Termination for Cause Provisions: Every Word Matters

Particularly with respect to executive employees, it is not unusual for an employment agreement to be used.  Those agreements tend to have detailed provisions regarding when the executive may be terminated and what happens if the termination is with or without cause.  A recent case decided by the Massachusetts Supreme Judicial Court addressed such provisions with a seemingly surprising outcome.  That decision underscores the carefulness with which such provisions should be drafted and followed.

In the case of Balles v. Babcock Power, Inc., the plaintiff executive and defendant employer had entered into two related agreements containing such provisions.  Six years into his employment, the plaintiff executive began an intimate affair with an undergraduate intern who he supervised, subsequently giving her two raises and a promotion, taking business trips together on the company dime, exchanging thousands of sexually explicit text messages and more than 100 photographs and falsifying travel reimbursements to conceal the affair.

Upon discovery two years later, the company investigated and summarily fired the executive for cause.

A “for cause” termination had significant consequences for the executive.  These included depriving him of any severance pay and obligating him to resell his stock in the company for fractions of cents on the dollar.

The agreements explicitly defined what constituted “cause” and a detailed protocol that must be followed where “cause” was the basis for termination.  Specifically, fraud or gross insubordination were types of “cause” that could result in immediate termination.  The Court rejected the company’s attempt to fit the executive’s conduct into either of those categories.

With respect to “fraud,” the Court applied the classic legal definition that required detrimental reliance by the employer and resulting damage.  The Court found that there had been no reliance on the executive’s false travel reimbursements and no financial harm.  With respect to “gross insubordination,” the Court found that this phrase meant more than just breaking rules.  Instead, “gross insubordination” would be found only if there was willful disregard of a direct order or disrespect directed at the executive’s supervisor.  The Court found neither was the case here.

The agreements also defined “cause” to include the executive’s breach or failure or refusal to perform and discharge his duties, responsibilities or obligations to the company.  The executive conceded that he had, in fact, failed to fulfill his obligations to the company by engaging in the affair with his subordinate and then attempting to conceal it.  That, however, was not the end of the story.

Unlike the fraud and insubordination provisions that permitted immediate termination, the agreement provided that in the event of a breach, the company was obligated to give a very specific written notice to the executive detailing that breach and giving him 30 days to correct.  Only if he failed to correct within that time frame could he then be terminated for cause.

Here, the company jumped the gun, terminating the executive without either providing the written notice to him or giving him an opportunity to cure.  In fact, the company’s board of directors  refused to meet with the executive despite his repeated requests and went so far as to tell his attorney not to bother with providing information regarding the allegations of misconduct.  In so doing, the company converted the termination into one without cause much to its detriment and the executive’s benefit.

The moral of the story?  Employers should be very careful in drafting employment agreements, particularly in detailing what will be required to constitute “cause” for termination.  And once drafted and signed, employers should carefully review those termination provisions and follow them to the letter.

Sloppy draftsmanship on the one hand, or sloppy execution on the other, can leave the employer in a very uncomfortable position at the end of the day.

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Join Us for Our Annual Labor, Employee and Employee Benefits Seminar!

Our annual Labor, Employment and Employee Benefits Seminar is being held on April 12th at the Doubletree Hotel in Westborough. Last year, over 200 HR professionals and business owners attended the seminar. In addition to the program, we kick off the morning with a networking breakfast. There is no cost to attend; however, registration is required. Click on link below for details.

Link:  http://campaign.r20.constantcontact.com/render?m=1102441261654&ca=9ff63446-28c0-4512-b780-770718c89344

 

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Is a “Love Contract” Right for Your Office Lovebirds?

Is love in the air at your office? Unfortunately, such romances can become nightmares for employers, as workplace romances can lead to accusations of unfair treatment, sexual harassment, retaliation, and even workplace violence.

