Author Archives: Jordan Scott

About Jordan Scott

Mr. Scott was a founding partner of the firm and currently serves as Of Counsel. His practice focuses on employment law, representing both employers and employees, and corporate law, representing businesses from start-ups through established companies.

Non-Competition Agreements for Business Transactions

By on November 18, 2015

We have previously discussed non-competition agreements in the employer/employee context, but non-compete agreements arise in other scenarios. One of the most common events that leads to a non-compete is the sale of a business. The basics are the same as for employers and employees:  the non-compete must be reasonable in duration and geographic scope, and for a legitimate business purpose.  The difference lies in what is deemed reasonable. A recent Superior Court case, Annunciata v. VPS Services, LLC, et al. (Civil Action No. 15-2985 BLS2) addressed some interesting points on this topic.

The plaintiff, Annunciata, sold her business in return for cash and an equity stake in a new company formed from the sale, known as “VPS LLC.” As part of the sale, Annunciata entered into several agreements. Two of them, the Asset Purchase Agreement governing the sale, and a Service Agreement by which Annunciata was hired to work for VPS LLC, each contained a restrictive non-compete, barring her from competing for five years (which would be reduced to one year if she was terminated by VPS LLC without cause).

Shortly after the sale was completed, Annunciata had disagreements over the direction of the new company with a manager of the company that held the majority of VPS LLC’s shares. The disagreements rose to a point that the other managers (and co-defendants) voted to terminate Annunciata’s employment with VPS LLC. Annunciata filed suit against VPS LLC and the other managers for wrongful termination, who in turn counterclaimed, seeking an injunction to bar Annunciata from competing with VPS LLC, an intention Annunciata had made clear.

The court ruled in favor of the defendants, granting them an injunction. The court reasoned that when a non-compete is negotiated as part of a business sale, the court is inclined to honor such agreements, provided they are reasonable. Here, the plaintiff intended to compete directly with VPS LLC, which would deprive the defendants of a key portion of what they purchased:  the good will of the recently purchased business. Further, the plaintiff still owned a portion of VPS LLC, and the specific terms of her non-compete allowed her to work, just not to form a competing company.

The takeaway from this case is that Massachusetts courts will honor non-compete agreements of a longer duration, if such non-competes are negotiated as part of a sale of a business. Any person contemplating buying or selling a business should consult with a qualified Massachusetts business attorney to protect their interests.

Loyalty Duties for Corporate Executives

By on October 13, 2015

In certain circumstances, an effective non-competition agreement can help protect company assets and interests. However, the law recognizes some protections that exist even outside of a signed agreement. A recent Massachusetts appellate court case, AGERO, INC. v. RUBIN, addressed some of these protections. Agero involved a company suing two former employees who were alleged to have taken confidential information from their employer to start a competing business. One of the employer’s claims was that, in the absence of a contractual obligation, the employees still owed the company a “duty of loyalty” that prevented the employees from leaving the company with confidential information to start a competing business.

The law has long recognized that employees occupying positions of confidence and trust owe a duty of loyalty to that employer, which requires the employees to protect the employer’s interests. Employees subject to the duty of loyalty are not mere common employees who are easily replaceable. The courts will only impose such a duty on high-ranking executives and individuals with access to truly sensitive, proprietary information. This includes officers and directors although the individuals in question need not be officers and directors to trigger the duty (corporate directors are also subject to other legally imposed duties beyond the scope of this article).

The duty of loyalty means such employees are bound to act solely for their employer’s benefit during their employ, and among other things are barred from actively competing with the employer during the term of employment. Access to confidential information can also trigger the duty of loyalty, but such confidential information must be of high value and truly confidential, meaning the employer has taken measures to protect the information.

In Agero, the trial court sided with the employees, and that decision was upheld on appeal. Although the courts acknowledged the duty of loyalty argument, the employees in question were not subject to the duty. The two employees were best categorized as “rank and file,” both answering to higher level managers and lacking the authority to move forward on the projects discussed in the suit. Further, the information the employees possessed had minimal value and was not particularly secret.

There are a few takeaways from Agero. Even absent contractual agreements, high-ranking employees are still legally bound to loyalty to their employer. However, only employees occupying positions of trust and confidence will be bound by such a duty, so employers should consider non-competition agreements for lower-ranking but still valuable employees, assuming that employers can demonstrate legitimate business interests. Finally, merely labeling information as “confidential” does not necessarily make it so; the information must be truly valuable and affirmative steps must be taken to preserve its secrecy. Employers should still seek to have non-competition agreements with high-level employees, but even absent such an agreement, employers may still have recourse against a rogue former executive. Under either scenario, employers should contact a Massachusetts employment attorney to maximize their protection.

