (if then employed) but cannot use it until employed for 90 days. [Read more…]

Deadline for Implementing New Sick Leave Policies is Approaching

For those not already prepared, it’s time to start planning for pending changes to Massachusetts’ sick leave requirements. The new law that was adopted by voters last November is scheduled to take effect on July 1, 2015. By that date, all employers should have reviewed their existing policies for compliance with the new requirements.

All Massachusetts employees will be entitled under the new law to accrue sick leave at the rate one hour for every 30 hours they work, with a cap at 40 earned hours per year. For employers of 11 or more workers, sick leave must be a paid benefit. Employees can begin to use sick leave 90 days after accrual begins. Though they can carry sick time over from year to year, employers can cap annual usage at 40 hours. Sick leave need not be paid out when an employee leaves work.

The law also provides that sick leave can be used in four circumstances. 1. When a worker’s physical or mental health require. 2. When the health of a child, spouse, parent, or parental in-law requires. 3. For regular medical appointments of certain family members. 4. To deal with certain impacts of domestic violence. Employers should take care to ensure their policies cover all four of these areas and otherwise comply with the statute’s requirements. Written policies are advisable.

State’s Highest Court Finds that Boston Cab Drivers are Independent Contractors, not Employees

The Massachusetts Supreme Judicial Court today released an important decision regarding the status of Boston cab drivers, concluding that the drivers were properly classified as independent contractors and not as employees. In addition to putting asunder the apparent plans of the Plaintiffs and their lawyers for huge paydays, the court’s ruling sheds lights on situations when the broad Massachusetts Independent Contractor Statute may not apply to turn an otherwise agreed-upon business relationship into an employment agreement.

The Boston cab industry is regulated under a 1930s grant of authority to the city’s police commissioner. Cab drivers must, among other things, obtain medallions and undergo specific training in order to conduct business. They have long been independently employed individuals who frequently leased cabs and medallions from their owners, who were named as the defendants in the lawsuit. The court rejected the plaintiffs’ arguments that they provided services to the defendants and therefore must be treated as employees. Although it found that the Independent Contractor Statute applied to the taxi cab industry, it concluded that the drivers met the three criteria set out in it. The case is Sebago v. Boston Cab Dispatch, Inc.

Recent Case Highlights Issues for Employers Seeking to Enforce Non-compete Agreements

In a case that highlights the difficulties of enforcing even valid noncompetition agreements against former employees, a superior court judge recently refused an enforcement request against former employees working for a competitor, despite apparent violations of their agreements. The terms of the parties’ contract notwithstanding, the court refused to enforce the restrictions against competition because the employer was unable to demonstrate that they either possessed proprietary information or would damage their former employer’s legitimate business interests by selling competitive products to its customers.

The result is a common one in the noncompetition enforcement world, where the existence of a written agreement barring certain post-employment activity is not nearly enough, standing alone, to support a court order blocking a worker from his/her new job. Employers must also demonstrate they have a substantive business reason for such an order. Generally, that standard can be met by showing that a former employee is competing unfairly by, for example, using trade secrets or confidential information that belongs to the company. More commonly, employers try to satisfy the requirement by demonstrating that the worker is damaging what’s termed its “goodwill” — the relationship it has established with its customers — by calling on them to sell a competitor’s products.

Employers’ claims often bog down on this latter issue, since a former employee normally argues that personal relationships with customers belong to him/her, not to the company. The argument is often compelling, particularly when salespeople are involved. In many cases, employers trying to overcome this problem are unprepared. They cannot adequately counter a worker’s contention that no one else at the company ever met relevant customers, and they often appear in court without hard evidence that a former employee even improperly solicited a customer. If customers track down a former employee at a new job, an anti-solicitation provision in a noncompetition agreement may not even come into serious play in an enforcement effort.

Employers with legitimate interests to protect should take note of these issues and prepare in advance to protect them. Broad, generally applicable non-compete forms may be insufficient and, in many cases, efforts to block employment is viewed by courts as excessive. A carefully drawn noncompetition agreement that applies to each employee’s particular job coupled with adequate protection of confidential data are probably the best ways to ensure that former workers cannot damage a company’s interests in the marketplace.