Use of inside information to transition customers to the competitor

Our client was a small business victimized by two of its former employees. After one of them was alerted she’d be laid off due to the closing of her office, she surreptitiously began to solicit customers after our client permitted her to remain at work until her formal termination date. She enlisted the help of another employee, her long-time friend, and the two solicited several customers. The second employee resigned about 6 weeks after the first was let go, and the two joined forces at a competitor. They used inside information from our client to transition several customers to the competitor.

Result: Though our client did not, unfortunately, have noncompetition agreements with its employees, we were able to collect enough information about their surreptitious activities to establish claims for misuse of confidential information and breach of the duty of loyalty that an employee owes to its employer. We filed suit and obtained an injunction that barred the employees from using our client’s information and from soliciting any of its customers.

Handyman claimed he was improperly classified as a contractor

Our client was a small business that focused on the rental and sales of residential properties. In 2013, it engaged a handyman to help make repairs at the properties it managed and to upgrade them prior to rental or sale. The handyman agreed he’d work as a contractor, since he did odd jobs for others, he said, and would not be engaged on a full-time basis by our client. The relationship did not, however, last long, and, though the handyman was paid for all work he reported, he filed suit after his worked ceased. Without first serving a demand letter, he claimed he was improperly classified as a contractor when he was in fact an employee. Though his wage claim was small – less than $1,500 – his legal fees were not, and he refused to settle the case at a reasonable level. We were retained after suit had been ongoing for a period of time.

Result: Despite substantial effort, we were unable to persuade the handyman to settle at a reasonable level. The case was forced to a jury trial on what amounted to a suit for exorbitant legal fees under the Massachusetts Wage Act. After a two-day trial, our client was vindicated. The jury found that the handyman was not owed any wages. It issued a damages award of $0.

The Long Reach of the Wage Act

Employers need to be careful about a number of issues when dealing with their employees. Communicating policies clearly, enforcing rules consistently, and applying anti-discrimination rules appropriately are all on the list. While all are important, a seemingly fundamental but often overlooked issue is the one that most often gets employers into trouble – the regular payment of earned wages. Mistakes in this area can lead to automatic tripling of amounts owed and the payment by employers of hefty legal fees incurred by both sides to a legal dispute. Obviously, then, understanding and properly applying wage payment rules is essential for all employers.

Even when employees are properly paid all they may be owed under Massachusetts law, the automatic penalties embedded in the state’s Wage Act can apply. Federal court decisions in Massachusetts confirm the long reach of the Act. For example, where overtime wages are not owed under Massachusetts law (Mass. Gen. L. ch. 151, §1A) but are due but unpaid under its federal counterpart, the Fair Labor Standards Act, amounts owed to a former employee may be tripled under the Wage Act. The rule is consistent with the broad interpretation given to the Wage Act by other decisions at both the state and federal levels.

To avoid the quicksand-like experience that employers often face in Wage Act cases, a conservative approach to paying employees is essential. When in doubt, employers are normally better served to pay workers what they might be owed than to take a hard stance – regardless of the emotions that may be involved in relationships with former employees. Large damages can result from failures to pay minimum wages, withholding commissions and bonuses, improperly deducting money from pay, and misclassifying workers as independent contractors. Obtaining a clear understanding of what’s required in these and other wage payment areas should be an essential element of all employee management plans.

Moving Jobs in Face of Noncompetition Agreements takes Advance Planning

Moving jobs can be stressful, even when motivated by promises of better pay, a chance to move up the business ladder, or a more pleasant work experience. When a new job is in the same industry as the old, as is frequently the case, the stress that naturally comes with new job challenges can be compounded by a former employer’s concerns over uses of its business information. In some cases, those concerns are documented by writings that include substantial penalties for disclosing or misusing confidential data. Employees commonly sign such agreements without giving them much thought, until, that is, it’s time to move jobs. It’s at that point that many discover they may be restricted from competing at all with their former employers.

Navigating issues like these takes some planning. Here are a few steps employees should consider taking before signing on with a new company or resigning from a current one.

