State’s Highest Court Holds Independent Contractor Statute Can Apply to Workers Outside Massachusetts

May 17, 2013 By

In a decision that might be said to foist an employer upon its own petard, Massachusetts’ Supreme Judicial Court ruled today that the state’s rigid independent contractor statute can be applied to workers who never set foot in the Commonwealth and performed all their duties as delivery drivers in another state. The somewhat surprising but unanimous SJC ruling concluded that, because the employer defendant was based in Massachusetts and required its out-of-state delivery drivers to sign independent contractor agreements that required all disputes to be settled in Massachusetts and under Massachusetts law, it is reasonable to apply this state’s employment laws to work that was performed exclusively in New York.

The ruling could have substantial financial implications for Massachusetts companies that employ independent contractors in other states. Under Mass. Gen. L. ch. 149, s. 148B, almost all workers must be classified as employees and not contractors. While many states and the Internal Revenue Service prefer that workers be employees and not contractors, the Massachusetts’ independent contractor statute may be the toughest in the nation. It requires, among other things, that any worker who performs duties in the “usual course” of a company’s business is an employee. Written or oral agreements that expressly provide otherwise are not enforceable in Massachusetts. If a worker is misclassified as a contractor, he/she can assert substantial rights under related Massachusetts wage laws. Those rights can include minimum wages, overtime pay, cost reimbursements, tax deductions and contributions, insurance coverage, and other benefits. Employers who misclassify workers in Massachusetts and fail to pay such benefits may be subject to huge damage awards to individual workers or classes of workers. Under the Massachusetts Wage Act and the state’s overtime law, damages are automatically tripled and legal fee reimbursement is mandatory.

Today’s SJC ruling is Taylor v. Eastern Connection Operating, Inc. In its wake, all employers who either now employ or are considering employing contractors to work outside Massachusetts should review and reconsider their policies and reevaluate any written agreements they may now utilize. It may be possible to avoid a fate similar to that which now apparently awaits the Taylor defendant. It faces a class action suit that was once dismissed but is now revived. If it is unable to find grounds to escape the reach of Massachusetts’ independent contractor and wage laws, an ultimate damage award against it could be huge.

Filed Under: Employee - Employment Law, Employer - Employment Law, Independent Contractors, Massachusetts Employment Law, Massachusetts Wage Act, Wages and Commissions

Defense against Lawsuit – Noncompetition Agreement

May 16, 2013 By

A small Metrowest plumbing company was sued in Worcester Superior Court after it hired a plumber who formerly worked for its competitor. The employer had previously been threatened with suit unless the employee either quit or was fired. Both the employer and the employee came to us for advice about the enforceability of the employee’s noncompetition agreement and help defending the lawsuit. The employee was not servicing or trying to take customers from his former employer, a much larger company. We reviewed the employer’s business model, the employee’s job duties, and the noncompetition agreement claims by the former employer. After efforts to amicably resolve the suit failed, we defended both the employer and the employee in the superior court.

Result:  A request for a court order that our client’s employee be fired was denied. We successfully defended the lawsuit, which was eventually settled. Our client’s policies were reviewed and potential risks for future litigation in a number of employment areas were eliminated.

Filed Under: Representative Cases

Arbitration Clause in Employee Handbook is Unenforceable

April 29, 2013 By

In a decision that may undermine the validity of a relatively common method used by employers to require the arbitration of employment disputes, a U.S. District Court judge recently decided that a company’s dispute resolution policy, which appeared only in its employee handbook, was not enforceable. The arbitration provision, the court ruled, was not part of a contractual bargain between employee and employer. As a result and despite strong support in case law for the enforcement of employment-related arbitration agreements, a  motion to compel arbitration was denied.

The case involved an employee’s claim that her employer interfered with her maternity leave rights under the Family and Medical Leave Act (FMLA). The employee alleged in a U.S. District Court lawsuit that she was passed over a promotion and demoted to a part-time position in retaliation for asserting her rights. Citing a provision in its employee handbook — for which the employee had signed a standard receipt and acknowledgement form, which commonly appears at the end of employment manuals — the employer moved to compel arbitration. The court denied the motion, citing the facts that the manual was not negotiated by the parties and the employer reserved a unilateral right to modify its policies.

The case, Domenichetti v. The Salter School, LLC, was decided April 19, 2013. While it points up the need for employers to take care when drafting arbitration clauses, it should not undermine their general enforceability. As long as the agreements are clear, reasonable and the product of a bargained-for agreement, they will generally be enforced in Massachusetts and may even be applied to alter normal procedural rules that may apply in employment cases. (See Feb. 29, 2012 Post on this site.) Arbitration agreements are viewed favorably by many employers, which see them as a faster, less exepensive, and less risky way to resolve disputes.

