U.S. Department of Labor Issues Final Rule About How to Calculate “Rate of Pay” Under Fair Labor Standards Act

Late last week, the United States Department of Labor (DOL) issued a Final Rule intended to clarify and update a number of the regulations that interpret the requirements for calculating and paying the regular rate under the Fair Labor Standards Act (FLSA). This Final Rule will take effect January 15, 2020.

Under the FLSA, hourly, non-exempt employees are entitled to overtime pay of at least time and one-half their “regular rate of pay” for any hours worked over 40 per workweek. The term “regular rate” includes all remuneration for employment, except for certain exclusions set forth in Section 7(e) of the FLSA such as the following:

  1. sums paid as gifts and payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency;
  2. payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause;
  3. reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment;
  4. discretionary bonuses;
  5. irrevocable benefits contributions made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees;
  6. extra compensation provided by a premium rate paid for certain hours worked beyond an employee’s regular work hours;
  7. extra compensation provided pursuant to an employment contract or collective bargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek); or
  8. any value or income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program.

The DOL regulations define those specific forms of payment that employers must include in the regular rate when calculating employees’ overtime rates of pay. The DOL issued its Final Rule in an effort to clarify whether or not certain types of “perks” or other benefits must be included when calculating the regular rate of pay in order to bring the regulations, which have not been updated in over 50 years, in line with employers’ current pay practices.

Key Changes Made to Regulations under the Final Rule

Among the key changes made under the Final Rule are revising the current regulations to make clear that the following perks need not be included in the regular rate when calculating overtime:

  • the cost of certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
  • unused paid leave, including paid sick leave or paid time off;
  • pay for time that would not otherwise qualify as “hours worked,” including bona fide meal periods, unless an agreement or established practice provides that the parties have treated the time as hours worked;
  • payments of certain penalties required under state and local scheduling laws;
  • reimbursed business expenses such as cellphone plans, credentialing exam fees, organization membership dues, and travel even if such expenses are not incurred “solely” for the employer’s benefit;
  • expenses for travel that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses;
  • certain sign-on bonuses and certain longevity bonuses;
  • the cost of office coffee and snacks provided to employees as gifts;
  • discretionary bonuses (clarifying that how a bonus is characterized does not determine whether or not it is discretionary and providing additional examples); and
  • contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.

Additional Examples and Points of Clarification

In the process, the Final Rule provides additional examples of the types of perks and benefits that are excludable from the regular rate, as well as clarification and examples of discretionary bonuses that are excludable from the regular rate, including bonuses to employees who made unique or extraordinary efforts that are not awarded based on pre-established criteria, severance bonuses, referral bonuses for employees not primarily engaged in recruiting activities, bonuses for overcoming challenging or stressful situations, employee-of-the-month bonuses, and other similar compensation. Such bonuses are not ordinarily promised in advance and are in the sole discretion of the employer until at or near the end of the period to which the bonuses correspond, and, therefore, may be excluded from regular rate calculations

The Final Rule also adopts the interpretation that some longevity and sign-on bonuses will qualify as gifts that may be excludable from the regular rate, if certain requirements are met. For example, if an employee receives a longevity payment as a reward for tenure, and not in accordance with a provision in a collective bargaining agreement or pursuant to a town bylaw, city ordinance, or a policy, and the longevity payment is not directly dependent on hours worked, production or efficiency, it would qualify as a gift that may be excluded from the regular rate.

Likewise, sign-on bonuses with no clawback provision are excludable from the regular rate as such bonuses are granted before any work is performed and such payment is unrelated to hours worked or services provided.

Sign-on bonuses with a clawback provision that are not paid in accordance with a collective bargaining agreement, town bylaw, city ordinance, or policy may also be excludable from the regular rate. However, sign-on bonuses with a clawback provision pursuant to a collective bargaining agreement, town bylaw, city ordinance or policy would be included in the regular rate.

The Final Rule also clarifies that employers do not need a prior contract or agreement with their employees to exclude certain overtime premiums paid for hours worked by an employee beyond their regular workday or workweek and/or for work on Saturdays, Sundays, holidays, or regular days of rest or the sixth or seventh day of the workweek, where such premiums are at least one and one-half times the established rate of pay for like work performed in non-overtime hours on other days.

