Is Your Noncompete Still Valid? Technically Yes, But . . . Recent Decision Foreshadows How The New Massachusetts Noncompetition Agreement Act May Impact Existing Agreements

In an earlier post, we reported on the passage of the new Massachusetts Noncompetition Agreement Act, which takes effect on October 1, 2018, and significantly changes the law in this area by narrowing the permissible protections and imposing several new requirements.
Although the Act does not invalidate existing noncompetition agreements, what is not known is whether the passage of the Act will impact those contracts. The question simply put is:
Should employers who already have noncompetition agreements with their employees sit tight or update them to comply with the new law?
The answer to that question becomes critical at the stage of enforcement. The classic fact pattern: an employee with such an agreement (i) leaves employment; (ii) joins a competitor; and (iii) starts taking business away. Armed with the violation of the agreement, the employer rushes into court seeking an injunction to stop the bleeding. Will the court enforce the pre-October 2018 agreement and stop the former employee from competing?
Judges weighing such a request have always been required to take “public policy” into consideration in determining whether the equities of a situation warrant issuing the injunction. As a result, we have been cautioning clients that even though the pre-existing agreements are valid, the new Act may sway a court when time comes for enforcement. A recent decision by the Massachusetts Supreme Judicial Court gives direct support for that cautionary note.
In Oxford Global Resources v. Hernandez decided on September 7th, a Massachusetts employer sought to enforce a non-compete against one of its California employees. Ultimately, the Court rejected the request and dismissed the case on procedural grounds.
In his decision, Chief Justice Ralph Gants took a recently enacted statute into consideration, stating:  “Although this [California] statute applied only to contracts entered into, modified or extended on or after January 1, 2017, and consequently does not affect the agreement here, the enactment of the statute reflects a public policy to protect employees.”
This quote from the highest judicial officer in Massachusetts speaking for the highest court in Massachusetts anticipates that judges may very well look at the newly minted Massachusetts Noncompetition Agreement Act as a reflection of our public policy. If existing agreements run contrary to that public policy, it may be an uphill battle to convince a court that an injunction should be granted. As a result, existing noncompetition agreements should be reviewed with legal counsel to determine whether they will provide the hoped-for protection when the need arises. As they say, “forewarned is forearmed.”
If you have any questions about the Act or need any assistance reviewing, modifying, and/or drafting noncompetition agreements, as well as any other restrictive covenant agreements such as non-solicitation or nondisclosure agreements, please contact one of Mirick O’Connell’s Labor, Employment & Employee Benefits Group attorneys.
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Governor Baker Signs Noncompetition Bill Into Law

Last Friday, August 10th, Governor Baker signed into law the “Act relative to the judicial enforcement of noncompetition agreements” (the “Act”). Governor Baker’s signature came 11 days after the Massachusetts Legislature passed the Act.

As Amanda Baer explained in her recent blog post on the topic, the Act limits the ability of private employers to enter into – and ultimately enforce – noncompetition agreements with employees (defined broadly to include independent contractors).

The Act takes effect on October 1, 2018. Because the Act will greatly change the landscape of enforceability of noncompetition agreements in Massachusetts, we strongly encourage employers to review their noncompetition agreements to ensure that any such agreements entered into on or after October 1st comply with the Act.

If you have any questions about the Act or need any assistance reviewing, modifying, and/or drafting noncompetition agreements, as well as any other restrictive covenant agreements such as non-solicitation or nondisclosure agreements, please contact one of Mirick O’Connell’s Labor, Employment & Employee Benefits Group attorneys.

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Massachusetts Legislature Passes Long-Anticipated Act Limiting Noncompetition Agreements

On July 31, 2018, the Massachusetts Legislature passed the “Act relative to the judicial enforcement of noncompetition agreements” (the “Act”).

If signed by Governor Charlie Baker, the Act will take effect on October 1, 2018 and limit the ability of private employers to enter into – and ultimately enforce – noncompetition agreements with employees (defined broadly to include independent contractors) who work in Massachusetts.  The Act broadly defines a noncompetition agreement as “an agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended.”  To be enforceable, the noncompetition agreement must satisfy certain technical and substantive requirements, as set forth below.

