Governor Patrick’s Proposed Ban on Noncompetition Agreements Maintains Business Protections

Governor Deval Patrick has entered the fray surrounding the enforcement of noncompetition agreements in Massachusetts. Apparently concerned about the effects the commonly used contracts have on growth and productivity in the Commonwealth, the Governor this month submitted a bill that would ban their enforcement. While that may sound drastic, the terms of the Governor’s plan seem more an attempt to strike a fair balance between competing interests than to effectuate free movement of employees among competitors in the same industry.

Mr. Patrick proposes that contract terms that restrain a former employee or independent contractor from working be considered void. In defining what this means, however, the Governor is careful to exclude from the proposed ban restrictions against soliciting or entering into contracts with employees or customers of a former employer. He also exempts from the ban nondisclosure agreements and noncompetition agreements connected with the sale of a business, as well as any non-compete “outside of an employment relationship.” In addition, Mr. Patrick seeks to allay the concerns businesses may have over illicit uses of their private business data by asking the Legislature to enact the Uniform Trade Secrets Act. It is already in effect in most states and provides remedies such as injunctions, damages, penalties and legal fee awards for the for the misappropriation of trade secrets.

The Governor’s proposal was submitted on April 14 and referred to a legislative committee. It is part of a bill that includes other proposals under the caption, “An Act to Promote Growth and Opportunity.” His noncompetition proposal may be workable for employers, many of whom already seek to protect their customers/trade secrets without unduly restricting former employees from working. Mr. Patrick’s plan joins other noncompetition bills already pending in the current legislative session, including one that would impose presumptions in favor of enforcing restrictions for less than 6 months and denying those that last longer. It is unclear what if any action may be taken on any of the proposals.

Massachusetts Poised to Raise Minimum Wages

As a minimum wage hike at the federal level remains mired in the pit of political mud through which Congress forces virtually all legislation to pass, Massachusetts appears almost certain to increase the state’s rate in the near future. It won’t be the first state to take action on the issue, and Massachusetts employers will be wise to track the current debate at the State House and prepare in advance to make necessary adjustments.

Both the state Senate and House of Representatives have now passed minimum wage hikes. The Senate was the first to act. Late last year, it approved an increase from the current $8 per hours to $11 over three years. Future increases  would come with inflation, and the Senate bill would also increase the minimum amount that must be paid to tipped employees from $2.63 to one-half the amount of the minimum wage. More recently, the House voted to increase the minimum wage to $10.50 over two years. Its bill increases the tipped employee hourly rate to $3.75. There’s no automatic future increase built into the House bill. [Read more...]

Avoiding Handicap Law Violations Requires Caution in a Variety of Circumstances

All employers know, or certainly should know by now, that they have a duty to reasonably accommodate workers with disabilities. Still, cases in this area of law abound at the MCAD, EEOC and in the courts. While they often revolve around real disagreements concerning the nature of an employee’s workplace limitations or an employer’s ability to accommodate them, too many arise simply because employers do not act with caution when they discipline or fire workers who are or may be handicapped.

Under Massachusetts law and perhaps even at the federal level in the wake of recent amendments to the Americans with Disabilities Act, workers are entitled to handicap protection more often than one may think. In general, anti-discrimination laws provide that, if an employee suffers from a handicap — defined as a substantial limit on a major life activity such as walking, sleeping, eating, working and the like — he/she must be reasonably accommodated on the job. Accommodations can take many forms, from leaves of absence to adjustments to work stations or even changes in how a manager interacts with a disabled worker. Once an employer knows a worker needs an accommodation, it must engage in an interactive process to determine whether one can be provided. It is only where such a workplace adjustment will cause a hardship to an employer that a reasonable accommodation can properly be called ‘unreasonable.’ Errors in this area can be costly. Take, e.g., the employer ordered by the MCAD in January 2014 to pay a former employee more than $130,000, with substantial interest and legal fees to follow, because it failed to discuss the worker’s request for an extension to his leave of absence before it fired him.

Frankly, no employer should ever find itself in a position like this. Discretion being a critical part of running any business, all must be familiar enough with the law to know when to seek legal help before making the typically irreversible decision to terminate a worker who even might be handicapped. Whenever an employee is experiencing difficulty at work due to a known medical condition, employers should move cautiously. Taking time to consult with an attorney or to research key issues oneself may be time and/or money well spent.