  1. Make sure you are familiar with all the documents you signed with your current company. If you need to, ask to see the contents of your personnel file. It is not uncommon for employees to discover restrictive agreements that they don’t recall signing. If you don’t understand your agreement, seek legal help.
  2. Consider what access you’ve had to internal documents and how, if at all, any information that may be contained in them could be used with a new employer. The answer to this question normally turns on the nature of an employee’s job.
  3. Be sure your prospective new employer is aware of any restrictive covenants you may have signed with your current one. Most now require new employees to affirm that they have no restrictions that affect performance in a new job. Failing to disclose relevant information can lead to big trouble down the road.
  4. Don’t keep copies of any of your current employer’s documents, whether in paper or electronic form, regardless of content. It is best to err on the side or returning documents that are not confidential than to keep any that even arguably are. Be sure that key materials or customer information is not stored on a personal phone or laptop. If it is, consider the potential for future disputes.
  5. If you signed a noncompetition or non-solicitation agreement, carefully coordinate your conduct in a new job with your prospective employer. Consider the reaction your current company will have to your job move and how you can minimize the risks that may be associated with that reaction. Carefully plan and execute your departure from your current employer.

Employee Handbooks are Valuable Tools, but Present Dangers when not Followed

There’s no question that employee handbooks are an invaluable tool for managers. In my view, few  should be without the benefits they bring in terms of both communicating with workers and management’s own understanding of the myriad employment laws that may apply on the job. That said, employers need to understand that, when they include a policy in a handbook, they need to respect it. Those who don’t proceed at their own legal peril.

Massachusetts courts have long permitted employees to claim that the terms of an employee handbook form part of a contract that their employers need to follow. Though claims like those are tough to win, former workers sometimes see good reason to try nonetheless. That may be because, as with any lawsuit, outcomes are uncertain, regardless what one may believe about a claim’s merits. Since all must be defended at often substantial cost, defendants who face lawsuits often figure out quickly that it’s better to settle than to fight to the death, as it were. When it comes to suits over the terms of an employee handbook, the primary way an employer can avoid a predicament like that is to strictly follow the terms of the policies it publishes to its workers. If you don’t like a policy, change it – prospectively only, of course. Until that is done and conveyed to workers, all policies should be complied with by employer and employee alike.

A recent case in the U.S. District Court illustrates the perils companies can face when they don’t follow this tact. In Grant v. Target Corp., a former employee is complaining that Target fired him in violation of policies and procedures in its employee handbook. When Target moved to dismiss the suit, the court refused. Though Target claimed, among other things, that it retained rights to change its handbook at any time, the court concluded it must still deal with the employee’s claim that, when he was fired for intoxication at work, Target’s policies were violated. Though Target may ultimately win the case, it will not do so before expending substantial time and effort. In the end, it will need to prove either that its handbook did not form the basis for a contract or that the contract it did form was followed. Unfortunately for the employer, the process is not likely to be cheap.

Good Wage and Hour Records are Important to Business Success

Starting a business brings many challenges. Among them is the often overlooked need to create and retain records of employee hours and pay. Many small companies have found out the hard way that failing to do so can lead to severe penalties.

In Massachusetts, employers need to maintain records that include employee names, addresses and occupations, amounts paid each week, and hours worked daily and weekly. All of this is open to inspection by state and federal wage authorities, and fines can be levied for a failure to properly keep records. Often even worse than this are wage-related damages an employer can face if records are not available to defend against claims brought by former employees or the government. Because employers are obligated to keep pay records, those who don’t do so face the prospect of having a court accept as true whatever claims employees may make about the number of hours they worked and the amount of pay they received for that work. That can lead to the triple damage and legal fee awards against them.

The Massachusetts Attorney General aggressively pursues claims brought by former employees. The AG can audit records for individual employees or entire staffs, with major financial implications. In one recent case, an employer paid $300,000 in back wages and penalties as the result of an AG audit. Employers faced with these sorts of inquiries normally have little flexibility when transgressions of the law are identified. They either settle with the government, normally at a substantial cost, or face enforcement action that can lead to far higher penalties. In some cases, employees bring class action claims that can be financially devastating if not settled quickly.

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

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.