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.

Domestic Workers Set to Receive Broad Wage Protections

A domestic workers bill that was unanimously approved by the state senate appears likely to become law soon. The proposal substantially expands the rights of cooks, housekeepers, nannies and others who commonly work inside residential homes and appears to be aimed at curtailing perceived abuses of this class of employees.

Among the highlights of bill’s terms are requirements that domestic employees who work more than 40 hours weekly receive a 24-hour rest period each week and a 48-hour rest period each month; that workers who do not live in the home receive pay for each hour worked up to 24 consecutively; that sleep-time hours deductions for live-in workers along with meals and lodging expense deductions be in writing; and the grant of maternity leave rights. The bill also requires employers, which includes families who employ domestic workers, to keep records of wages paid and hours worked. It grants domestic employees privacy rights and a right to request job reviews. For live-in workers, the bill provides a required period of notice or severance when employment is terminated without cause. None of these proposed protections applies to babysitters.

The proposed law is now awaiting action by the state house of representatives.

Court Adds New Reason for Pause when Implementing Drug Testing Policies

Employee drug testing has always presented challenges for Massachusetts employers. Its invasive nature implicates worker privacy rights and, our courts say, limits when tests can be required, to whom, and how employers are permitted to handle results that are positive for drugs or alcohol. And then there are the questions that surround what those results demonstrate: Does every positive test mean an employee was under the influence of drugs on the job? Do employers have the legal right to terminate an employee based on an invasion of privacy that uncovers secrets about the worker’s private life?

Giving employers yet another reason for pause in this area, the U.S. Appeals Court that covers Massachusetts recently ruled not only that a group of workers can proceed with their  claims drug tests discriminated against African Americans but that they just might win it. The employees filed what’s referred to as a disparate impact lawsuit – unlike an individual claim, its focus is on how an employer’s facially neutral practice affects different racial groups. Because the employees proved that hair follicle tests yielded positive results for blacks that were about four times higher than for whites, the employees won a substantial part of their case. They claim, of course, that the positive results they experienced, which led to job loss in most of their cases, were falsely positive.  The employer, the City of Boston, will now lose the case unless its testing policy promotes its goal of identifying drug users among its police officers and no reasonable alternative to it exists.

Though private employers face less court scrutiny in the drug testing arena than do public ones, the court’s disparate impact ruling is nonetheless significant to them. Companies interested in implementing a policy should consider its implications along with other issues such as who may be tested; how a policy is implemented; testing protocols; and what they will do with employees who test positive. To be sure, drug testing of employees whose job duties implicate safety concerns remain legal in Massachusetts. Given the privacy issues they raise, however, testing programs can be costly and can expose employers to litigation regardless how well-thought-out they may be. For these reasons, they should be implemented with great care.

New Approach Aims at Helping the Disabled enter the Workforce

In what appears to represent a push to change the way states deal with disabled people from a young age through adulthood, the U.S. Department of Labor has pushed the State of Rhode Island to adopt a new approach aimed at helping the disabled lead productive lives in the workforce. Decrying what it calls inappropriate ‘segregation’ of the disabled in sheltered workshops and day programs, the Department first sued Rhode Island, then reached a settlement that will focus on mainstreaming handicapped people to the greatest extent possible.

Under the agreement, entered as a court order, Rhode Island will help disabled people find minimum wage or other jobs that match their interests and abilities; offer support for activities in community centers, libraries and other public settings; offer mentoring and other programs to help prepare high schoolers with developmental disabilities compete for jobs; and refocus expenditures from current, segregated facilities to the mainstreaming effort.

While the order affects only Rhode Island directly, it will almost certainly affect Massachusetts and other states. The Department of Labor estimates that nearly a  half million Americans with intellectual and developmental disabilities are currently segregated in shelters and other programs. It plainly wants the changes it imposed in Rhode Island to be implemented across the country.