Technical Enforceability Requirements

To be enforceable, a noncompetition agreement must (1) be in writing; (2) be signed by both the employer and the employee; (3) expressly affirm the employee’s right to consult with counsel prior to signing; and (4) contain a garden leave provision.

As a general matter, “garden leave” describes a practice whereby a former employee is no longer employed by the employer but continues to receive pay from the employer for a certain period of time.  Pursuant to the Act, a noncompetition agreement must include a garden leave provision that provides that if and when a former employee is restricted from competition for a certain time period (called the “restricted period”), the employer will pay the former employee during the entire restricted period a sum at the rate of at least 50% of the employee’s highest base salary over the prior two years or other mutually agreed-upon consideration.

In addition, the Act provides that if a noncompetition agreement is signed at the commencement of the employee’s employment, it must be presented to the employee at either (a) the time the offer of employment is made; or (b) ten days before the commencement of employment, whichever is earlier.

If the noncompetition agreement is signed after the commencement of employment (but not in connection with the termination of the employee’s employment), it must be supported by “fair and reasonable consideration independent from the continuation of employment.”  However, it is unclear whether the “garden leave” provision will be considered sufficient “independent consideration.”

Enforceability Requirements – Reasonableness

As a substantive matter, a noncompetition agreement will only be enforceable if:

  1. It is no broader than necessary to protect a legitimate business interest;
  2. The restricted period does not exceed one year in duration (unless the employee is shown to have breached a fiduciary duty or has unlawfully taken the employer’s property, in which case the restricted period can be longer and the employer will not be required to provide garden leave pay to the former employee during the restricted period);
  3. It is reasonable in geographic scope; and
  4. It is reasonable in the scope of proscribed activities in relation to the interests protected.

Exemptions

Despite the broad language, the Act provides that the following covenants and agreements are exempted from the prohibition on non-competition agreements:

  1. A covenant not to solicit or hire employees of the employer;
  2. A covenant not to solicit or transact business with customers, clients, or vendors of the employer;
  3. An agreement made in connection with the sale of a business entity;
  4. An agreement outside of the employment relationship;
  5. A forfeiture agreement (which is an agreement that imposes adverse financial consequences on an employee if the employment relationship is terminated);
  6. A nondisclosure or confidentiality agreement;
  7. An invention assignment agreement;
  8. A garden leave clause;
  9. An agreement made in connection with the cessation of or separation from employment if the employee is expressly given seven business days to rescind acceptance; and
  10. An agreement by which an employee agrees not to reapply for employment to the same employer after the employee’s termination.

Since these ten categories of covenants and agreements will be outside the purview of the Act, they will continue to be governed by common law.

Excluded Employees

Under the Act, noncompetition agreements will not be enforced against certain types of employees, including employees who are classified as “non-exempt” under the Fair Labor Standards Act and employees who have been terminated without cause (a term which is not defined by the Act) or have been laid off.

Next Steps for Employers

While the Act has not been signed into law yet, employers are well-advised to review their standard noncompetition agreements and related practices to ensure that any agreements entered into on or after October 1, 2018 will comply with the Act.   We will closely monitor Governor Baker’s action on this Act and keep you informed of the passage of the Act and any modifications thereto.

If you have any questions about the Act or need any assistance reviewing, modifying, and/or drafting a noncompetition agreement, please contact one of Mirick O’Connell’s Labor and Employment Group attorneys.

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Governor Baker Signs “Grand Bargain” Bill Creating Paid Family and Medical Leave and Raising Minimum Wage

On June 28, 2018, Governor Baker signed “An Act Relative to Minimum Wage, Paid Family Medical Leave and the Sales Tax Holiday” making Massachusetts one of very few states in the country to require employers to provide paid family and medical leave to employees. The Act also raises the state’s minimum wage from the current rate of $11 per hour for regular employees to $15 per hour by 2023 and gradually eliminates the premium pay requirement for retail workers on Sundays and holidays.

Paid Family and Medical Leave

Although the Act contains several noteworthy developments for employers, its creation of a paid family and medical leave program is undoubtedly the most significant. By its terms, the Act creates G.L. c. 175M entitled “Family and Medical Leave.” G.L. c. 175M, in turn, establishes a “Department of Family and Medical Leave within the Executive Office of Labor and Workforce Development” (the “Department”) to administer the leave program.

