MA Legislature Again Fails to Pass Noncompetition Law

Though it was closer this time, there’s no solace for those hoping to finally see noncompetition legislation in Massachusetts. Despite passing two bills that would have brought clear rules to this area of law, hopes were dashed this week when the House and Senate were unable to bridge differences in their versions of the proposed law. Because they could not reach a compromise by July 31, the legislation will need to be introduced anew and start the legal process over again in 2017.

The legislative failure leaves noncompetition law a matter of judicial discretion. Under current rules, employers can enforce reasonable restrictive covenants that are part of valid written agreements. They can only do so, however, if they have legitimate business interests to protect. The most common enforcement strategy is to commence litigation seeking an injunction that bars former employees from violating contractual terms. The fact-specific nature of such litigation means that suits are normally argued in court and outcomes are uncertain. The result, of course, is often expensive litigation.

The House and Senate bills sought to bring clarity to noncompetition issues. For details on their specific terms, see the July 8 and July 20 posts on this page.

Senate Action on Noncompetition Bill May Lead to its Failure in MA Legislature

The Massachusetts Senate recently followed the lead of the House of Representatives by passing a comprehensive bill to regulate noncompetition agreements. While this seems to be progress toward a final re-writing of laws that govern these often troublesome employment agreements, the Senate version of the bill varies significantly from the one unanimously passed last month by the House. That means, of course, that the two legislative bodies must huddle together and work out their differences. If they can do so and garner approvals of any agreed form in both the Senate and House, a noncompetition bill would be presented to the Governor for his signature. Because the current session ends July 31, the Senate and House need to move quickly.

Massachusetts House Passes Noncompetition Bill with Substantial Limits — Unanimously

The Massachusetts House of Representatives recently passed a bill that imposes rules for noncompetition agreements. While the bill has yet to become law – it is now being considered by the Senate, which will have to pass it before it can become law, an event that will also require the governor’s signature or, in the alternative, further legislative action – it certainly represents progress on an issue that has long been considered in Massachusetts.

In what may be an indicator of the ultimate passage of the bill into law, it passed unanimously, 150-0. Rules on noncompetition agreements imposed by the bill include the following:

  1. All agreements must be written and signed by employer and employee. Employers must provide them to prospective employees at least 10 days before work begins, and noncompetition forms must inform employees of their right to consult counsel before signing;
  2. Noncompetition agreements for existing employees must meet the same criteria. In addition, employees must receive some form of consideration – money or other material benefit – in addition to continuing employment;
  3. Noncompetition agreements must be narrowly tailored to protect an employer’s trade secrets, confidential information, and/or customer goodwill – that is, a business’s positive relationships with its customers or its positive reputation;
  4. The maximum restricted period is 12 months in most cases, and geographical reach must be reasonable; and
  5. Compensation to affected employees must be provided in the form of pay equal to at least half their highest annual base salary during the two years that precedes employment termination, unless employer and employee agree to compensation in some other form.

The bill would also bar enforcement of noncompetition agreements against employees who are not exempt from federal overtime pay requirements; those under 18; and employees fired without cause or laid off. It includes a provision for enactment of the Uniform Trade Practices Act.

EEOC Urges Employers to Improve Workplace Anti-Harassment Training

Calling workplace harassment an “all too persistent problem,” two commissioners from the Equal Employment Opportunity Commission (EEOC) are calling on employers to rework and improve their anti-harassment training programs. The commissioners headed a task force that evaluated sexual harassment in the work place. The EEOC’s chairperson seems to agree that more and better training is required. She said, “I thank Commissioners Feldbum and Lipnic and the members of the Select Task Force for their work to combat the persistent problem of workplace harassment. Preventing harassment from occurring in the first place is far preferable to remedying its consequences.”

The EEOC was created by the Civil Rights Act of 1964. It is charged with addressing workplace discrimination issues. It is the federal equivalent of the Massachusetts Commission Against Discrimination (MCAD), which has the same mission. In Massachusetts, training employees on sex harassment issues is not mandatory but is strongly encouraged. Whether and to what extent employers accused of sex harassment have done so is often an important issue at MCAD hearings.

Employers will be well-served to examine their workforces and consider how best to train their employees. Anti-harassment training should be tailored to the needs of individual businesses. Its goal should be to help employees understand what sexual harassment is, how it can damage individuals and companies, and how to deal with it as it arises. No anti-harassment program can be effective unless employees believe their employers are serious about it and are consequently unafraid to use complaint and other systems without fear of retaliation.