SJC to Decide Key Cost-Shifting Questions under the Massachusetts Wage Act

Expressing uncertainty whether a company’s shifting of business expenses to its employees is actionable under the Wage Act, a federal court judge is asking the Massachusetts Supreme Judicial Court (SJC) to answer three questions:

  1. Does the independent contractor/employee test under the Act determine a worker’s status for workers compensation insurance purposes? The SJC has already held that employers cannot shift this cost to its employees, but the question what constitutes an “employee” for workers compensation purposes is unsettled.
  2. Can an employer contractually bind its employees to pay for equipment such as uniforms and package scanners that are necessary for the performance of their job duties? Indications are that the answer to this question is likely “no,” but the federal court sees tension between two prior Massachusetts cases.
  3. Does the Wage Act ban an agreement under which employees pay a third party vendor for work related vehicle expenses such as maintenance and operation? There is little question that reimbursement for work-related miles must be reimbursed in most or all cases, but there appears to be no statement of law that addresses this particular question.

The SJC’s answers to these questions, which may issue this Spring, are likely to have a significant impact on the employer/employee relationship in Massachusetts. The Wage Act provides for automatic triple damages and the imposition of legal fees against offending employers, so the stakes are high. Some cases now plainly support the notion that the foisting of business expenses such as insurance and automobile costs violates the Act. Under the federal court’s readings of Massachusetts case law, however, answers to the three questions are unclear. Employment attorneys – along with any employer who may now be shifting expenses like those identified above to their workers – will be watching closely for the SJC’s reply to the federal court.

Misuse of Trade Secrets by Independent Contractors Tougher to Deal With

The pitfalls of classifying workers as independent contractors should be evident to employers at this point. Those who did not previously recognize this important point should consider a recent superior court decision indicating that it may be much harder to protect important trade information from improper use by independent contractors than by employees.

That’s at least one interpretation of the message delivered by the judgment against a company that sued its former contractor for stealing trade secrets. Despite concluding that the company properly identified stolen material that, if used by others in the marketplace, could damage its interests, a superior court judge granted summary judgment to the former contractor. In doing so, the court apparently discounted employee testimony to the effect that ‘all knew’ customer lists were confidential and should not be removed from the company’s offices. More important, in the court’s view, was the company’s failure to require the contractor to sign a confidentiality agreement before trade secrets were disclosed to him.

The decision does not seem to suggest that contractors can never be responsible for misusing trade secrets. In fact, Massachusetts law provides remedies against doing so under some circumstances, and a strong policy regarding confidential information and better communication with the contractor might have led to a different result in C.R.T.R. v. Lao. Still, protecting secrets against misuse by independent contractors is tougher than protecting them against employees. As all should know by now, workers should always be treated as employees if there exists any doubt as to their status under the state’s independent contractor law. For the few who may truly be contractors, it’s imperative to ensure a written confidentiality agreement is signed.

New IRS Tax Rule on Restaurant Tips may Conflict with Massachusetts Law


Beginning January 1, restaurants that add service charges to customer bills were required by IRS regulation to treat the payments as employee wages rather than tips, as most previously had. The employers now must pass the funds through payroll systems and make deductions for taxes and the like before delivering them to their workers.  Because that process could take two weeks, the regulation may lead restaurants to violate Massachusetts law.

Under the Massachusetts tips statute, “Any service charge or tip remitted by a patron or person to an employer shall be paid to the wait staff employee, service employee or service bartender by the end of the same business day, and in no case later than the time set forth for timely payment of wages under section 148.” The outer limit for payment might be stretched to 6 or 7 days after a service charge is paid, though most employers remit tips at the end of every shift. Restaurant employees generally expect and rely on the quick payments to gets their money into their own pockets, without deductions, to cover living expenses.

Under prior practice, the money was of course reported by employers to the IRS, but employees were left to declare and pay their own taxes on tips annually. The change in law is apparently aimed at improving tips reporting and increasing tax revenues. In addition to the timing issue it creates for Massachusetts restaurants, the new regulation may add costs and administrative headaches for them. Employer payroll tax obligations may increase, and hourly wages may fluctuate widely from day to day, making overtime calculations difficult. The net effect of all this could be that restaurants will drop the practice of adding service charges to bills, a decision that could in turn cause wait staff to receive less pay. Restaurants commonly add an 18% gratuity to the food bills of larger parties. Whether those parties will voluntarily pay the same tips is an open question.

Court Sees Haven for Delivery Company that Uses Independent Contractors

Pointing out that “legitimate business-to-business relationships” are not barred by the Massachusetts Independent Contractor statute, a superior court judge held recently that a delivery company would not be liable for damages under the law if the contractors it uses to make deliveries in fact operate their own delivery businesses.