Filed Under: Employee - Employment Law, Employer - Employment Law, Massachusetts Employment Law

Wage Audits and Record Keeping Requirements

April 16, 2013 By

A mid-sized Framingham employer was faced with an audit of his business’s wage payments and record-keeping by the Massachusetts Attorney General’s wage and hour office. The inquiry began after an employee complained about his overtime pay. The employer came to us for help handling the audit and asked us to assess other potential wage issue exposure. On review of voluminous employee time sheets and wage payment records, we identified several legal issues that exposed the employer to potentially large damages for back wages to employees and penalties to the government. We explained record-keeping and wage payment requirements under Massachusetts law. We reviewed the employer’s policies, modified them as needed, and helped the employer create an employee handbook. This provided strong communication with employees and firm/necessary controls of employer policies.

Result:  The audit was successfully managed through cooperation with the Attorney General’s wage and hour office. Record-keeping, wage and other policies were implemented to assure future compliance with the law.

Filed Under: Representative Cases

Wage and Hour Audits — The Government’s Power to Investigate

April 9, 2013 By

It can be a pretty intimidating event for a small business. There you are, working hard as always, focusing on running your company, which certainly involves payroll issues, when a young man or woman appears at your door to announce a wage and hour audit. You are told the government would like to review your time sheets and pay records and talk to some of your employees. You’re also informed, in a pleasant but firm manner, that the local wage and hour office is empowered by law with complete access to those records.

At this point, most small employers do two things. First, they try to recall wage rules and record-keeping requirements, wondering if they’ve complied with them all. Then they call their attorneys, or find an attorney who specializes in employment issues, to ask what to do next. Inevitably, they learn that the wage and hour officer is indeed empowered to review their books and records. What’s more, they learn, the government can use its findings to force them to pay wages allegedly underpaid in the past, impose fines for violations of any of a plethora of wage and hour laws, and force changes in the ways business is conducted. [Read more...]

Filed Under: Employer - Employment Law, Massachusetts Employment Law, Massachusetts Wage Act, Wages and Commissions

When Can Employers Use Independent Contractors to Perform Work in Massachusetts?

March 29, 2013 By

The conservative answer to this question is “never.” Under Massachusetts law, the use of independent contractors is severely restricted. In a classic example of what many consider legislative overkill, the law assumes all workers are employees, not contractors, regardless what the parties may have agreed to, until and unless employers prove otherwise. The criteria for doing so are so restrictive, taken together, that virtually no business in Massachusetts can satisfy them. 

Under Mass. Gen. L. ch. 149, s. 148B, individuals who provide services to another are employees unless the recipient of those servies — that is, in normal circumstances, the supposed employer — prove the following:

1.  That the worker is free from control in the performance of the services, both under any contractual agreement and in practice;

2.  That the work being performed is something different from that normally performed by the recipient — that is, it is outside the usual course of its business dealings; and

3.  That the provider of the services is engaged in an independent business enterprise, something that is akin to true self-employment. [Read more...]

Filed Under: Employee - Employment Law, Employer - Employment Law, Independent Contractors, Legal Questions & Answers, Massachusetts Employment Law, Massachusetts Wage Act, Wages and Commissions

Late Wage Payment Means Mandatory Punitive Damages and Legal Fees Against Employers

March 15, 2013 By

Employers who aim to avoid multiple damages and legal fee awards in wage cases — as all should, of course — today have even greater reason to carefully assess what’s owed to workers on their ways out the employment door. In a decision issued on March 4, the SJC held that post-employment payments to a worker who was owed for accrued but unused vacation time meant nothing under the Massachusetts Wage Act. Despite having paid the terminted work more money in continued wages than he was owed for unused vacation time, the court held, the employer did not satisfy the requirements of the Wage Act and is liable for punitive damages and legal fees.

The case is Dixon v. City of Malden and involves the termination of the director of a city-owned nursing home. Under City policy, Dixon had accrued 50 days worth of vacation time on the day his was fired, a value of about $13,600. The City continued to pay his salary for more than three months, and he received more than $19,000 during that period. The payments, however, were not characterized as wages in lieu of unused vacation time and, when the salary continuation ended, City records still reflected that the worker had 50 accrued days. After Superior Court Justice Thomas Billings dismissed the plaintiff’s suit for unpaid wages, writing that he’d suffered no damages, the SJC transferred the case on its own initiative and reversed.

Citing to the statutory requirement that all wages due be paid on the day a worker is fired, the court held, “We conclude that the failure to pay unpaid wages, as defined by G.L. c. 149, § 148, cannot be mitigated by gratuitous, after-the-fact payments … Employers must ‘suffer the consequences’ of violating the statute regardless of intent. In these circumstances, the plaintiff has incurred damages under the terms of the statute because the city did not pay his earned, unused vacation time, a definitive amount of $13,615.54, when he was terminated from the city’s employment.” In the particular case at issue, Plaintiff Dixon will not be eligible for the now mandatory triple damages provided by the Wage Act. That’s because his suit began prior to the Massachusetts Legislature’s amendment of the Wage Act to clarify that such punitive awards are required in all cases where earned wages are unpaid.