Court Enforces Arbitration Clause in Employment Manual

Forcing arbitration of employment disputes is getting easier, at least under one federal judge’s reading of Massachusetts law. Ignoring an employer’s express statements that its employment manual was “not a contract of employment” and was “intended for informational purposes only,” the court found that an arbitration clause in the manual was contractually enforceable. It ordered arbitration of the former employee’s discrimination suit even though the arbitration clause was added to the manual well after he was hired.

The court relied in large part on a 1996 Massachusetts case that permits an employment manual to become an employment contract under some circumstances. Creating contract rights requires a review of the circumstances that existed when an employee began working. In most cases since 1996,  employees and not employers have sought to enforce the terms of employment manuals. It has proved extremely difficult for them to do so, since most employers include strong disclaiming language in their manuals and most judges look skeptically on manual-as-contract claims.

Amid this backdrop, the most interesting aspect of the U.S. District Court’s decision in Daniels v. Raymours Furniture Company, Inc. ,issued on March 31, 2014, is the conclusion that a contract existed for arbitration purposes despite the sort of express disclaimer language often held up by employers to defeat employees’ claims to contractual manual rights. The Daniels decision may thus represent another example of the general policy in favor of arbitration over other forms of dispute resolution. In 2009, e.g., the Massachusetts Supreme Judicial Court held that discrimination suits under Mass. Gen. L. ch. 151B can be forcibly arbitrated. In 2013, it concluded that an employee can waive his/her right to pursue class action litigation in an arbitration clause. Both decisions and the one by the U.S. District Court are helpful to employers, who often prefer the relative simplicity and finality of arbitration over trials at the Massachusetts Commission Against Discrimination (MCAD) or in courtrooms.

Governor Patrick’s Proposed Ban on Noncompetition Agreements Maintains Business Protections

Governor Deval Patrick has entered the fray surrounding the enforcement of noncompetition agreements in Massachusetts. Apparently concerned about the effects the commonly used contracts have on growth and productivity in the Commonwealth, the Governor this month submitted a bill that would ban their enforcement. While that may sound drastic, the terms of the Governor’s plan seem more an attempt to strike a fair balance between competing interests than to effectuate free movement of employees among competitors in the same industry.

Mr. Patrick proposes that contract terms that restrain a former employee or independent contractor from working be considered void. In defining what this means, however, the Governor is careful to exclude from the proposed ban restrictions against soliciting or entering into contracts with employees or customers of a former employer. He also exempts from the ban nondisclosure agreements and noncompetition agreements connected with the sale of a business, as well as any non-compete “outside of an employment relationship.” In addition, Mr. Patrick seeks to allay the concerns businesses may have over illicit uses of their private business data by asking the Legislature to enact the Uniform Trade Secrets Act. It is already in effect in most states and provides remedies such as injunctions, damages, penalties and legal fee awards for the for the misappropriation of trade secrets.

The Governor’s proposal was submitted on April 14 and referred to a legislative committee. It is part of a bill that includes other proposals under the caption, “An Act to Promote Growth and Opportunity.” His noncompetition proposal may be workable for employers, many of whom already seek to protect their customers/trade secrets without unduly restricting former employees from working. Mr. Patrick’s plan joins other noncompetition bills already pending in the current legislative session, including one that would impose presumptions in favor of enforcing restrictions for less than 6 months and denying those that last longer. It is unclear what if any action may be taken on any of the proposals.

Massachusetts Poised to Raise Minimum Wages

As a minimum wage hike at the federal level remains mired in the pit of political mud through which Congress forces virtually all legislation to pass, Massachusetts appears almost certain to increase the state’s rate in the near future. It won’t be the first state to take action on the issue, and Massachusetts employers will be wise to track the current debate at the State House and prepare in advance to make necessary adjustments.

Both the state Senate and House of Representatives have now passed minimum wage hikes. The Senate was the first to act. Late last year, it approved an increase from the current $8 per hours to $11 over three years. Future increases  would come with inflation, and the Senate bill would also increase the minimum amount that must be paid to tipped employees from $2.63 to one-half the amount of the minimum wage. More recently, the House voted to increase the minimum wage to $10.50 over two years. Its bill increases the tipped employee hourly rate to $3.75. There’s no automatic future increase built into the House bill. [Read more...]