The leave program will initially be funded by a .63 percent payroll tax, taken from both employers and employees in varying percentages, that will be paid to a state fund known as the “Family and Employment Security Trust Fund.” Contributions to the fund will commence on July 1, 2019. Beginning in 2022, the amount of the payroll tax will be fixed by the director of the Department by October 1st of the preceding year. Notably, employers with less than 25 employees in Massachusetts are not required to pay the employer portion of the payroll tax.

In 2021, all employees may begin taking medical or family leave for one of the reasons enumerated by the Act including: (i) for the employee’s own serious health condition, (ii) to care for a family member with a serious health condition, (iii) to bond with the worker’s child during the first 12 months after birth or the first 12 months after the placement of the child for adoption or foster care, (iv) because of any qualifying exigency arising out of the fact that a family member is on active duty or has been notified of an impending call or order to active duty in the Armed Forces or (v) in order to care for a family member who is a covered service member. After an initial seven-day waiting period, employees will be paid a percentage of their wages/salary from the fund in accordance with a specific statutory formula. Initially, an employee’s weekly benefit may not exceed $850, but the Department is directed to adjust that maximum annually to 64% of the state average weekly wage.

Employees are eligible for up to 12 weeks of paid family leave in a benefit year. If an employee’s family leave is taken to care for a covered service member, however, the employee is eligible for up to 26 weeks of paid leave. Employees who take medical leave are eligible for up to 20 weeks of paid leave. In no event, however, is an employee allowed to take more than 26 weeks of leave, in the aggregate, of family and medical leave, during the same benefit year. Leave taken under the Act will run concurrently with leave taken under the FMLA.

In addition, employers cannot compel an employee to exhaust his/her rights to any sick, vacation or personal time prior to or while taking leave under the Act. This reality, coupled with the fact that leave taken under the Act will run concurrently with leave taken under the FMLA, will require employers to revise FMLA policies to remove language requiring employees to use accrued paid leave, including sick or vacation time, or personal time, to cover some or all of the FMLA leave.

Employers are permitted to meet their obligations under the Act through a private plan.  Employers seeking to go this route must first seek the Department’s approval and then participate in a private plan that confers all of the same rights, protections and benefits provided to employees under the Act.

One final point – the Act does not apply to municipalities, districts, or political subdivisions unless it is adopted by a majority vote of the local legislative body or the governing body.

Much needs to be fleshed out in regulations to come. The Act requires that the Department publish proposed regulations “necessary to establish procedures for the collection of contributions, and for the filing and timely processing of claims for benefits” no later than March 31, 2019, for public comment and hearing. Given the importance of this issue, we expect there to be significant debate leading up to and following the release of these regulations. Stay tuned.

Minimum Wage

In 2019, the minimum wage for regular employees (i.e., non-tipped minimum wage employees) will increase from $11 per hour to $12 per hour. Thereafter, between January 1, 2020 and January 1, 2023, the minimum wage will increase to $12.75, $13.50, $14.25 and $15.00, respectively.

With respect to the minimum wage for tipped employees, the bill will gradually increase the current rate of $3.75 per hour to $6.75 per hour in 2023. Specifically, on January 1, 2019, the minimum wage for tipped employees will increase to $4.35 per hour. Each year thereafter, the minimum wage will increase by $0.60.

Premium Pay for Retail Workers Abolished

As noted above, the Act also gradually eliminates the premium pay requirement that, in its current form, requires retail employers to pay retail employees time and a half premium pay on Sundays and holidays. Starting on January 1, 2019, the premium pay requirement will decrease to 1.4, and one-tenth for each year thereafter until it is eliminated altogether in 2023.
Posted in Employee Benefits, FMLA, Leave Laws, Minimum Wage, Premium Pay | Tagged

U.S. Supreme Court Deals Blow to Public Sector Unions in Janus v. AFSCME – Holds Agency Fees May Not Be Charged to Nonconsenting Public Sector Employees

In a widely anticipated decision – Janus v. AFSCME, the United States Supreme Court ruled today that state laws authorizing public sector unions to charge agency fees are unconstitutional because they violate the First Amendment to the United States Constitution.  As a result of the Court’s decision, States (and their political subdivisions, including cities, towns, and school districts and regional districts) and public sector unions may no longer charge agency fees to non-consenting bargaining unit employees.  Accordingly, only if a non-union, public sector bargaining unit employee affirmatively consents to pay an agency fee or other payment to the union may a public employer deduct such fee from an employee’s wages.