Substantive Changes to Call-Back Pay Regulations

In addition, the Final Rule changes the current regulations by eliminating the restriction in Sections 778.221 and 778.222 that “call-back” pay and other similar payments need to be “infrequent and sporadic” in order to be excluded from the regular rate. The Final Rule also makes clear that call-back or other similar payments may not be prearranged. Otherwise, such prearranged payments would constitute compensation for work that was anticipated, which are not excludable from the regular rate. According to the Final Rule, “[t]he key ‘prearrangement’ inquiry is whether the work was anticipated and therefore reasonably could have been scheduled.”

With the clarifications and changes set forth in this Final Rule as well as the updates to the white-collar exemption regulations dealing with those employees who may be exempt from the FLSA’s minimum wage and overtime requirements, as noted in this previous e-blast, which take effect January 1, 2020, employers are well-advised to review their current policies and practices to ensure that they will be in compliance with the FLSA and its regulations when these changes take effect in January.

If you have any questions about the Final Rule regarding the regular rate or the changes to the white-collar regulations, please feel free to contact a member of our Labor, Employment, and Employee Benefits Group.

 

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A Friendly Reminder about Veterans’ Rights to Time Off for the Upcoming Veterans Day Holiday under the Massachusetts BRAVE Act

In 2018, the Massachusetts legislature enacted a broad sweeping statute entitled “An Act Relative to Veterans’ Benefits, Rights, Appreciation, Validation and Enforcement,” also known as the BRAVE Act.  The BRAVE Act addressed a number of issues affecting veterans and military families, including but not limited to honoring our veterans and military service men and women and their families, including Gold Star Wives, Mothers and Families, and increasing benefits available to active duty service members who are employed by public sector employers who have locally accepted the provisions of Massachusetts General Laws Chapter 33, Section 59.

With Veterans Day fast approaching (next Monday, November 11, 2019), all Massachusetts employers should remember that the BRAVE Act expanded the rights of employees who are veterans or who are members of any of the departments of war veterans listed in Massachusetts General Laws Chapter 8, Section 17 such that they are now entitled to take leave from work for the purposes of observing Veterans Day, regardless of whether or not they participate in any Veterans Day exercise, parade, or service.  Thus, veterans and members of a department of war veterans are entitled to take the entire day off from work to observe the Veterans Day holiday in any manner they wish.  Such leave for Veterans Day may be with or without pay at the employer’s discretion.

Please note that the BRAVE Act distinguishes the rights to time off for veterans and members of a department of war veterans on Veterans Day in comparison to Memorial Day. As a result, although veterans and members of a department of war veterans may observe Veterans Day in any manner they see fit, on Memorial Day they are only entitled to a leave of absence of sufficient time “to participate in a Memorial Day exercise, parade or service” in the community in which they reside.  The leave of absence on Memorial Day may be with or without pay at the employer’s discretion.

If you have not already done so, now is a good time to review your policies to ensure that they are in compliance with all of the provisions of the BRAVE Act, including those governing leaves of absence on Veterans Day and Memorial Day.

Please contact any of our Labor, Employment & Employee Benefits attorneys if you have any questions about the BRAVE Act, the upcoming Veterans Day holiday, or any other labor, employment or employee benefits issue.

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New DOL FLSA Rule Issued September 24, 2019