For these reasons, employers may wish to institute a clear policy regarding office romances. In general, the policy can take one of two approaches.  First, the employer can outright ban all romantic relationships between employees.  Such bans (commonly referred to as non-fraternization policies) are becoming uncommon as employers realize that the bans do not actually stop romances, but instead make them secretive – which can be a landmine for sexual harassment/discrimination claims for the employer if the relationship ends.

Alternatively, instead of banning relationships, employers can establish workplace guidelines for romantically-involved coworkers. In order to limit liability in the event that a romantic relationship between employees ends, such policies should:

  • reiterate the employer’s sexual harassment policy and reporting options;
  • require employees in a relationship disclose the existence of the relationship to Human Resources;
  • require employees in a relationship to execute a “love contract.”  Yes, a love contract. No, we’re not talking about a pre-nup. In the employment arena, a love contract (also called a “Consensual Romance in the Workplace Agreement”) is an agreement that the employees in a relationship sign in which they agree: (a) the relationship is consensual; (b) to inform HR immediately if the relationship becomes nonconsensual or ends; (c) to recuse themselves from any decision-making processes that could affect the other’s pay, promotional opportunities, performance reviews (even after the relationship ends); (d) not engage in public displays of affection at work; and (e) to treat each other professionally – and not retaliate against the other – if/when the relationship ends; and
  •  outline the additional guidelines (both in the policy and in the love contract) that will apply if the romantic relationship is between a supervisor and a subordinate. In such situations, most employers require the supervisor to change departments/roles so that they no longer (and never will) manage the subordinate.

Regardless of the approach – a non-fraternization policy or a love contract – all employers are well-advised to ensure that any policy regarding workplace relationships is written in gender neutral terms and is enforced uniformly.

Please feel free to reach out to us if you have any questions or need any assistance drafting a policy or “love contract” to fit the needs of your organization.

 

 

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EEOC Releases 2016 Enforcement & Litigation Statistics

As many employers are aware, the Equal Employment Opportunity Commission (“EEOC”) is a federal agency tasked with enforcing certain federal laws prohibiting employment discrimination on the basis of race, color, religion, sex, national origin, disability, and/or genetic information.  The EEOC performs two primary functions: administrative enforcement and private litigation.  As part of its administrative enforcement function, the EEOC “receives, investigates, and resolves charges of employment discrimination filed.”  If, however, a charge is not resolved at the administrative enforcement stage, the EEOC may file a lawsuit against the employer.

At the end of each fiscal year, the EEOC releases data detailing what it has accomplished during the past year relative to its administrative and litigation functions.  Recently, the EEOC disclosed that in fiscal year 2016, a total of 91,503 charges of workplace discrimination were filed.  For the second year in a row, the total amount of EEOC charges filed increased from the previous year.  The five most prevalent charges filed alleged retaliation (42,018, or 45.9%) and discrimination based on race (32,309 or 35.3%), disability (28,073 or 30.7%), sex (26,934, or 29.4%), and age (20,857 or 22.8%).[1]

Notwithstanding the uptick in EEOC filings, the EEOC was able to reduce the amount of charges currently pending at the organization by 3.8% to 73,508.  This reduction is, in part, attributable to the fact that the EEOC was able to resolve 97,443 previously pending charges, which resulted in a total recovery of $482 million for aggrieved individuals.

Moreover, for the first time in 2016, the EEOC disclosed data in its year end summary relating to sex discrimination charges filed by LGBT individuals.  Specifically, the EEOC disclosed that it resolved 1,650 LGBT-related sex discrimination charges in 2016, and, in the process, recovered $4.4 million dollars for the aggrieved individuals.  For a frame of reference, between fiscal year 2013 and fiscal year 2016, almost 4,000 charges of sex discrimination were filed with the EEOC by LGBT individuals, resulting in a total recovery of $10.8 million.

In addition to its administrative function, in 2016, EEOC lawyers resolved 139 lawsuits, and filed an additional 86 lawsuits involving allegations of discrimination.  The EEOC currently has 168 active litigation cases.  It remains to be seen whether the EEOC will maintain its current pace of filing lawsuits against employers in fiscal year 2017.