Massachusetts Non-Compete Agreements – What Are Your Business Interests?

By on September 9, 2015

Non-competition agreements (often referred to as “non-competes”) continue to generate much discussion in the business world, particularly in Massachusetts. Non-competition agreements are usually found in two contexts: between an employer and employee, and in a sale of a business. Most of the press surrounds the employer/employee context, as that is the far more common non-compete scenario that potentially impacts businesses and employees throughout the state. Some states have a non-compete statute that sets forth the legality and requirements, but Massachusetts does not have such a statute (although Massachusetts does have a few statutes that bar non-competes for specific professions, such as physicians, nurses, and social workers). Instead, the Massachusetts non-compete scheme has developed via case-law. 

Many people have heard of non-competes and are familiar with the basic idea, but as with many legal concepts, the devil is in the details. At a basic level, in order for a non-compete to be enforceable, it has to be reasonable. What is meant by “reasonable”? In addition to being no more restrictive than necessary to protect the employer’s legitimate interest, courts will look at three metrics: duration, geography, and purpose. For duration, Massachusetts courts have enforced non-competes with a one or two-year duration. Anything longer will be viewed with judicial skepticism and require a truly compelling reason.  For geography, Massachusetts courts will generally enforce limitations related to the employee’s territory, the employer’s operating area, and the employer’s current clients. Although a nationwide restriction has been upheld, the business must actually operate nationwide. The final metric is purpose. Despite the title, merely avoiding ordinary competition is not a good reason to have a non-compete. Instead, the non-compete has to be necessary to protect a legitimate business interest. Courts need to see the protection of confidential information, such as customer lists, customer data, customer good will, business plans, marketing strategies, proprietary data and processes, and the like.

Non-competes can be a useful tool for employers, but non-competes must be drafted carefully in order to maximize the chance of a court enforcing it. Both employers seeking an effective non-compete, and employees subject to a non-compete, should seek the advice of a competent Massachusetts employment attorney to ensure legal compliance.

Employee Handbooks: Have you covered the basics?

By on August 3, 2015

Many companies use an employee handbook or manual, which can be a useful management tool when properly utilized. An effective handbook sets forth company policies in plain English and covers every important company policy. Clarity is vital when implementing any kind of policy, and employees will benefit from understanding both what the company offers and what it expects in return. Although an employee handbook is recommended for most businesses, it is possible to do more harm than good, particularly when policies are poorly presented, or if the company sets forth a series of policies but fails to follow them.

There is no one-size-fits-all employee manual. Some manuals that just cover the basics may be ten to fifteen pages long, while some large corporations have manuals numbering into the hundreds of pages. In general, an employee handbook should serve as an employee resource, a convenient way for a company to communicate with its employees.

Most handbooks set forth employer commitments, which are useful to provide clarity to employees and as a partial defense to some employment-related claims. For example, employers should include policies relating to discrimination, sexual harassment, workplace bullying, drug and alcohol use, and violence, and then state how complaints are handled. This ensures that employees know that the company will not stand for any kind of dangerous and illegal conduct. Employees will feel safe in the workplace, and should a problem occur, the employer will be prepared to handle the problem and minimize the impact. For example, should an employer face a claim from an employee regarding sexual harassment, an anti-sexual harassment policy in a handbook will demonstrate that the employer has taken proactive steps to comply with the law and provide a safe environment, which can be helpful in resolving the claim with a minimal cost.

Employers and employees will also benefit from clearly stated internal policies and procedures related to the day-to-day operations of the company. For example, employees should be well aware of the company’s dress code, the company’s standard business hours, what sort of lunch breaks and other breaks are permitted, as well as how the company handles tardiness and unexcused absences. It is also wise to set forth how the company handles various kinds of leave: paid vacation is considered a “wage” in Massachusetts, and the Commonwealth recently enacted the Earned Sick Time law. There are also laws governing time off for holidays and jury duty. The various employment-related laws provide benefits and obligations to employers and employees, and so it is in everyone’s best interest to set forth how the company handles these matters in writing.

Today’s technology focused world has many traps for the unwary. Companies of all sizes have begun implementing policies related to the use of social media in (and sometimes outside of) the workplace, the use of company email, and the requirement to maintain the confidentiality of sensitive company information. Although risk can never be eliminated, an effective handbook can minimize the company’s exposure to lawsuits and costly government investigations.

