Wage Laws Require Both Proper Payment and Good Record Keeping

When it comes to paying employees their wages, being practical sometimes is not quite good enough. So learned a group of restaurant owners who insisted their workers received all the wages due to them under federal law, but lost a $129,000 judgment on the issue nonetheless. The case offers two important lessons for employers: First, be sure to comply with both the technical and practical requirements of wage payment laws; and second, don’t  pick legal fights with federal wage and hour auditors unless absolutely necessary.

In the case, which dealt with minimum wage requirements under the U.S.’s Fair Labor Standards Act, the employer restaurant sought to apply the tip credit to its wait staff employees. The credit allows employers to pay a reduced hourly rate to employees who regularly receive tips as part of their jobs. In all cases, the credit must meet a minimum rate and the employees’ total wages, when tips are included, must satisfy the minimum wage rate in effect. Employers are required to keep records of hourly payments and tips for each employee, and those records must be available for state and federal auditors on request. Employers are also required to give notice to their employees that the tip credit system is being applied to them. The employers in this case did not do so. Though they claimed that their employees earned far more than the minimum wage when tips were considered – a claim that might well have been true – they did not keep records of those tips. Still, they challenged a federal audit result in court. The result was the large judgment, which will increase substantially when interest is added.

In Massachusetts, tip credits are governed by a state statute. Employees must be notified the credit is being applied and records of wages paid must be properly maintained. Massachusetts employers are, of course, governed by federal law as well. As a result, employees in restaurants, who are exempted from overtime requirements by state law, must receive overtime for hours above 40 each week. The effect on the tip credit is to increase both the hourly rate that must be paid for hours above 40 weekly and the gross wages that must be earned once tips are included. Massachusetts law currently requires that tipped employees receive $2.63/hour, and the rate will increase to $3.75 over the next several years. The state’s minimum wage, now at $8/hour, will also increase, to $11 by 2017. Violators can be punished with triple damages and legal fee awards.

U.S. Appeals Court Finds that Massachusetts’ Independent Contractor Statute Could be Precluded by Federal Law

In  a decision that could have broad implications for enforcement of Massachusetts’ tough employee classification law, the U.S. Court of Appeals has concluded that federal law just might make it null and void, at least as it applies to motor carriers. The problem, the court held, is that one of three tests under Mass. Gen. L. ch 149, s. 148B may infringe upon the federal government’s superior authority to regulate interstate commerce.

Relying on the FAAAA (Federal Aviation Administration Authorization Act),  a federal law that bars Massachusetts and other states from regulating the prices, routes or services offered by motor carriers, the Court of Appeals reversed a lower court’s award of judgment to the Massachusetts Attorney General. The AG is defending a suit brought by the Massachusetts Delivery Association, which argues that broad language in the Massachusetts Independent Contractor Statute  effectively bans courier companies from engaging delivery drivers as contractors. Same day delivery companies are being forced to hire drivers as employees, they argue. The result is higher prices and different routes and other services.

There can be little doubt that same day courier companies have been under fire in recent years because of the Independent Contractor Statute. Many of them have faced class action lawsuits that claim their contracted drivers are misclassified. Demands for damages have been in the millions of dollars, and some courier companies have changed their business models as a result.

Governor Revises Proposed Bill to Restrict Noncompetition Agreements

Though his proposal to ban noncompetition agreements in Massachusetts died in the state legislature over the summer, Governor Deval Patrick still hopes to enact a state law restricting their use. This time, the Governor is seeking to more strictly regulate noncompetition contracts by requiring, among other things, that they be proposed in writing to prospective employees at the time a job offer is made.

The Governor’s push to restrict noncompetition agreements is motivated by concerns over the negative impacts they sometimes have on economic growth. “Providing the talent needed to support the kind of growth we want and need is considerably more difficult if employees are legally unable to move between jobs in the innovation economy,” the Governor wrote in a letter to legislators that accompanied his revised proposal on August 13. Once again, Mr. Patrick’s bill was referred to committee for evaluation. The Governor’s first noncompetition proposal, which sought to ban the agreements altogether while retaining employers’ abilities to protect important interests, was never acted upon by either the state senate or house of representatives.

The new bill is House 4401. In addition to delivering advance notice, it would require employers to provide employees an opportunity to consult with counsel prior to signing a noncompetition agreement. When forms are used with current employees, the proposal requires that something other than continued employment  be given to them and that they have 10 business days to consider competitive restrictions before they sign them. The Governor’s bill also includes restrictions on the bases for enforcing noncompetition agreements that are consistent with current law. The modified proposal is the product of interactions with business leaders and others that the Governor engaged in after his first bill was filed.

