Small Employer Forced to Pay more than $100,000 for Wage Violations

A local grocer is learning the hard way how important it is not only to properly pay employees under state wage laws but to keep good records demonstrating that it did so. Following an investigation by the Massachusetts Attorney General’s wage and hour office, the employer was compelled to pay $84,000 in back wages and $21,000 more in penalties. As if that’s not enough, the store and its owner also had their names posted on the Attorney General’s web site so that all could read about their violations of state laws.

The case illustrates the importance of understanding and complying with Massachusetts laws that cover the payment of wages. They include the state’s Wage Act, which requires that employees receive pay for all hours — and minutes — they work and provides mandatory triple damages and legal fees against employers who fail to comply. Massachusetts also has its own overtime and minimum wage statutes, each of which provides broader benefits to employees than do federal counterparts. The state mandates that all employers keep accurate records of hours worked by and payments made to their employees, among other things, and generally requires that workers be treated as employees and not independent contractors. The mandatory triple damage and legal fee rules normally apply to legal transgressions in any of these areas.

New Equal Pay Bill Makes Progress in State Legislature

A bill to replace Massachusetts’ aging equal pay law is making progress in the state legislature and may be heading for final approval. Late last week, a Senate committee produced a revised version of the pending legislation and recommended that it be passed.

The existing law, known as the Massachusetts Equal Pay Act (MEPA), was enacted in 1945. It generally prohibits employers from paying women less than men for comparable work. Because court interpretations of what’s required to demonstrate violations of the law have made enforcement difficult — women’s pay continues to lag behind men’s pay in the Commonwealth — a revised MEPA was proposed and is broadly supported in both branches of the state legislature. It would, among other things:

  1. Make enforcement easier by eliminating the requirement that plaintiffs prove that the substantive content — that is, the specific job duties — are “comparable;”
  2. Extend the statute of limits on comparable work claims to three years;
  3. Invalidate certain defenses and the requirement of filing with the Massachusetts Commission Against Discrimination (MCAD) as a prerequisite to suit; and
  4. Make employer rules against employees discussing their pay with each other illegal.

Employers that, within the 3 years that precede a claim, complete a pay practices self-evaluation and demonstrate reasonable progress in eliminating pay differentials based on gender may escape liability under the bill. Successful plaintiffs will be entitled to double damages and legal fees under the proposed new law, just as they currently are. Agreements to avoid equal pay will not be enforceable. The new law will, of course, be effective to protect both men and women against unequal pay for comparable work.

Massachusetts Minimum Wage Now at $10/Hour

Effective January 1, 2016, the Massachusetts minimum wage was increased to $10/hour. The increase is part two of a three-part process that will increase the minimum wage to $11/hour on January 1, 2017. The state’s minimum for tipped employees — those who regularly receive tips as part of their wages, such as waiters and waitresses — is now $3.35/hour. The total hourly rate for tipped employees must be no less than the state’s minimum of $10/hour, inclusive of tips actually received, and employers must make up any hourly shortfall. Due to strong penalties contained in the Massachusetts Wage Act, all employers should be certain that minimum wages and all other amounts due to employees for work performed are paid in full.

Maintaining Enforceable Noncompetition Agreements Requires Diligent Effort

Enforcing noncompetition agreements and other restrictions on post-employment activities is always a challenge in Massachusetts courts. Among the various issues employers must consider before attempting to do so is one that is often overlooked – the question whether a valid and enforceable contract even exists.

The general rule has long been that older contracts are eviscerated  by new ones covering the same subject matter. This is true in noncompetition situations as elsewhere and can become an issue when an employee is promoted or otherwise enters a new employment agreement. Unless a previously signed restrictive covenant is expressly referenced or restated in the new contract, it may be null and void. This principle was recently restated in a U.S. District Court case, where a  2005 noncompetition agreement was nullified by a 2012 employment contract.

Best practices in the noncompetition area demand diligence on this and related issues. Whether or not a  new writing is created for an employee – remember, even oral contracts can be enforced in this area if real job changes occur – companies that may wish to enforce restrictive covenants against former employees should institute a regular review program. Each time an employee is promoted or gets substantive new duties, a new noncompetition form should be executed. The same makes sense after the simple passage of time, which can bring smaller, incremental changes that might threaten an employer’s ability to enforce older covenants.

Workplace Bullying Could Soon be Outlawed in Massachusetts

It has not become law yet and there’s no assurance it will make it through this Legislative session, but a bill that would outlaw “workplace bullying” is making progress. The fact that the current version of the proposed law, which has been considered in various forms in the past, is sponsored by more than 50 members of the House of Representatives is one sign that this time things may end differently.  Another is the positive report it received in August by the committee on Labor and Workforce Development.

The law would open employers to liability for permitting an “abusive work environment” to exist, making them liable for the acts of their employees. It defines such environments as ones where abusive conduct has caused physical or psychological harm to an employee. Repeated verbal abuse, intimidating or humiliating behaviors, and sabotaging of an employee’s work fall within the ambit of abusive conduct under the proposal’s definition. Among the possible sanctions for workplace bullying: an injunction to stop it, job reinstatement of a victim, termination of an offending party, wage losses, emotional distress and punitive damages, and legal fee awards.  Employees would have to bring a private suit for bullying within a year of the most recent workplace event.

As justification for the law’s passage, sponsors recite that one-third of all Massachusetts employees will experience “health-endangering workplace bullying”  that can cause shame, humiliation, severe anxiety, depression, and even suicidal tendencies, among other things. They note that bullying not tied to membership in a legally protected class of individuals is four times more prevalent than sexual harassment and opine that victims of it should not be shut out from relief. The proposal’s goals, its sponsors say, are to provide relief for employee victims of bullying and incentives for employers to prevent it from occurring.

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.