U.S. Dept. of Labor Issues New Rules for Overtime Pay

Effective December 1, 2016, new rules will be in effect to cover overtime pay requirements. The long-anticipated changes were the subject of numerous comments after they were proposed in 2015. They focus on updating the salary thresholds for overtime pay purposes and include the following:

  1.  An increase in the minimum salary that must be paid to white collar workers who otherwise are exempt from overtime pay requirements, from $455/week to $913/week ($47,476 per year). Workers who make less than these amounts must receive overtime, regardless of other factors;
  2. An increase in the ‘highly paid’ employee exemption for white collar workers from $100,000/year to $134,004/year. Workers whose earnings exceed these amounts will be exempt from overtime pay; and
  3. A mechanism for automatically adjusting the minimum and highly paid thresholds to keep up with inflation.

The Department expects the changes to cause 4 million new workers to qualify for overtime pay. The changes have been in the works since 2014, when President Obama instructed that the regulations be updated. After publishing proposed rules, the Department received nearly 300,000 comments.

 

Massachusetts Legislators Debate Bill to Provide 12 Weeks of Paid Leave for Employees

The Massachusetts state legislature is considering a bill that would not only provide family leave for employees who now are not entitled to it, but would set up a fund to pay at least part of their lost wages.

Titled “An Act establishing a family and medical leave and temporary disability leave insurance program,” the bill has numerous sponsors in both the House and Senate.  It is currently being considered by the Labor and Workforce Development Committee and is due to be reported out on May 16. Citing the large number of Massachusetts employees who are not entitled to leave provided by the Family and Medical Leave Act (FMLA) due to company size – and decrying the fact that FMLA leave is unpaid and thus difficult for many employees to use in any event – the bill’s sponsors contend that the new law is needed to protect employees who face serious personal or family emergencies.  Among its provisions as currently formulated are the following:

  1. 12 weeks of job protected leave for serious personal /family illness or to care for a newborn, adopted or foster child;
  2. Partial wage replacement in the form of temporary disability coverage that will be funded by employer contributions;
  3. Continued coverage by employers for health care on terms in effect for employees before they begin a leave; and
  4. A one-week waiting period in cases of personal illness and an exemption from funding obligations for employers who provide paid leave benefits, both of which are aimed at controlling costs.

Eligibility for the Act’s benefits would begin after an employee works 1,250 hours for his/her employer. Penalizing employees who take leave would be prohibited. If enacted, the new law will be administered by the Massachusetts Commission Against Discrimination (MCAD). Violators will be subject to the same penalties as apply in discrimination cases generally, including payment of an affected employee’s lost wages, emotional distress and legal fees.

Enforcing Noncompetition Agreements Requires Advance Planning, Strong Evidence

In a case that points up the difficulties employers often have enforcing noncompetition agreements while simultaneously highlighting how potentially damaging the restrictions can be to employees, a superior court judge recently denied an attempt by a hair salon to block two of its employees from moving to a competitor. It’s not the first time Massachusetts courts have refused to apply noncompetition agreements to hair stylists, whose work involves personal customer relationships that employers have difficulty penetrating even if otherwise valid restrictive covenants are in place.

In Elizabeth Grady Face First, Inc. v. Garabedian, et. al., the Middlesex Superior Court refused to block the employees’ use of the so-called ‘Elizabeth Grady Way’ for competitor Sofia E. Day Spa. It found that the plaintiff did not meet its noncompetition burden of submitting evidence that its way of doing business was proprietary or confidential. On the contrary, the court found, Elizabeth Grady trains both employees and non-employees at its schools, and the latter are free to take what they learn and compete in the marketplace. The court concluded that enforcing a noncompetition agreement against employees with only this sort of job knowledge would stretch the reach of restrictive covenants beyond what’s permitted by Massachusetts law. Notably, the court found, there was no allegation that the employees improperly solicited Elizabeth Grady’s customers. The contractual restriction against the employees working for a competition within 25 miles of their former employer was thus not likely to succeed.