[1]       The remaining claims filed were for national origin, religion and color discrimination, followed by claims for violations of the Equal Pay Act and the Genetic Information Non-Discrimination Act.

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Paying Employees to Eat?

Recent Superior Court Case Gives Important Reminder

A recent decision from the Superior Court reminds us that the rules that apply to payment of compensation for meal breaks are the more employee-friendly Massachusetts rules rather than the less strict federal test under the Fair Labor Standards Act.

Under the FLSA, the “predominant” rule applies, i.e., compensation for meal time is determined by whether the time is spent predominantly for the benefit of the employer or predominantly for the benefit of the employee.  The Massachusetts rule, which applies to all employers of employees in Massachusetts, however, takes precedence.  The Massachusetts rule requires that an employee be compensated for the time unless the employee was relieved of all work-related duties during the meal break.

In DeVito v. Longwood Security Services, Inc., decided on December 23, 2016, Judge Edward Leibensperger ruled that there was “no ambiguity” in the language of the regulations interpreting the Massachusetts Wage Act that would warrant the court in considering the federal test.  Accordingly, the Court adopted the “relief from duties” test, leaving for the jury the determination as to whether the employee enjoyed full and complete relief from all duties during their meal breaks.

This case stands for the proposition that a “little ask” may become a “big deal.”  The next time you are thinking of interrupting your employee’s tuna sandwich to make “just one copy,” recognize that it may turn out to be a very expensive copy.

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Get Ready: the Major Changes to Employment Law we are Likely to See Under the Trump Administration

After President-Elect Donald Trump’s inauguration on January 20, 2017, the world of human resources and employment law may see a major upheaval.  While it is impossible to predict exactly what may happen in the coming years, we anticipate that the following major changes may be on the horizon:

  • DOL’s Final Rule

As everyone in HR is aware, enforcement the DOL’s final rule regarding the white collar exemption was enjoined by a federal Court in Texas in November.  The injunction is being appealed.  However, due to the complicated and time-consuming process involved in litigation and agency rulemaking, the Obama administration did not resuscitate the final rule or win on appeal during President Obama’s term.  Under Andrew Puzder’s presumed leadership of the DOL, it is highly unlikely that we will see the agency make an effort to save the final rule.   Rather, we expect that the final rule will either (a) never be heard of again; or (b) come back (in a year or so) as a watered down version with – at the very least – a lower salary threshold.

  • Non-Compete Reform

President Obama’s “Call to Action” to states to reform their laws regarding non-compete, non-solicitation and other restrictive covenants will likely not continue under the President-elect.  While states are free to reform their own laws, we are probably not going to see any further encouragement from the Trump administration on this front.

  • EVERYTHING from the NLRB

The Trump administration will quickly have a majority at the NLRB, as it currently has two seats open and one existing Republican member.  All of the NLRB’s actions and initiatives over the past eight years will be in play – including graduate assistants’ ability to unionize, the persuader rule, and the quickie-election rules.  Changes in this area will likely be quite employer-friendly.  In addition, we can expect the NLRB to be much less activist in its rulings related to protected and concerted activity related to social media.

  • Litigation

The President holds the power to appoint judges to all of the federal Courts – ranging from District Courts to, obviously, the Supreme Court.  Accordingly, we are likely to see employer-friendly judges appointed to the benches at all levels and across the country.  These judges will likely have very different interpretations of the gamut of federal statutes touching upon the employment relationship, including the Age Discrimination in Employment Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act, the Fair Labor Standards Act, etc.  We can expect to see a rollback of some of the more fact-intensive aspects of the statutes – such as, probably, a lower threshold for whether an accommodation is reasonable and a higher threshold to prove causation in discrimination/retaliation cases.  However, the judges will be constrained by established, controlling precedent set by Obama appointees.

