Archives for November 2015

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.