An effective handbook can aid with both hiring and firing. On the hiring side, there is a real cost to bringing on a new employee, as that person must spend time learning the ways in which matters are handled by the company. A good handbook will ease the transition, minimizing the time that must be spent learning the company’s system and also acting as a resource for questions the employee has regarding company policy. On the firing side, an effective handbook will set forth grievance and termination procedures, so both the managers in charge of firing and the employees understand what is expected of them. A handbook also aids an employer in fighting off wrongful termination lawsuits by showing that a particular policy was in place, an employee was warned about violating such policy, and then the employee was ultimately terminated for violating the policy. Further, fired Massachusetts employees are entitled to unemployment assistance unless the employer can demonstrate one of a few factors, including the employee’s deliberate violation of a company policy. A handbook, read and signed by each employee, is evidence of the existence of company policies.

Any company with more than a handful of employees should consider developing an employee handbook. Consulting with a qualified employment attorney will ensure that the handbook complies with current law and does not expose the company to unnecessary risk.

Transgender Inclusion in the Massachusetts Workplace

By on June 10, 2015

Massachusetts has long been a leader in civil rights, and several years ago Massachusetts joined the minority of states that provide explicit protection against discrimination on the basis of gender identity. Massachusetts’ anti-discrimination law was amended to add “gender identity” to the list of protected categories which extend to the workplace, housing, and government agencies. While that law provides much needed protections, employers are increasingly concerned about workplace issues specifically affecting transgendered people.

One question facing employers is harassment. As gender identity is part of the broad anti-discrimination statute, harassment and similar conduct is handled the same as it would be for race, gender, or other protected categories. Employers should include gender identity as part of their regular anti-harassment workplace training. The anti-discrimination statute also impacts the hiring of employees, and employers should refrain from asking any gender identity-related questions unless the gender of the employee is relevant to a bona fide occupational qualification. The law does permit such exceptions, but employers must ensure the qualification is legitimately needed and cannot be viewed as a pretext.

Another question facing employers is how to handle restrooms. The best practice would be to have one gender neutral bathroom, which appears to be a growing trend. The White House recently opened a gender neutral bathroom, as have several universities. When having a gender neutral bathroom is not possible for financial or other reasons, employers must defer to the employee’s choice of restroom, which is consistent with just-announced federal best practices issued by the Department of Labor. Forcing an employee to use a certain restroom would likely be considered discriminatory.

Some of the country’s largest companies have already implemented policies that acknowledge and respect gender identity issues. By one count, over half of Fortune 500 companies have included gender identity in their nondiscrimination policies. While protecting transgendered people is law in Massachusetts, it is also good business. Every business should strive to employ the most talented people it can, and gender identity (just like race, religion, and other personal categories) is simply irrelevant to the quality of the employee. Employers should work with their human resources staff and employment counsel to craft and implement policies that maximize the available workforce.  Should you have questions or concerns regarding Massachusetts’ anti-discrimination law or your company’s practices, consult with your employment attorney.

Proposed Bill Targets “Wage Theft” in Massachusetts

By on May 26, 2015

Strang Scott has previously written about both the Wage Act, the Massachusetts law protecting the earnings of workers, as well as the independent contractor statute, which governs the classification of workers as either employees or independent contractors. Violating the Wage Act and independent contractor statute can have significant real-world consequences. One consequence is a state investigation of wage theft. “Wage theft” is a broad term signifying an employer’s illegal retention of earned wages. The Boston Globe recently reported that “wage theft” is rampant throughout the construction industry. Wage theft often incurs in conjunction with the misclassification of workers as independent contractors, particularly at the subcontractor level where many workers are paid in cash. According to the Globe, the Massachusetts attorney general’s office has issued 253 wage-related citations to the construction industry alone over the last eighteen months, totaling more than $1.6 million in penalties and unpaid wages. The Attorney General’s office views investigating and prosecuting wage theft as a priority.

Employers who commit wage theft or misclassify their workers do so at substantial risk. Any worker is free to file a complaint with the Attorney General’s office, which will conduct a preliminary investigation or allow the worker to file a private law suit. Should the Attorney General ultimately find that a violation occurred, penalties start at $10,000 for non-willful violations, and $25,000 for willful violations. Repeat violations incur higher penalties, and willful violations may be further punished by debarment, preventing offending companies from seeking public contracts.