  • Family Leave

Not all of the changes will mean doom and gloom for employees.  In September, the President-elect called for six weeks of paid maternity leave.  Under the FMLA and the Massachusetts Parental Leave Act, workers are only entitled to unpaid leave for the birth and care of a newborn child or the placement of an adopted or foster child.  Although it is unclear as to whether President-elect Trump will follow through on this “campaign promise,” the fact that his daughter, Ivanka, is a strong supporter of the proposal should mean that it has a strong chance of becoming a Trump administration priority within his first year in office.

  • Obamacare

The President-elect talked a big game about repealing (and perhaps replacing) Obamacare.  If the Trump administration and Congress ultimately do so, employers will be significantly impacted, as the requirements regarding the healthcare coverage they must offer to employees will likely be reduced/eliminated.

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Know Your Employees – Or Else!

Recent Appeals Court Case Highlights An Employer’s Potential Liability For An Employee Outrageously Overstepping the Bounds

On a dark and stormy night, your employee abuses her access to your electronic data systems and snoops in an insurance database to dig for confidential information.  She succeeds and then turns that secret information over to her convict boyfriend.  The felon then uses it to physically intimidate a witness.  The boyfriend is caught.  Both the employee and her boyfriend confess to their wrongful and criminal actions.  Clearly, the employee was acting outside the scope of her employment and you as the employer cannot be held responsible by the intimidated witness?  Or can you?

The Massachusetts Appeals Court was recently asked this very question.  And just before the new year, it came up with a surprising answer.  That answer creates yet another “rock and a hard place” choice for employers.

The Information, the Intimidation and the Litigation. In the case, Mark Adams v. Congress Auto Insurance Agency, Inc., Bonnie had a long and successful career history with Acme Insurance Agency, most recently as a customer service manager.  In that role, she had access to the data systems of Good Hands.

Good Hands insured Bonnie’s private automobile.  Nine years after Bonnie was hired, she lent her car to her boyfriend, Clyde, who was on supervised release following a federal firearms conviction.  While driving Bonnie’s vehicle, Clyde led police on a high speed chase which resulted in a crash following which he abandoned the vehicle and fled the scene.  Bonnie’s vehicle was totaled and she reported it stolen to the police.  She also filed an insurance claim with Good Hands.

The owner of the vehicle struck by Clyde, Innocent Bystander, also filed a claim through his own insurer who, in turn, asserted a claim against Good Hands.  Somehow, Innocent Bystander was able to identify Clyde as the driver of Bonnie’s vehicle.

Bonnie was not aware of the identity of that claimant.  Using (or abusing) her access to Good Hands’ data systems, Bonnie was able to see the notes in Good Hands’ file and learn Innocent Bystander’s identity and his contact information, including his cell phone number and home address.  Bonnie then turned that information over to Clyde.

The erstwhile Clyde then telephoned Innocent Bystander claiming to be a Massachusetts State Police officer.  He informed Innocent Bystander that the driver of the other car was a “very, very dangerous man with very dangerous friends.”  He also warned Innocent Bystander to do himself a favor and shut up or “you will have issues.”  Clyde’s “friendly advice” was punctuated with choice profanity.

Innocent Bystander immediately reported the threat to the police.  The police visited Acme in an effort to speak with Bonnie, who refused.  Sometime later, Acme terminated the employment of Bonnie for “serious misuse of access to confidential information.”  Bonnie and Clyde were criminally charged and pled guilty to witness intimidation and conspiracy.

Innocent Bystander sued for emotional distress damages, claiming that Clyde’s threat caused him repeated nightmares about the phone call, high anxiety, intrusive thoughts, racing hot flashes, and feelings of detachment.  No doubt expecting to recover nothing from the real culprits, Innocent Bystander named Acme as a defendant on a theory that it had been negligent in allowing and continuing to permit Bonnie access to confidential information as part of her job.

