Archives for May 2013

Enforcement of Noncompetition Agreements Getting Easier?

In a decision that could make enforcing a central component of most noncompetition agreements easier, a U.S. District Court judge ruled this week that former employees cannot escape restrictions against soliciting their former customers by claiming that their customers made the first contact. “Neither the plain meaning of the word solicit, nor the plain meaning of the word entice requires some kind of first contact,” Judge Douglas Woodlock wrote. “Contrary to Defendants’ contention, Massachusetts courts do not draw a bright-line distinction between those actions following first contact by the client and those following first contact by the employee.”

Though not binding on Massachusetts judges, the decision may persuade them to look more closely than some have in the past. It is common for employees defending against noncompetition and/or non-solicitation agreements to argue that they did not seek out former customers but were instead contacted by them to do business. Former employers can now more effectively counter that argument, and Judge Woodlock’s decision seems well-balanced and reasonable. In the case at bar, Corporate Techs., Inc. v. Harnett and OnX USA, LLC, there was no dispute that the former employee competed for relevant customers. The court simply ruled that there is more to the analysis of noncompetition agreement enforcement answering the simple question, “who called whom first?” In doing so, he distinguished between ‘receiving business’ and taking active steps to persuade a customer to deliver it.

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

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.

Defense against Lawsuit – Noncompetition Agreement

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.