Court Declines to Expand the Massachusetts At-Will Employment Rule

Once again, Massachusetts has rejected an employee’s effort to expand the public policy exception to the at-will employment rule. This time, a fired worked argued that public policy should prevent employers from terminating workers who threaten to sue a third party in connection with a work-related injury. The court disagreed.

Citing precedent, the Massachusetts Court of Appeals ruled this month that the trial court’s judgment against the former employee was appropriate. It reasoned that the narrow public policy exception to the at-will employment rule is meant to be just that – narrow. Holding differently, it reiterated, would ultimately eviscerate the rule via exceptions that would swallow the rule and force employers to have “just cause to terminate an at-will employee.”

Under the at-will rule, employees and employers are free to end their working relationships at any time, for any reason. Neither side needs to have a reason or provide notice in advance. Massachusetts courts created the public policy exception to protect employees from job loss when their conduct promotes a recognized public policy that benefits the Commonwealth. The plaintiff in Santarpia vs. Senior Residential Care/Kingston, Inc. claimed she was let go two years after suffering a workplace injury because an attorney sent a letter to her employer’s landlord seeking damages for her injuries. Though the employer could not (and did not) fire the worker because she was injured on the job, it could do so based on her demand to its landlord.

Former Teacher to Keep Pension Despite Child Pornography Conviction

Despite pleading guilty to buying and possessing child pornography, a former 9th grade science teacher, coach and sports referee for the Amherst-Pelham regional school district will keep his retirement benefits. In a decision released this week, the Massachusetts Supreme Judicial Court found that, because the teacher’s crimes did not relate to or concern his teaching job, a retirement benefits forfeiture provision could not be applied to deny him the pension he earned during his 22 years as an educator.

The teacher, Ronald Garney, was identified in 2004 as part of a federal investigation into web sites that sell child pornography. Following two years of monitoring by local police, Mr. Garney’s home was raided and various illegal pornographic images were found. He acknowledged that he’d viewed child pornography for 12 years and, in lieu of being fired, resigned his teaching position. Upon reaching retirement age in 2007 and before he pled guilty to the charges against him, Mr. Garney applied for and was granted his benefits. The Massachusetts Teachers Retirement System reversed that decision in 2009. None of the illicit images or activities related to Mr. Garney’s teaching position or his students and, for this reason, the SJC concluded, it was compelled by statutory language to find that his earned retirement benefits were not forfeited by law.

Meal Breaks: To Pay or Not to Pay?

Paying employees the wages they are due for their work is, conceptually, at least, a pretty straightforward matter. Working 8 hours, e.g., results in 8 hours of pay, less time spent on a meal break of 30 or 60 minutes. But when it comes to deducting time spent on meals by hourly employees, things sometimes get tricky. While Massachusetts and federal law permit meal breaks to be unpaid, the rule applies only when employees are completely relieved of their work duties.

As with many things legal, interpreting what this means can be anything but straightforward. Wage and hour guidance indicates that, any time an employee is required to remain on site or to perform any sort of work, either actively or not, meal break time must be paid. This likely means that an employee who sits with others during lunch and discusses work issues needs to be paid for the break time, even if the employer supplies a sandwich at no cost to the worker. It certainly means that, when an employee may possibly perform work while on break – answering a phone call, e.g., or addressing questions about a work issue – the time spent eating is compensable regardless whether work is actually performed. Not surprisingly, employers sometimes stumble on this issue. Because the penalties for not paying workers for all hours worked can be severe (triple the amount owed plus legal fees under the Massachusetts Wage Act), the damage from an error in this area can be significant, especially for larger employers. [Read more...]

Task Force that Investigates Employee Misclassification is Broadened, made Permanent by Statute

Some six years after it was created by executive order, the joint task force on the underground economy and employee misclassification is being formalized by statute. As part of the recently enacted minimum wage law, there was created a “council on the underground economy” to coordinate state-wide efforts to combat misclassification.

The new Council was preceded in 2008 by a task force that Gov. Deval Patrick created under his executive authority. Its mission, then as now, is to investigate and help root out what Massachusetts considers a widespread effort to avoid tax laws and underpay workers by misclassifying them as contractors rather than employees. Under the new statute, the Council is empowered to educate business owners about the law, to conduct targeted investigations, and to take enforcement actions through multiple agencies. Its stated goals are to protect workers’ rights and ensure fair competition. The Council also clearly aims at helping the government increase collections of various tax-related assessments.