Filed Under: Employee - Employment Law, Employer - Employment Law, Massachusetts Employment Law, Massachusetts Wage Act, Wages and Commissions

Holliston Company Pays $169K for Overtime Law Violations

March 3, 2013 By

A local company is learnign the hard way that skirting overtime laws is risky business. In a recent settlement with the Massachusetts Attorney General’s office, the Holliston firm agreed to pay more than $169,000 in overtime wages and penalties for its trangressions of the state law that, generally speaking, requires employers to pay time-and-a-half to all employees who work beyond 40 hours in a work week.

The Attorney General’s enforcement of the overtime law is not unusual. In fact, at both the state and federal levels, labor officials have been actively pursuing wage law violators in recent years. In some cases, investigations are triggered by a specific complaint from a worker. In others, they are the product of audits that may be targed at particular business types and seem to materialize out of thin air. In all cases, employers are required to open their books to state and federal investigators, who may search for violations of overtime pay requirements, record-keeping rules, and other labor laws. What’s more, agents can refer their findings to each other and to other arms of government, such as workers compensation and unemployment enforcement agencies. It can all add up to substantial damages, as the case of the Holliston company illustrates. [Read more...]

Filed Under: Employee - Employment Law, Employer - Employment Law, Massachusetts Wage Act, Wages and Commissions

Massachusetts Needs Firm Rules on Noncompetition Agreements

February 8, 2013 By

The more you see noncompetition disputes play out in courtrooms or, more commonly, between law offices, the more it becomes clear that the Massachusetts Legislature needs to step in and set some rules in this area of law.  Regardless of viewpoint on  this often contentious topic, it’s hard to argue against a clear legislative statement that noncompetes are either permitted or banned. In the former case, clear guidelines as to who can be restricted from work, where and how long restrictions can apply, and the procedural prerequisites to the signing and enforcement of noncompetition agreements should be enacted.

While a boon to lawyers, the fact-driven and case-specific approach courts now take to noncompetition disputes otherwise benefits no one but unscrupulous or overly zealous employers and, of course, their attorneys. The problem with current law is its uncertainty. As with any set of what’s referred to as common laws — that is, rules developed in the courtroom and not formally enacted into law by legislative bodies — noncompetion law in Massachusetts lends itself to individualized judicial approaches that can yield inconsistent results. Because fights between employers and their former employees in this area are so common, the Legislature needs to act. Given the various efforts to enact noncompetition legislation in recent years, it should by now have a firm grasp of the concerns of opponents and proponents alike and be capable of bringing a balanced approach to a new noncompetition statute.

Among the rules that would bring immediate improvement to the current system by decreasing costly disputes is one requiring employers to provide copies of their proposed noncompetition agreements to their new hires as part of initial offers of employment. Gone quickly would be courtroom battles about whether a  contract was properly formed, as required by law. A rule defining when an absolute bar to employment with a competitor is permissible would also be useful, as would one clearly defining what constitutes “solicitation” of either customers or employees. The precise contours of legislative action is far less important, in this writer’s view, at least, than is the creation of a new statute that clearly defines what employers can do with noncompetition agreements and what they cannot.

Filed Under: Employee - Employment Law, Employer - Employment Law, Massachusetts Employment Law, Non-competition Agreements

Second Superior Court Judge Holds that LLC Managers Can be Liable Under the Massachusetts Wage Act

January 28, 2013 By

For the third time, a superior court judge has weighed in on the question whether managers of limited liability companies can be held personally liable for the severe penalties provided by the Massachusetts Wage Act. Mark the score now as two to one in favor of such liability. On December 17, 2012, a Middlesex County Superior Court judge ruled that the Act’s failure to reference LLC managers like it corporate presidents and treasurers does not absolve those managers of personal liability.

“The touchstone of section 149 liability remains that ‘[e]very person having employees in his service’ can be liable.  I decline, therefore, to rule that there can be no individual liability in the limited liabiliy corporation setting as a matter of law,” wrote Justice Paul Wilson. Instead, the court concluded, claims of individual liability against LLC managers can proceed if those managers have responsibilities that are functionally equivalent to those typically performed by corporate presidents and treasurers. The court went on to conclude that a plaintiff’s claim against a high-ranking manager stated a plausible claim while one against his report did not, despite the fact that the latter individual was in charge of the company’s Massachusetts operations and supervised the employee at issue. [Read more...]

Filed Under: Employee - Employment Law, Employer - Employment Law, Massachusetts Employment Law, Massachusetts Wage Act, Wages and Commissions
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