Current Massachusetts law holds the employer and the employer’s owners and/or managers liable for wage-related violations, but the legislature is considering expanding on current law. State Senator Sal DiDomenico has filed a bill to address the wage theft problem. Among other provisions, the bill (currently known as S.966) will hold “lead companies” responsible for wage violations. “Lead companies” are defined as any business entity that obtains or is provided workers directly from a labor contractor or indirectly from a subcontractor. In other words, should this bill become law, first tier subcontractors and general contractors would share liability for wage issues, include wage theft and independent contractor misclassification. Opponents of the bill have highlighted the potentially unfair burden the legislation would place on honest general contractors, and it is unknown if the bill will ultimately become law. However, all employers (particularly subcontractors, general contractors, and other entities operating in the construction industry) should properly classify all of their existing workers and be advised that the legislature may increase their direct liability for unpaid wages and misclassified workers. Employers should consult with their counsel to ensure that all workers are properly paid and classified.


Massachusetts Supreme Judicial Court Interprets the “Tips Act”

By on April 16, 2015

Massachusetts law protects the “tips” or gratuities that waiters and similarly employed individuals typically receive from customers.  That law is commonly known as the Tips Act  (M.G.L. ch. 149, sec. 152A). The Tips Act provides that all tips must be given to the employees that earned the tips, and that tips cannot be shared with managers or the employer itself.  The Tips Act applies to three categories of employees:   “wait staff employees,” “service employees,” and “service bartenders.”  “Wait staff” includes waiters, waitresses, bussers, and counter staff who serve food or beverages (or bus tables) in a restaurant or banquet facility and who have no managerial responsibility.  “Service employees” is a catch-all definition that includes any employees who provide services directly to customers and who customarily receive tips, but also have no managerial responsibility.  “Service bartenders” are employees who prepare beverages to be served to customers by other employees.

A recent Supreme Judicial Court case, Meshna & others vs. Scrivanos & another, interpreted some key provisions of the Tips Act.  In Meshna, current and former Dunkin’ Donuts employees filed suit over a “no-tipping” policy found at some individual stores that prohibited employees from receiving tips from customers.  The plaintiffs argued that the Tips Act prevented employers from instituting a “no-tipping” policy.  The defendants prevailed, with the Court finding that the Tips Act allows employers to have a “no-tipping” policy so long as the policy was clear to customers.

The Court went on to consider the scenario where an employer has a no-tipping policy, but does not communicate that policy to customers.  The Court held that if the policy is not communicated, then any tips left at the store belong to the employees, as customers have a reasonable expectation that the money left as tips will be given to the wait staff.  As long as the policy is explicitly stated by the employer, however, even money left by customers may be retained by the employer without violating the Tips Act, regardless of the customer’s intent.  The Meshna holdings are consistent with existing interpretations of the Tips Act.

Some restaurants and banquet halls impose an additional “administrative” fee on their invoices and contracts. Under the Tips Act, employers are permitted to impose an “administrative fee,” or something similar, but such fees must be clearly stated to all customers (in a contract or on the bill itself) that the administrative fee is paid to the employer or management.  Because the Tips Act defines “service charge,” “tip,” and “gratuity” as synonyms, employers that desire to include an additional charge beyond the cost of the food, should avoid the term “service charge” and use “administrative fee” or “management fee” as a best practice.  Massachusetts Courts want to see evidence that the employer informed customers that any extra fees do not represent a gratuity for employees.  Should you have questions regarding whether your invoices or current practices comply with the Tips Act, consult your employment law attorney for a definitive answer.

Social Media Policies

By on April 6, 2015

Social media is a part of everyday life, regularly used by both individuals and businesses. Businesses from start-ups to Fortune 500 companies use social media for advertising and marketing purposes, and many of their employees use social media on their own time. The term “social media” includes communicating information of any sort on the internet, via a website, blog, chat room, or social networking site. Facebook, Twitter, and LinkedIn are all popular, and many employers maintain an account on each service. With the ability to reach millions of potential customers without any intermediary, particularly when customers can opt in to the receiving the information, the business benefits are real and growing. Given the ubiquity of social media, it is wise for employers to develop a written policy governing its employees’ use of social media. However, employers must be careful, as there are several pitfalls to avoid, coupled with a new and rapidly evolving legal landscape.

Employers may have stand-alone social media policies, or may incorporate their policies into an employee handbook. An effective policy will provide employees with a clear understanding of the employer’s social media expectations. Employers should consider addressing both social media use in the work place and social media use outside of the work place. As with any set of legal policies and procedures, the language should be tailored to reflect the employer’s specific business.

Guidelines for a Social Media Policy

Although a social media policy should be tailored to fit the specific employer, there are general guidelines that any company should consider. With respect to the company’s use of social media generally:

– Explain who is empowered to maintain the social media accounts, including access to account passwords;

– Remind employees that the employer owns both the social media accounts and all social media-related intellectual property posted by the employer;

– Provide internal channels for employees to ask questions and clarify what is permitted;

– Remind employees that every social media post is a public statement directly attributable to the employer.