The United States Department of Labor issued its final rule on the earnings threshold for exempt employees under the federal Fair Labor Standards Act (“FLSA”) on September 24, 2019 (the “Overtime Rule”). The Overtime Rule will require employers to pay overtime wages to a much larger group of employees than are presently eligible. The Overtime Rule will take effect on January 1, 2020.
Under the Overtime Rule, the minimum salary for exempt employees under the FLSA will increase from $455 per week to $684 per week. The $684 per week is equal to $35,568 per year. This means that, in general, salaried employees who do not earn at least $684 per week are eligible for overtime compensation if they work more than 40 hours in a week. The Department of Labor estimates that 1.2 million employees will now become eligible for overtime compensation. The Overtime Rule does not provide for automatic future increases of the salary threshold.
In addition, the Overtime Rule does not change the standard that, generally, exempt employees must not only meet the minimum salary test, but also the duties test as an executive, administrative or professional employee. However, “highly compensated” employees are exempt from most of the duties tests used to determine whether they are exempt under the FLSA. The highly compensated employee level, which is presently $100,000 per year, has been increased under the Overtime Rule to $107,432 per year.
Under the Overtime Rule, employers can use non-discretionary bonuses and incentive payments, including commissions, paid at least annually to satisfy up to 10% of the minimum salary level of $35,568 per year.
As you may recall, President Obama’s administration attempted to overhaul the FLSA’s salary threshold in 2016 by increasing the threshold to $913 per week and creating automatic future increases tied to inflation. The Obama Administration’s “final rule,” however, was enjoined by a United States District Court in the District of Texas and, therefore, never went into effect.
It is anticipated that there will be challenges to the Overtime Rule to attempt to further increase the salary threshold. However, unless such challenges are successful, the Overtime Rule will go into effect as of January 1, 2020.
In light of the increase to the salary threshold, employers are well-advised to review their exempt employee classifications to determine which employees will meet the increased salary threshold under the Overtime Rule and which employees will now be eligible to earn overtime. If you have any questions about the Overtime Rule, please contact one of the attorneys in the Labor, Employment and Benefits Practice Group.
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Massachusetts Legislature Responds to Janus Decision

Yesterday, the Massachusetts Legislature voted to override Governor Baker’s veto of House Bill 3854, which responds to the U.S. Supreme Court’s decision in Janus v. AFSCME. The Bill relieves unions representing public sector employees of certain obligations, increases their access to bargaining unit members, and creates a period during which an employee cannot revoke his or her agreement to pay dues or an agency service fee.

Specifically, the Bill allows unions to require non-dues paying members to pay for reasonable costs and fees, including arbitrator fees and related attorney’s fees, for grievances and arbitrations, along with any proportional costs occurring prior to the arbitration being filed. Under current law, a union must represent an employee at no cost even if the employee does not pay dues or a voluntary agency service fee.

The Bill also enhances unions’ ability to access employees. The Bill gives unions the right to:

  • Meet with individual employees on the employer’s premises during the workday to investigate and/or discuss grievances, workplace-related complaints and other workplace issues;
  • Conduct worksite meetings during lunch breaks and other non-work breaks and before and after the workday to discuss workplace issues, collective bargaining negotiations, the administration of collective bargaining agreements and other matters related to internal union matters;
  • Meet with newly hired employees without charge to the pay or leave time of the employees for a minimum of 30 minutes within the first ten (10) calendar days after the date of hire, during new employee orientation or, if the employer does not have a new orientation, at individual or group meetings;
  • Specific to public schools, school districts are required to notify the union of a hiring decision no later than ten (10) calendar days after the individual accepts the offer of employment and must provide the union with the employee’s name; job title; worksite location; home address; work telephone number; home and personal cellular telephone numbers; date of hire; work email address; and personal email address, provided the provision of the personal cellular telephone, home number and personal email is subject to the maintenance of the information in the employer’s files;
  • Use public employer email systems for union-related matters, provided doing so does not create an unreasonable burden on network capability or system administration; and
  • Use government buildings and other facilities that are owned or leased by government entities to conduct meetings with members regarding collective bargaining negotiations, the administration of collective bargaining agreements, the administration of any investigation of grievances, other workplace related complaints and issues and internal union matters involving governance or business of the union.

The failure to comply with any of the above requirements will constitute an unfair labor practice for failing to bargain in good faith.

Last, the Bill revises the dues and fee payroll deduction statutes by consolidating them into a single statutory provision. Notably, the statute states that an authorization to make a deduction may be irrevocable for a period of one year after its anniversary and may only be revoked under the terms of the initial authorization signed by the employee. If no specific period is provided, 60 days’ notice is required for the revocation to be effective. The constitutionality of a similar provision is being challenged as a violation of the First Amendment in other jurisdictions. If possible, it is, therefore, wise to work with the unions that represent your employees to avoid the inclusion of such revocation periods until this issue is fully litigated.

As the Bill does not contain an emergency preamble, it will go into effect in 90 calendar days.

Please contact any member of our team if you have any questions regarding this or any other labor and employment matters.

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The Summer of Noncompete Reform: Three Other New England States Get In On the Act – Part 2

Following the Massachusetts legislature’s attempt at reform of the use of employee noncompetition agreements last summer, three other New England states – New Hampshire, Maine and Rhode Island –passed their own noncompetition agreement reform bills in the summer of 2019.