Not surprisingly, Acme argued that it could not have foreseen that Bonnie had an unsavory boyfriend, that she would lend him her car, that the boyfriend would be involved in a high speed crash following a police chase, that Innocent Bystander’s car would be involved in that crash, that Innocent Bystander would make a claim, that Bonnie would misuse her access to confidential information of Good Hands to find out the name and contact information of the Innocent Bystander, that Bonnie would pass that confidential information along to her boyfriend, that her boyfriend would then use that confidential information to pose as a police officer and make threats against Innocent Bystander, and that Innocent Bystander would then suffer emotional distress from that threat.  The lower court agreed that all of this was simply not foreseeable and dismissed the claims against Acme.

What You Don’t Know May Hurt You. Not so fast, the Appeals Court ruled.  There were things that Acme knew about Bonnie prior to the crash that could have put them on notice that she would go bad and precipitate the chain of events leading to Innocent Bystander’s emotional distress.  Two years before the crash, Bonnie (and Clyde) had been arrested in Iowa for possession of illegal firearms.  Bonnie, who admitted the firearms were hers at the time apparently to protect Clyde, was released on bail and returned to work at Acme back in Massachusetts.

More than a year and a half before the crash, the United States Marshals Service arrested Bonnie at Acme apparently for jumping bail.  She returned to work four days later and explained away the arrest as a misunderstanding and that the ongoing proceedings were “not going to affect her ability to work.”  Acme allowed her to return to work without investigating what had happened with respect to the arrest because it did not think at the time that it was germane to her employment.  No doubt part of the rationale was the employer’s respect for the privacy of one of its employees.

In fact, following her bail-jumping arrest, Bonnie had acknowledged responsibility, successfully completed a pre-trial diversion program and had secured dismissal of the indictment against her as a result.  It was not until seven weeks after the criminal proceedings had been dismissed that Clyde went on his fateful joy ride.

Reversing the lower court’s dismissal of Innocent Bystander’s claims, the Appeals Court held that a jury should be given the opportunity to decide whether Acme had breached its duty to Innocent Bystander.  Despite the outrageous behavior by Bonnie and Clyde, it is a question for a jury to decide whether Acme (a) acted as a reasonable employer would have or (b) should have done more to investigate Bonnie (and arguably her relationship with Clyde) and conclude that her access to the Good Hands’ database and confidential information should have been cut off.

Between the Proverbial Rock and a Hard Place – What Is an Employer to Do? This case presents a dilemma for employers. On the one hand, employers are encouraged to respect their employee’s privacy and give those who have had trouble with the law a second chance.  On the other hand, this case stands for the proposition that an employer who does just that can find themselves in trouble.  How can those two principles co-exist?  More importantly, is there any real world advice that can help an employer negotiate this mine field?

The root of the holding in this case was that the employee’s job put her in a position to cause harm to the public because of her access to confidential information that she could misuse.  The Court likened it to putting the keys to residential apartments in the hands of a property manager who had a history of violence.  If the employer has some inkling of that past history, it cannot turn a blind eye to the potential harm that could result.  In this case, the Court took that concept of physical threat and expanded it to the realm of harm caused by misuse of information.  Where an employer is a gatekeeper of such information, it must be vigilant in knowing who it employs to keep that gate.

Answers to the following questions may help employers navigate these choppy waters:

  1. What is the job? Does the job put the employee in a position where he could pose a threat to the public if he proves to be a ne’er-do-well?
  2.  What does an employer know? If the position is one where there is a risk to the public, has anything come to the attention of the employer that suggests that the employee should not be trusted to keep the gate honestly? If so, how can the employer determine whether the employee’s history suggests such a risk?
  3.  What can an employer do? If the history does suggest that heightened risk, are there intermediary measures that can be taken to reduce or eliminate that risk? Can access be curtailed or limited? Can the employee be more closely monitored? Is termination warranted if there is no other way to manage the risk?

In an area fraught with danger, this step-by-step approach is the best prescription to try to minimize the risk to the public and, in turn, the employer. It also provides the best defense to a claim that the employer failed to act reasonably under the specific circumstances.

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