With respect to the content of the company’s social media updates:

– Prohibit use of discriminating, harassing, or similarly unacceptable language;

– Provide guidance on use of the company name and trademarks;

– Provide guidance on protecting trade secrets and other confidential information;

– Avoid liability for misleading advertising statements or product descriptions;

– Ensure that any statements are honest and accurate;

– Avoid referencing any of the employer’s vendors, suppliers, customers, or other third-parties without receiving express permission to do so from a manager;

– Avoid speaking to the media on behalf of the employer without receiving express permission to do so;

– Avoid violating any state or federal laws.

Employers should also consider whether they already have related policies in place, regarding topics such as harassment, ethics, trade secrets, and confidentiality. If so, it is important that the policies be consistent to ensure that expectations are understood. It should also be made clear that improper use of social media can lead to formal discipline, up to and including termination. Employers should have all employees sign the policy, acknowledging that it was read and any questions were asked. As with any legal policy, it is important that the policy be applied consistently across all employees; few actions lead to lawsuits faster than unequal treatment of similarly situated employees. Employers should contact an attorney for assistance in drafting or updating their social media policy.

Independent Contractors and Employees in Massachusetts

By on February 23, 2015

It is increasingly common for employers to use “independent contractors” in addition to, and sometimes instead of, employees. Independent contractors tend to cost less for the employer, as the employer is not required to cover payroll taxes, unemployment insurance, benefits (including health insurance, a benefit that many employers are now required to provide), and other expenditures required for employees. Misclassifying workers, however, can lead to significant civil and criminal penalties under Massachusetts law, including monetary fines and imprisonment. Both business entities and management may be targeted, and violators may be barred from obtaining public works contracts.

Massachusetts state law (M.G.L. c. 149, s. 148B) governs the distinction between an “independent contractor” and an “employee.” Massachusetts uses a three-part test for determining independent contractor status, and begins with the presumption that an individual is an employee, not an independent contractor. The employer bears the burden of proof that the individual was properly classified. To be properly classified as an independent contractor, each of the following prongs must be met:

A. The first prong is freedom from control. Under this prong, the individual must be free from control and direction in connection with the performance of their services, both under a contract for the performance of that service and in fact. The burden is on the employer to demonstrate that the individual’s services are performed with minimal direction or control. Best practices here for employers include avoiding micromanaging employees and ensuring that an independent contractor agreement is in place.

B. The second prong is that the individual’s service is performed outside the employer’s usual course of the business. The statute does not define “usual course of business,” and there is not a lot of case-law on the topic. At a basic level, the employer must not be in the same business as the independent contractor.

C. The final prong is that the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. Employers should ask themselves if the individual in question is willing and able to provide their services to other employers.

A good example of a true independent contractor is an accountant that services a construction company. The construction company is in the business of construction, and employs a variety of tradesmen and project managers to accomplish its core business objectives. The company would hire an accountant to handle tax filings and provide general tax advice. Here, all three prongs are met: presumably, the construction company would not provide any control over the accountant’s duties, and instead just set a goal, such as “complete and file the company’s taxes.” The accountant is outside of the company’s usual course of business, as the company handles construction, not accounting. Finally, the accountant is in an independent occupation and business. The accountant likely works for a separate accounting business, formed for the purpose of providing accounting services to the general public.

Massachusetts has very strict standards for independent contractor classification and employers should be careful to evaluate those standards when classifying their own employees. Some employers balk at the added costs of employees and seek alternative solutions. Unfortunately, there is no exception for short term workers or anything of that nature, but employers may be able to use a temp agency, where the individual in question is an employee of that agency. Another potential option is to have the individual in question incorporate their business, and then contract with that business (with the individual being an employee of their own company). Although there is merit to that approach, there are a number of associated pitfalls and employers should tread lightly.

Misclassifying an employee as an independent contractor can lead to significant civil and criminal penalties, and the Attorney General is not shy about prosecuting such violations. The Attorney General’s office is empowered to investigate possible independent contractor misclassifications, and individuals who believe they have been misclassified are able to file complaints with the Attorney General’s office as well as file their own private lawsuits against their employers. Further, misclassifying an employee often coincides with the violation of other state laws, such as the Wage Act overtime laws and minimum wage laws, making a misclassification a potentially very expensive mistake. The information provided here is just a summary. Employment laws, and their interpretation by courts and government agencies, are constantly in flux. Before making any important employment decisions, it is best to consult with an employment lawyer to minimize the chance of unpleasant legal actions or regulatory scrutiny.