In typical fashion, the plaintiff’s class action counsel argued at summary judgment in the case Okeke v. Dynamex Operations East, Inc. that drivers who make deliveries for the company must be considered employees under a portion of Mass. Gen. L. ch. 149, s. 148B, the Massachusetts Independent Contractor statute. The law holds that workers who perform duties within the usual course of business of the entity they work for are employees and not contractors as a matter of law. While the argument has frequently persuaded courts in the past, it did not in the Okeke case, in which the judge cited evidence that some drivers operated businesses and employed as many as 17 others to make deliveries for Dynamex.

“Were the plaintiffs’ interpretation of section 148B to prevail, no corporation operating in the Commonwealth could contract with another corporation to perform work in the same field. Under the plaintiffs’ view, the latter courporation would be an employee of the former, because its services would be provided in the former corporation’s usual course of business,” the court wrote.

The decision seems to turn on particular facts that may not exist in all cases. The use of independent contractors to perform delivieries is common in the delivery business. The simple formation of a corporate entity to nominally “employ” a driver and receive his/her pay is likely not enough to defeat application of the Independent Contractor statute. Where as in Okeke a contractor employs numerous drivers himself, however, the situation may be different as long, at least, as the employer properly pays workers under applicable wage and other laws.

Appeals Court Sets Standard for Holding Managers Liable under Wage Act

The Massachusetts Court of Appeals recently shed a bit more light on what’s required to hold managers of a corporation liable for an employer’s failure to pay earned wages to employees. Citing to a standard that provides for individual liability in company decision-makers who control or substantially contribute to policy determinations, the Court dismissed a suit against several defendants who, it found, did not perform “corporate management functions.”

“We reject the notion that directors may be held liable [under the Massachusetts Wage Act] solely on the basis of their titles,” the Court concluded in Perrin v. Collaborative Engineers, Inc. None of the defendants served as president or treasurer, job titles that carry automatic liability under Mass. Gen. L. ch. 149, §148. Instead, they were full-time employees, directors and minority shareholders. The company’s daily operations were controlled by a separate defendant, and individual liability in others was therefore inappropriate despite apparent authority to at least influence corporate policy.

Under the Massachusetts Wage Act, the president and treasurer of a corporation are personally liable for a failure to pay wages, as are any other managers who control, direct or substantially participate in policy formulation. The statute requires prompt payment of wages earned by employees. Violations of the law result in mandatory triple damages and the assessment of legal fees against offending employers. The statute appears as Mass. Gen. L. ch. 149, §§148-150, and includes a section limiting employers’ uses of independent contractors.

Protecting Against Competition by Former Employees Requires Advance Planning

Protecting information that makes a business successful is a central part of every company’s plan. Employees are never permanent fixtures, and fewer work long-term than they used to. It’s wise, then, to anticipate that they will depart at some point and protect business interests through well-crafted confidentiality and/or noncompetition agreements. The damages that can otherwise flow from an employee’s move to a competitor can undermine profitability or, in some cases, even threaten a company’s survival.

Preventing problems like those requires advance planning. A good place to start is with organization. Businesses must understand the types of information to safeguard and be certain to control how that data is stored, how it’s used, and who has access to it. It’s common to protect pricing material; customer lists; product plans; customer purchase and sales histories; marketing information; and other information that is central to business success. Companies should ensure that only those who need such data at work have access to it. They should maintain rules for data use and ways to track it. Information commonly used or known by some employees – customer contract information, e.g., or pricing structures – are best stored on computers or in files at company offices. [Read more...]

Employers should Audit Wage Practices before Someone Else Does it for Them

When a company’s employee numbers start to grow, so too does its exposure to a plethora of wage and hour rules. A small business can become “enlightened” about one or more of them in a number of ways, from a complaint by a disgruntled former (or current) worker to a random audit by governmental authorities to a class action lawsuit by opportunistic lawyers. Violations of the law can bring substantial damages that may include civil penalties, tripling of unpaid wages, and reimbursement of an opponent’s legal fees.

In most cases, complaints from individual employees can be handled expeditiously. It’s when employees join together in class action suits or employers are audited by state or federal labor authorities that damage exposure becomes dangerous. Audits are common in Massachusetts and can revolve around worker classifications, weekly wages or overtime payments, contributions to the unemployment fund, and other issues. As companies grow, then, they should audit their own policies in these areas to ensure they comply with applicable laws. Waiting to do so until an auditor or a lawsuit arrives at the door can cost tens or even hundreds of thousands of dollars. [Read more...]