Legislators Work to Revive Noncompetition Law

Recent reports suggest that Massachusetts legislators are continuing to work on a compromise noncompetition law that will garner enough support to become law. Earlier this year, both the House and Senate passed versions of a proposed statute that would have imposed rules on noncompetition agreements, which are currently governed by judges without direction from a formal statute. Because the House and Senate could not reach a compromise over differences in the bills each passed, the proposed statute died with the end of the legislative session on July 31, 2016.

Indications are that, this and other failures notwithstanding, Massachusetts will soon enact a law to govern the uses of noncompetition agreements. Among the provisions now being discussed are ones that would require advance notice to employees, limit the duration and applicability of restrictive covenants, and require employers to continue to pay some portion of a former employee’s salary as a condition to enforcement. If no deal is reached informally this month, legislation will almost certainly be reintroduced when the House and Senate reconvene in January 2017. Any bill they pass must, of course, be signed by the governor.

New Overtime Rule Blocked by Federal Judge

In a surprising decision, a judge in the U.S. District Court for Texas not only granted an injunction to 21 plaintiff states that sued to block the U.S. Department of Labor’s overtime updates set to take effect December 1, 2016, he applied his ruling to all 50 states. The result is that, at least for now, employers in Massachusetts need not update pay scales. As long as executive, administrative or professional employees make at least $455/week — the minimum pay requirement now in effect — they will remain exempt from overtime pay requirements.

Judge Amos Mazzant reasoned that the Department of Labor (DOL) could not update the minimum salaries for executives, et. al., because Congress clearly intended the exemption to turn on a duties and not a salary test. Each of the three affected categories or workers carries with it specific criteria for determining applicability, commonly referred to as duties tests. While Judge Mazzant called the Congressional intent in this regard to be so clear that it blocks the DOL from increasing the minimum salary requirement, he did not address the question why or how a DOL regulation has, apparently properly, for years included a minimum salary component for executive, administrative and professional worker overtime exemptions. Indeed, the new DOL rule that was to take effect December 1 seeks to update the minimum salary from $455 to $913 weekly and to implement an automatic pay adjustment mechanism going forward. The court’s November 21, 2016 decision in State of Nevada v. U.S. Department of Labor leaves the old threshold in place.

Aggressive Noncompetition Suit in Massachusetts

Our client was a salesperson who was forced to defend herself against an aggressive noncompetition suit brought by her former employer, from which she resigned after many years due to work rule changes that made it impossible for her to perform her job effectively. During the course of her work, our client signed several iterations of the company’s restrictive covenants. Though the most recent was about six years old and numerous job changes had occurred since it was signed, the employer filed a suit to enforce the form agreement. It accused our client not only of soliciting its customers but of stealing its confidential information. The company sought an emergency injunction in the superior court to block our client from performing work for her new employer.

Result:  We persuaded the court to reject the injunction, and the plaintiff quickly dismissed its lawsuit voluntarily. We worked closely with counsel for our client’s new employer to present a clear and concise factual record demonstrating that she had neither taken confidential information nor interfered with her former employer’s business contracts. Advance planning was critical to our defense – we had our client turn over to us for safe keeping cell phones and other electronic devices to ensure the plaintiff could not effectively argue she retained copies of customer data on them.

Legislator will Try Again to Impose Liability on Companies for Wage Violations by Entities they Contract With

After failing to pass what’s referred to as a wage theft bill in the recently ended legislative session, the bill’s sponsor is not giving up. According to published reports, Sen. Sal DiDomenico will reintroduce the controversial measure when legislators go back into session in January.

The proposal would make employers that contract with third parties to have labor performed or services provided to them guarantors of the payment of wages earned by the employees of those third parties. It appears to make such employers, in effect, co-employers of the third party’s employees. If, then, the third party doesn’t pay its workers, the company that received the benefit of the workers’ services would be liable. The proposal does not make an exception for companies that pay whatever is due under their third-party contracts. The effect could be, it seems, that company A pays for labor provided to it by company B and is nonetheless liable directly to the company B’s employees because it failed to remit wages earned by them. This could mean company A pays the same penalties — triple damages and legal fees — as it would if it failed to pay its own employees for work performed.