In the first of my two posts on the topic, The Summer of Noncompete Reform: Three Other New England States Get In On the Act – Part 1 (date), I provided a quick refresher on the Massachusetts statute and an overview of the other states’ new acts. In this post, those three new acts will be discussed in greater detail.

As set forth in the prior post, none of the new laws in the other three New England states are nearly as complex, far-ranging or as difficult to interpret and apply as the Massachusetts statute. The only common thread is the banning of noncompetition agreements for certain low wage or low level employees.

That common goal is complicated by definitional language in each of the statutes. While Massachusetts law makes no reference to a specific income level, it prohibits use of noncompetition agreements with employees who are non-exempt under the Fair Labor Standards Act. By this negative reference, noncompetition agreements are therefore permitted for use with exempt employees, incorporating the FLSA’s minimum salary threshold of $455 per week or $23,660 annually.

The other three states are more direct, banning the use of noncompetition agreements with low wage employees defined as follows:

  • New Hampshire (effective September 8, 2019) – an employee who earns less than 200% of the federal minimum wage (currently $7.25) (approximately $30,000 annually for a full-time worker);
  • Maine’s “An Act to Promote Keeping Workers in Maine” (effective September 19, 2019) – an employee who makes less than 400% of the federal poverty threshold for an individual (approximately $50 K annually); and
  • Rhode Island (effective January 15, 2020) – an employee who makes less than 250% of the federal poverty threshold for an individual (approximately $31 K annually).

Beyond that income-based prohibition, each state’s Act addressed only a limited number of the issues embedded in the Massachusetts Act. As a result, none come close to the complexity found in the Massachusetts statute.

The New Hampshire statute is extremely limited in scope. It bans the use of noncompetition agreements with low wage employees as that term is defined above. It has no other impact.

While more detailed than New Hampshire’s, the Maine statute is still quite modest. Like Massachusetts, it imposes advance notice requirements. In that regard, Maine requires that the employee be informed prior to the offer of employment that a noncompetition agreement will be a condition of that employment. It also requires that the employer provide a three business day window prior to signing, arguably to permit the employee time to review and negotiate its terms. These are slightly different than the notice requirements found in the Massachusetts law.

The Maine statute differs from the Massachusetts law in a few other important ways:

  • The restriction on competition only takes effect if (a) the employee is employed for one year or (b) six months pass after the agreement is signed by an existing employee, whichever is later;
  • The Maine statute punishes an overreaching employer by fining it $5,000 if it (a) has any ineligible employee sign one or (b) fails to comply with the advance notice requirements; and
  • It also bans no poaching agreements between employers (referred to as “restrictive employment agreements”) and imposes that same $5,000 fine if an employer (a) signs or (b) threatens or attempts to enforce such an agreement.

The Rhode Island statute on its face has more in common with the Massachusetts statute, but it still pales by comparison in terms of complexity. It defines numerous terms, most in an identical way to the definitions in the Massachusetts statute. As with Massachusetts, the Rhode Island statute also bans noncompetition agreements with non-exempt employees, employees under age 19 or students. It also expressly excludes from its coverage nondisclosure and non-solicitation agreements. Like Massachusetts, Rhode Island also excludes noncompetition agreements executed in connection with a business sale or a severance agreement from the coverage of the Act.

Aside from the definition given to low wage employees in the Rhode Island act, there are other differences. Rhode Island does not require any advance notice to the employee. Its Act also does not apply to independent contractors, unlike its Massachusetts counterpart.

Most conspicuous are the many granular provisions of the Massachusetts Act that do not appear in any of these other New England states’ statutes. Unlike Massachusetts, none have any language referencing consideration or garden leave. None require the express statement in writing of the employee’s right to have counsel review before signing. None have the presumptions of reasonableness (1 year time restriction, certain defined geographic or subject matter restrictions) found in the Massachusetts Act. None have express provisions for enhanced protections against an employee who has taken physical property or electronic files of the employer. None provide that an employer who has elected to provide garden leave in consideration for the noncompetition restrictions can choose to waive those restrictions thereby eliminating the garden leave obligation post-termination. None provide for the “disappearing noncompete” concept found in the Massachusetts law where the employment termination has been without cause.