Agency fees are payments charged by unions to public sector bargaining unit members who are not union members and who, therefore, do not pay union dues.  Agency fees are similar to union dues, but are limited to the fair share of the direct costs of negotiating and administering the collective bargaining agreement, settling and adjusting grievances, and the expenses associated with the normal and reasonable activities or undertakings associated with implementing or effectuating the duties of the union.  Unlike union dues, agency fees do not include the cost associated with any political causes the union supports.

The Supreme Court had previously upheld the constitutionality of agency fees in the case of Abood v. Detroit Board of Education, 431 U.S. 209 (1977) and other cases, holding that agency fees could be used to cover union expenditures for activities that were “germane” to a union’s collective bargaining obligations but could not be used for the union’s political or ideological objectives.

Today, the Supreme Court reversed course and overruled Abood.  In its majority opinion, the Court stated that the Abood Court had erred in its conclusion that agency fees did not violate the First Amendment and that stare decisis (i.e., case law precedent) could not support the upholding of the Abood decision.  The Supreme Court went on to explain that “[f]orcing free and independent individuals to endorse ideas they find objectionable raises serious First Amendment concerns[,]” including compelling persons to subsidize the speech of other private speakers.

The Court also reasoned that neither of the two justifications set forth in Abood for the collection of agency fees pass muster under the “exacting” scrutiny standard the Court had previously used to judge the constitutionality of agency fees.  First, the Court noted that agency fees cannot be upheld on the grounds that they promote “labor peace,” which the Abood Court had feared would be disrupted if employees were effectively represented by more than one labor union.  The Court wrote that 41 years after Abood was decided, “it is now undeniable that ‘labor peace’ can readily be achieved ‘through means significantly less restrictive of associational freedoms’ than the assessment of agency fees.”

Second, the Court rejected the second basis set forth in Abood – avoiding “the risk of ‘free riders’” (i.e., employees in bargaining units who are not union members and do not pay union dues).  In doing so, the Court concluded that avoiding the risk of “free riders” is not a compelling state interest and is insufficient to overcome First Amendment objections.  In reaching this conclusion, the Court rejected the contention that unions will refuse to exclusively represent all employees in the bargaining unit, including non-union members who do not pay agency fees, pointing to those unions who represent millions of public employees in the 28 right-to-work states that do not permit agency fees and noting that unions’ duty of fair representation of both union and non-union bargaining unit members is part of their obligations as the exclusive representative of the bargaining unit.

The Court also rejected the respondent AFSCME Council 31’s alternative justifications for agency fees, including that the Abood decision is supported by the First Amendment’s original meaning.  The Court’s majority explained that its past decisions (i.e., stare decisis) does not require a continued adherence to Abood, noting that Abood (1) was “poorly reasoned” and did not take into account the First Amendment question that arises when a State requires employees to pay agency fees; (2) lacks workability in terms of the line that often cannot be drawn between chargeable and non-chargeable expenditures of agency fees (i.e., what agency fees can and cannot be used for); (3) was decided on the assumption that “the principle of exclusive representation in the public sector is dependent on a union or agency shop,” which has proven to be untrue; and (4) does not carry decisive weight given the clarity that decision has provided, the short-term nature of collective bargaining agreements, and the ability of unions to protect themselves if an agency fee was crucial to its bargain.

In light of the Supreme Court’s Janus decision, public sector employers that have been making deductions for agency fees should immediately cease doing so unless and until a non-union bargaining unit employee expressly, affirmatively and voluntarily authorizes the employer in writing to continue to do so. Public sectors employers should also immediately notify each of their respective unions that they will stop making deductions for agency fees.

Please feel free to contact us if you have any questions about this or any other labor and employment matters.

Posted in Agency Fees, Public Sector Unions, U.S. Supreme Court | Tagged , , ,

Massachusetts Employers: Review Your Job Applications ASAP

Massachusetts Attorney General Maura Healey recently took action to enforce Massachusetts’ “ban the box” law for the first (publicly known) time since the law’s enactment in 2010. The AG’s actions and related statements send a clear message to Massachusetts employers to immediately clean up their job applications.