Included as part of the Council will be the same agencies that previously formed Gov. Patrick’s task force along with many additions. Eight of them are unnamed and will be appointed by the governor from among state agencies. The Council will be chaired by the secretary of labor and workforce development. The Department of Industrial Accidents, Division of Unemployment Assistance, and Department of Revenue will all have representatives just as they did on the task force.

Whistle Blowers and Massachusetts Law

When an employee decides it’s time to blow the whistle on employer misconduct or that of a fellow worker, employees are well advised to do a bit of homework first. While it certainly seems like whistle blowers should be protected by the law – and, generally speaking, they are – those protections do not come without rules. Simply put, employees cannot suffer retaliation for reporting certain improprieties at their places of employment but must comply with legal procedures and definitions.

State employees enjoy the protection of a whistle blower statute (Ch. 149, §185 of the General Laws). It prevents employers from firing, suspending, demoting or otherwise punishing them for reporting what employees reasonably believe to be violations of laws, regulations, or other matters an employee “reasonably believes poses a risk to public health, safety or the environment.” Except in limited circumstances, however, employees must first report any such violation to their supervisor’s attention in writing. As one worker recently found out, the internal report requirement is strictly construed – her case claiming she was forced to resign after reporting records falsification was dismissed because she did not report the problem in writing before she sued.

For others, Massachusetts interpretative law has carved out an exception to the at-will rule that protects employees who report crimes, either internally or to outside authorities. Again, employees who feel compelled to blow the whistle on such conduct should take care to ensure they are in fact reporting a violation of law before they do so. In general, Massachusetts employers can terminate their workers for any reason or no reason – a complaint about a company policy or rule, e.g., differs materially from a complaint about a crime. The whistle blower exception for privately employed individuals should be examined carefully before action that might imperil future employment is undertaken.

Minimum Wage Bill Passes; Governor Expected to Sign

The two legislative branches in the Commonwealth recently reached accord on a proposal to hike the minimum wage here in Massachusetts. Given the prior statements of Governor Deval Patrick, it appears the legislation will become law within a matter of days.

The bill will increase the minimum wage by one dollar in each of the next three years, from its current $8/hour to $9/hour in 2015, $10/hour in 2016 and $11/hour in 2017. It will also gradually increase the amounts employers must pay to tipped employees from the current $2.63/hour to $3.75/hour. This class of worker — generally wait staff in restaurants, bartenders, and others who typically receive tips from customers — must receive the minimum wage through a combination of hourly pay and tips. Under current law, a waiter, e.g., must receive $2.63/hour from his employer and an additional $5.67/hour in tips, at a minimum. Any shortfall must be paid by the employer.

If the new bill becomes law as expected, Massachusetts will join a growing list of states to increase the minimum wage this year. The movement in this area has plainly gained a strong foothold at the state level, though the federal government, not surprisingly, remains unable to move in the face of patent Republican obstructionism. Minimum wages have been generally unchanged for many years. The debate over how increasing them may affect employers notwithstanding, there exists no serious dispute that, at current levels, few if any full-time minimum wage workers can afford to support themselves and/or their families.

Employers Need Not Pay Legal Fees to Discrimination Employees who Don’t Win Damages

Employers facing discrimination lawsuits got a bit of help from the Massachusetts Court of Appeals recently when it held that employees cannot force them to repay their legal fees unless they do more than win their cases at trial. In a somewhat surprising decision, the Court concluded that proving discrimination is not enough. The law, they held, also requires employees to win some sort of tangible damage award as a result of the discrimination.

Damages sufficient to require a legal fee award can come in two types – measurable, such as lost wages, and non-measurable, such as a promotion order. “[T]he important distinction is between ‘actual but not clearly measurable damages or loss, contrasted with no actual damage or loss,’” the court conclude in Kiely v. Teradyne, Inc. “Actual but not clearly measurable damages or loss, like injunctive relief, would entitle a party to attorney’s fees. By contrast, an absence of actual damages or loss would not.”

The case involved a challenge to a superior court’s judge’s decision to both vacate a punitive damages jury award and deny a winning plaintiff’s legal fee request. The former employee won her retaliation case but did not receive financial damages or equitable relief. The jury did, however, award her $1.1 million in punitive damages, a type intended to punish employers for outrageous conduct. The anti-discrimination statute, Chapter 151B, generally requires losing employers to repay the legal fees of winning employees at the Massachusetts Commission Against Discrimination or in state court lawsuits. Fee awards against employers often reach $100,000 or more.