The case is instructive to employers and employees alike. For businesses, it points up the need to amass a full and complete record when seeking to enforce noncompetition agreements. It is the employer’s burden in all such cases to demonstrate that their former workers are acting unfairly – cheating, if you will. The failure to do so is among the most common reasons that restrictions against competitive employment are denied by courts in Massachusetts, and employers should remember that simply having a valid contract with specific work restrictions is not enough to justify enforcement. For employees, the Elizabeth Grady case sends an equally important message: be wary what you sign. Regardless of the outcome in this and other cases, the defense of even a failed effort to enforce a noncompetition agreement is costly, time-consuming and stressful. It almost always drains valuable resources that are better spent elsewhere. Whenever possible, employees should decline to sign noncompetition forms or, if that’s not possible, seek to modify them in reasonable ways.

Wage Act may not Require Pay for All Hours of Work

In a recent decision that some plaintiff-side employment lawyers found surprising and perhaps troubling, a judge of the superior court held that an employer does not need to pay for all hours that its employees work. The employer did not violate the Massachusetts Wage Act, Justice Robert Gordon found on February 5, because it honored agreements it entered with its workers and did not transgress minimum wage or overtime laws. He wrote,

“[A]n employer and employee who agree at the outset of their contract that the employee will be paid at an hourly rate for selected tasks, but not for all work, are plainly not violating the Wage Act when the employee is paid in accordance with this agreed understanding. To the contrary, an employer who pays an employee as he has agreed to be compensated—provided (as here) that it complies with all applicable minimum wage and overtime laws—has fulfilled the core aspiration of this statute.”

The facts of the case are important. The plaintiff sought to represent a class of auto mechanics who work on a rate pay basis — that is, they are paid specific hours at agreed rates for work they perform on automobiles. While this arrangement resulted in wages in excess of minimum requirements, it also caused the mechanics to necessarily perform daily task for which they were not paid, such as filing paperwork and cleaning their work stations. They also received no pay for down time despite being required to be present for certain hours each day. Because the employer and employee agreed to this arrangement and did not violate other laws, the court found that it did not violate the Wage Act.

The decision may be an important one for employers who do not pay their workers on either hourly or salary bases, such as those that pay only sales commissions or base employee pay on deliveries of good or services. It addresses a previously open question for those employers that is likely to be revisited by appellate courts in the future. The case is Salerno v. Baystate Ford and is pending in Middlesex Superior Court.

 

State Legislators to Renew Effort to Enact a Noncompetition Law

Though they’ve failed in several tries to reach a compromise on legislation to regulate the use of noncompetition agreements, the Massachusetts legislature is poised to try again. This time, House Speaker  Robert DeLeo seems willing to lead an effort that will include several specific components.

Mr. DeLeo said as much on March 2, according to Massachusetts Lawyers Weekly, when speaking with local business people. He reportedly highlighted three major components that might be part of 2016 noncompetition legislation:

  1. A limit on restrictive covenants to a maximum of 12 months after employment ends;
  2. A requirement that employees get advance notice of noncompetition agreement requirements before they accept a new job; and
  3. A restriction against using non-competes for workers in low wage jobs.

Time will tell whether these ideas or others can become reality in Massachusetts. The notion of noncompetition legislation has been around for some time but has never gained traction in the legislature. Prior to his departure as governor, Deval Patrick made several pushes to enact a bill with varying terms. Because no law on the topic exists, judges are left to decide on a case-by-case basis when restrictions on work are enforceable and to what extent they are valid. That approach commonly leads to expensive litigation as employers fight with their former employees about what they can and cannot do at their new jobs and, sometimes, whether they can work at them at all.

Massachusetts Attorney General Collects Pay Disparity Data from Employers

In apparent anticipation of proposed changes the state legislature is now considering making to the Massachusetts Equal Pay Act – or, perhaps, in an effort to help determine whether and what changes may make sense – the Massachusetts Attorney General is reportedly using its general records inspection authority to demand a wide range of new employee data.

A recent article by Massachusetts Lawyers Weekly reports that the requests differ from those normally sent by the AG. They seek more demographic data and job details with an apparent focus on whether pay disparities based on gender and/or race exist. The requests ask for information such as employee names, genders, ethnicities, job titles, pay, and job descriptions.

The AG has general authority to seek certain payroll and related information from Massachusetts employers. It typically does so as parts of audits or investigations that may be initiated by specific employee complaints about pay practices. Employers from whom such information is sought are generally required by statute to provide it, and it therefore behooves them to ensure that the full and complete records required by law are properly maintained. Penalties and other damages can flow from failures to do so.