In 2010, Massachusetts enacted a “ban the box” law, which prohibits most employers from asking job applicants about their criminal history on an initial employment application. The law is referred to as “ban the box” because it prohibits the practice of requiring job applicants to check a box on a job application if they have a criminal background.  Notably, the Legislature updated the “ban the box” law in April 2018 to include further restrictions on employers’ abilities to make criminal history inquiries which take effect on October 13, 2018.

Earlier this month, Attorney General Healey issued warnings to seventeen employers in Massachusetts and fined four national employers with multiple locations in Massachusetts for violating the “ban the box” law. According to a press release from the AG, her office reviewed the applications of a “sampling” of Boston and Cambridge area employers and found that these twenty-one employers violated the “ban the box” law by asking questions on their initial job applications about applicants’ criminal histories.

The Attorney General’s office stated that recent enforcement actions “are part of a larger ongoing effort” regarding the law. All Massachusetts employers are well-advised to review their job applications and take immediate steps to remove any questions that violate the “ban the box” law.

If you have any questions about the law, or would like your application reviewed for compliance, please contact any member of our Labor, Employment and Employee Benefits Practice Group.

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NLRB’s General Counsel Releases Updated Guidance on Employee Handbook Rules

On June 6, 2018, the National Labor Relations Board’s (Board) General Counsel, Peter Robb, sent a Memorandum to the Board’s regional offices providing guidance on the Board’s current position regarding employee handbook rules.  The General Counsel’s Memorandum comes after the Board’s decision last December in The Boeing Company, 365 NLRB No. 154 (2017), where it formulated to new rule to determine a workplace rule’s legality.  As set forth in that decision, the Board will balance a “rule’s negative impact on employees’ ability to exercise their Section 7 rights [with] the rule’s connection to employers’ right to maintain discipline and productivity in their workplace.”

To provide “greater clarity and certainty to employees, employers, and unions” regarding the legality of work rules, the Board formulated three different categories of such rules:

  • Category 1: Rules that are generally lawful;
  • Category 2: Rules that warrant individualized scrutiny; and
  • Category 3: Rules that are unlawful.

Rules in Category 1 are generally lawful either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of Act rights; or (ii) the potential adverse impact on protected rights is outweighed by business justifications associated with the rule.  According to the General Counsel, the following rules will generally fall in Category 1:

  • Civility Rules (e.g., a rule prohibiting “[b]ehavior that is rude, condescending or otherwise socially unacceptable”);
  • No-photograph and no-recording rules;
  • Rules against insubordination, non-cooperation, or on-the-job conduct that adversely affects operations;
  • Disruptive behavior rules;
  • Rules protecting confidential, proprietary, and customer information or documents;
  • Rules against defamation or misrepresentation;
  • Rules against using employer logos or intellectual property;
  • Rules requiring authorization to speak for the Company;
  • Rules banning disloyalty, nepotism, or self-enrichment.

Rules in Category 2 are not obviously lawful or unlawful and, therefore, need to be evaluated on a case-by-case basis to determine whether the rule would interfere with rights guaranteed by the Act and, if so, whether any adverse impact on those rights is outweighed by legitimate justifications.  Examples of rules falling into Category 2 include:

  • Broad conflict-of-interest rules that do not specifically target fraud and self-enrichment and do not restrict membership in, or voting for, a union;
  • Confidentiality rules broadly encompassing “employer business” or “employee information;”
  • Rules regarding disparagement or criticism of the employer;
  • Rules regulating use of the employer’s name;
  • Rules generally restricting speaking to the media or third parties;
  • Rules banning off-duty conduct that might harm the employer; and
  • Rules against making false or inaccurate statements.

Rules in Category 3 are generally unlawful because they prohibit or limit conduct protected by the Act, and the adverse impact on such rights outweighs any justifications for the rule.  Examples of rules in Category 3 include:

  • Confidentiality rules specifically regarding wages, benefits, or working conditions; and
  • Rules against joining outside organizations or voting on matters concerning the employer.

In addition, and to the benefit of employers, the Board further noted that, to the extent there is an ambiguity in a workplace rule, such ambiguity should no longer be interpreted against the drafter.

Given the foregoing, Employers are well-advised to take the General Counsel’s Memorandum into consideration when drafting employee handbooks and other related policies.

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