The statute is apparently aimed at upending a practice under which large companies hire third parties to be employers of workers who actually perform services for them directly. Whether it will ever becomes law remains to be seen.

Good Faith Interactive Process is Key to Properly Handling Accommodation Issues

Most employers know (though some, incredibly, still do not) that they are obligated by law to reasonably accommodate disabled employees. After that, there are several areas of knowledge breakdown that form a theme for cases in litigation. Among them is a rule that is commonly overlooked: the requirement that employers engage in good faith interactions with disabled employees to find reasonable accommodations that will allow them to perform their jobs. Doing so is critical to effectively preventing or defending against handicap discrimination lawsuits.

After acknowledging an employee’s handicap, a process that is not always as simple as it may seem, employers on notice that an accommodation is needed have the duty to figure out what can be done. Commonly, they treat it as a one way street along which they alone consider potential work changes and decide whether they can be implemented. This approach can work as long a reasonable accommodation is identified, accepted by the employee involved, and implemented. When this  doesn’t happen for one reason or another, employers need to be sure they turn to the employee for and engage in a good faith interaction aimed at exploring accommodation options and finding one that will work. This normally involves a review of medical information, meeting with the employee, considering which job duties are essential, and exploring all reasonable options for helping the employee perform them. Employers should be careful that, while working with employees in this area, they are not counter-acting that effort by disciplining or mistreating them actions that somehow relate to the disability in question.

Not so Fast, Department of Labor — Here come the Republicans (Again)

In a move that once again smacks of partisan politics, Texas and Nevada are leading a 21-state challenge to the U.S. Department of Labor’s recent update to overtime regulations for white collar workers. Not surprisingly, 20 are led by Republican governors. The suit claims that President Obama’s Department of Labor exceeded its authority in enacting the regulatory updates, which are scheduled to take effect December 1, 2016. Its focus appears to be the procedure employed to make the changes, though Republican leaders are plainly more concerned with the new rule’s substance.

The Department announced earlier this year that, after lengthy study that included the review of almost 300,000 comments to the proposed regulatory updates, the following changes would take effect later this year:

  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 this amount 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 this amount will be exempt from overtime pay; and
  3. A mechanism for automatically adjusting the minimum and highly paid thresholds to keep up with inflation.

Opponents of the changes are concerned with their effect on business; they predict dire consequences if the rules are implemented. Joining the 21 states in suing to block the new regulations is a coalition of 50 businesses led by the U.S. Chamber of Commerce. Not surprisingly, both suits were filed in Texas for the obvious reason that the litigants hope to again find a sympathetic ear in a court that has previously shown its predilection against President Obama’s initiatives.

Employers must Investigate Sexual Harassment Complaints to Reduce Risk of Punitive Damages

When in doubt, investigate – carefully and thoroughly. That’s the message again delivered to employers by a recent decision of Massachusetts’ highest court. When an employee complains about sexual mistreatment or other discrimination, it’s critical that he/she be taken seriously and that appropriate remedies be implemented to address any allegation that is borne out by a fair investigation.

Lexus of Watertown learned this lesson the hard way recently. After its former employee filed suit for sexual harassment, among other things, a jury awarded her $40,000 for emotional distress and another $500,000 in punitive damages. On appeal, the Supreme Judicial Court rejected Lexus’s argument that it did not act badly enough to justify a punitive damages award, which can be used to punish employers only in cases of outrageous or egregious misconduct.  Lexus, the court found, exposed itself to a punitive damages award because it did not adequately investigate its employee’s complaints after it learned about them. Those complaints were later proved true at trial, at least to some degree.

