Constructive Discharge Claims: Recent Appellate Decision Narrows Availability

In our defense of employers, we often see the situation where an employee who has quit makes the argument as part of the claim that the actions of the employer compelled the employee to resign. This “constructive discharge” argument can take a relatively modest claim and turn it into one where years of lost wages and benefits are sought.

An evolving body of case law has built up around this constructive discharge theory, first formally recognized in Massachusetts in 1995. Essentially that theory stands for the proposition that an employer cannot accomplish indirectly what the law prohibits it from doing directly. Stated differently, an employer who cannot terminate an employee discriminatorily cannot engage in a calculated discriminatory effort that forces that employee to quit.

Historically, there have been two types of constructive discharge cases recognized in this arena. In the “working conditions” line of cases, a court must gauge whether the working conditions imposed by the employer would have been so intolerable that a reasonable person in the employee’s shoes would have felt compelled to resign. There are limits to the “working conditions” line of cases, however. As colorfully stated by one judge, “the workplace is not a cocoon, and those who labor in it are expected to have reasonably thick skins—thick enough, at least, to survive the ordinary slings and arrows that workers routinely encounter in a hard, cold world. Thus, the constructive discharge standard, properly applied, does not guarantee a workplace free from the usual ebb and flow of power relations and inter-office politics.”

A separate “demotion” line of cases provides an alternative means for a plaintiff-employee to establish a constructive discharge without having to show intolerable conditions imposed by the employer. Under this theory, when an employee is engaged to fill a particular position in the service of his employer, a demotion or a material loss of status or authority of a managerial or supervisory employee may be tantamount to an involuntary discharge (assuming the employee quits).

Since the theory was first recognized, plaintiff-employees have attempted to push those boundaries, often receiving a sympathetic ear from courts and our Commission Against Discrimination. Bucking that trend, the Massachusetts Appeals Court decided the case of Priscilla Flint v. City of Boston on October 24, 2018, holding the line on what facts could support a claim of constructive discharge under the “demotions” precedents.

In Flint, the plaintiff had been informed that she was going to be promoted to manage two departments. She was also informed that a pay raise of $5,000-10,000 per year would follow. In reliance, the plaintiff undertook the substantially increased workload, part of which included management of several additional staff members. A year after undertaking the increased duties, the plaintiff asked where her raise was and received further promises that she was going to get it. Additional unmet promises were made over the next several months.

The pay raise never materialized. Eighteen months after the plaintiff had begun the new job, the City finally informed her that she would not be getting a raise for “budgetary reasons.” After unsuccessfully attempting to file a grievance, the plaintiff then “retired.” In the litigation that followed, the plaintiff asserted that her retirement was not voluntary, but was rather a constructive discharge.

The underlying tenet behind both the “working conditions” and “demotions” lines of constructive discharge cases is that an employee has been subjected to materially less favorable conditions of employment that compelled the employee to quit. Citing the second line of cases, the plaintiff argued that non-payment of the repeatedly-promised raise was the equivalent of a material reduction of her rank or a material change in her duties. It is hard to contest that working much harder in a higher position without being paid the substantial increase that was repeatedly promised was materially unfavorable.

The court held otherwise noting that Ms. Flint received additional responsibilities and increased authority. Against that material increase in her responsibilities and authority, however, the court held that the determination not to give her the raise could not fit within the “demotions” line of cases. As a result, her claim that she was constructively discharged was dismissed.

Because this was an intermediate appellate court, there is the possibility that the Massachusetts Supreme Judicial Court will review it and take a different view. In the meantime, however, this case stands for the proposition that decreased responsibilities and authority can provide the basis for a constructive discharge claim, but a failure to pay a promised raise for those increased responsibilities cannot.

Although for now employers can take solace in knowing that facts such as presented in the Flint case will not support a claim of constructive discharge, there can be little doubt that a plaintiff facing similar facts in the future may also assert a claim of promissory estoppel based on the refusal to honor the promise of a raise. Because the plaintiff in such a case will appear sympathetic in the eyes of a jury, employers are well advised to avoid the kind of monetary promises that will prove difficult to keep.

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New Federal Background Notice Form

In September of 2018, the Consumer Financial Protection Bureau of the United States issued an update of the Agency’s model Federal Fair Credit Reporting Act notice which must be provided to applicants and employees that are subject to a background check undertaken by an outside party on behalf of an employer. Applicants and employees need to be advised of their rights under the Fair Credit Reporting Act, where adverse action is to be taken against the applicant or the employee.  Failure to do so may result in financial liability to the employer.  A copy of the form that employers must now use is accessible at https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf, and the old form should be destroyed.  The new form now includes information on the individual’s right to get a security freeze for fraud on their “credit report.”

Significantly, there are additional requirements to be followed when employers seek to take adverse action, besides providing a notice of the applicant’s or employee’s rights, including providing a copy of the consumer investigative report being relied upon by the employer and an opportunity for the applicant or employee to dispute the information contained in the report. Also, no background check can be performed for the employer by an outside party without the applicant’s or the employee’s prior written authorization.

If you have any questions on the Fair Credit Reporting Act, please feel free to contact us.

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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 , , ,