“Where the employer is aware of a sexually hostile or offensive work environment, the potential for punitive damages against the enterprise is triggered and an inquiry into the response by the employer is warranted….The failure to do so opens the door to the potential imposition of punitive damages if the jury conclude that the employer’s failure was sufficiently outrageous and egregious,” the SJC found.

Although Lexus of Watertown in fact conducted an investigation, the court found that it was inadequate. It was conducted by a supervisor who doubted the complainant from the outset, did not include interviews of all relevant personnel, and did not involve the complaining employee. Though the investigation did not corroborate any of the complaints, a former manager had previously circulated a memo regarding the harasser’s inappropriate behavior. At trial, many of the complaints were corroborated by testimony. Other employers should learn from this case. All complaints should be investigated fairly by an impartial person. Counsel should either guide the investigation or conduct it.

Court Rejects Another Expansion of At-Will Employment Rule

Yet another attempt to expand the public policy exception to the Massachusetts at-will employment rule has fallen by the wayside. This time, the court rejected a former employee’s challenge to his firing based on a concept termed, “honest, open and accountable government.”

“The question what exactly is required by the policy of open, honest and accountable government… is both difficult to define and open to debate,” the Appeals Court wrote on August 4, 2016. “The Supreme Judicial Court…has made clear that the public policy exception must be construed narrowly in order to avoid effectively imposing a just cause requirement for termination of at will employees….”

The at-will employment rule provides that either employees or their employers are free to end their working relationship at any time, for any reason, and either with or without cause. This means that employees generally have no recourse when fired except as may be provided by particular laws. The Massachusetts anti-discrimination law and anti-retaliation language in the state’s Wage Act are examples. Absent those legal protections, employees can challenge their firings only if they can identify an exception to the at-will rule.  Exceptions are few and far between.

In Tramontozzi v. Mass. Dept. of Transportation, a former employee of the Massachusetts Transportation Department claimed he was unfairly made a scapegoat after a light fixture fell from the Central Artery Tunnel in Boston. He accused the Department of unfairly blaming him for alleged delayed disclosure of the incident in order to provide cover for higher authorities. While the Appeals Court agreed that government should be open and honest, it declined to create a public policy exception to the at-will rule on this basis.

New Pay Equity Law Means Employers Must Prevent Gender-Based Wage Disparities

In the wake of passage of the new pay equity law in Massachusetts, employers again have work to do. To prevent getting caught up in what is certain to be another fertile area of employment litigation, both individually and on class-wide bases, employers must review current pay structures, implement new policies, and train anyone involved in the hiring process. Fortunately, they’ll have plenty of time to do so and those that comply may have an absolute defense to liability under the equal pay statute.

The law was passed at the end of the 2016 legislative session and signed into law by Gov. Baker. It replaces an existing law that, though it nominally banned pay discrimination based on sex, was a virtual nullity due to evidentiary hurdles set up by the Supreme Judicial Court. Under the new law, an employer that pays employees less based on gender will face liability for double the amount of any underpayments, plus plaintiffs’ legal fees and costs. Complaining employees of either gender will succeed if they prove that the work in question is comparable – that is, it “requires substantially similar skill, effort and responsibility and is performed under similar working conditions.” Job titles are irrelevant. Where workers of different genders perform jobs that satisfy these criteria and one is paid less than the other, employers will be exposed to lawsuits.

Fortunately for employers, the statute won’t take effect until July 1, 2018. As additional protection, the legislature included language to protect employers that perform self-evaluations of their pay practices and make reasonable progress toward eliminating any they may identify. The Massachusetts Attorney General may issue regulations to help guide self-evaluations, but employers are free to devise their own processes to do so. Because the new law bars employers from asking applicants about salary histories prior to a job offer, all should review job applications to remove any questions on the subject and train managers not to inquire about salaries during job interviews. Policies that may bar employees from discussing their salaries must also be amended as they will become illegal under the equal pay law.

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.