This and the prior post have addressed the four states in New England to undertake noncompete reform in the last two years. To complete the regional picture, what of the two others – Vermont and Connecticut?

Neither of those two states have passed any similar noncompete reform legislation.  For two years, Vermont has considered a bill to ban non-competes altogether, but that bill does not seem to have made much headway.  Connecticut, on the other hand, has passed piecemeal legislation addressing a strange hodge-podge of specific industries (physicians, homemakers, companions or home health service workers, broadcasters). It has not passed any broader legislation nor does it appear that there are any efforts to do so at the present time.

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The Summer of Noncompete Reform: Three Other New England States Get In On the Act – Part 1

Most readers are probably aware that the Massachusetts legislature, after a decade of starts and stops, passed a very detailed bill retaining but reforming the use of employee noncompetition agreements last summer.  While we were the first New England state to get a bill over the goal line, the summer of 2019 saw three of our neighboring states – New Hampshire, Maine and Rhode Island – get in on the act and pass their own noncompetition agreement reform bills.  For employers whose business crosses state lines within the region and who use or are thinking of using noncompetition agreements, it is important to be aware of the highlights/lowlights/differences/similarities between those three new statutes and our Massachusetts Noncompetition Agreements Act which took effect on October 1, 2018.

In this series of posts, I will provide a quick refresher on the Massachusetts statute and compare and contrast the other states’ new acts to it.

The Massachusetts Noncompetition Agreement Act Basics

The Massachusetts Act, codified at Massachusetts General Laws chapter 149, section 24L, preserves the ability of employers to continue to use noncompetition agreements.  It does, however, impose a number of new requirements and restrictions on their use.  Most notably, it provides:

  • Noncompetition agreements cannot be used with non-exempt employees, young employees (under age 19) or student interns;
  • Even if valid when executed, the noncompetition restriction vanishes if the employee is terminated without cause or laid off;
  • A new employee must be given advance notice at the time of the offer of employment that he will be required to sign a noncompete;
  • A noncompetition agreement given to a current employee to sign cannot take effect before 10 business days have passed after the employee is given notice of it;
  • One asked to sign a noncompetition agreement must be notified in writing of her right to have legal counsel review the agreement before signing;
  • “Fair and reasonable” consideration must be provided to a current employee in return for agreeing not to compete (this is a very confusing aspect of the Act and differs from the consideration that must be given to a new employee asked to sign);
  • The permissible geographic scope of the noncompetition restriction is more narrowly defined;
  • The permissible scope of the post-termination subject matter restrictions is also more narrowly defined; and
  • The Act provides no punishment for an employer who has an employee sign an agreement that is not in compliance with these new provisions – the only apparent penalty is the likelihood that the agreement will not be enforced if the employee then competes.

Aside from these specific provisions, the Act also provides not-so-subtle encouragement to employers to use other forms of restrictive covenants rather than noncompetition agreements to protect their goodwill, confidential information and trade secrets.  Specifically, the Legislature nudged employers in the direction of using nondisclosure and customer and employee non-solicitation agreements rather than noncompetition agreements.  It did so by expressly excluding such agreements from the scope of the new Act thereby permitting employers to avoid the troublesome restrictions and limitations listed above.

The Other Acts

None of the new laws in the other three New England states are nearly as complex, far-ranging or as difficult to interpret and apply as the Massachusetts statute.  The only common thread is the banning of noncompetition agreements for certain low wage or low level employees although each state goes about in different ways.

Beyond that single common thread, each state’s Act addressed only a few of the issues embedded in the Massachusetts Act.  As a result, none come close to the complexity found in the Massachusetts statute.

The New Hampshire statute which takes effect September 8, 2019 is extremely limited in scope.  It bans the use of noncompetition agreements with low wage employees as that term is defined above.  It has no other impact.

The Maine statute which takes effect September 19, 2019 is more detailed than New Hampshire’s, but still quite modest.  Like Massachusetts, it imposes advance notice requirements.  The Maine statute, however, differs from the Massachusetts law in a few important ways – a waiting period before the restrictions become enforceable, $5,000 penalties for overreaching employers; and a ban on no poaching agreements (referred to as “restrictive employment agreements”).

The Rhode Island statute which takes effect January 15, 2020 on its face has more in common with the Massachusetts statute, but it still pales by comparison in terms of complexity.  Like Massachusetts, it broadens the employees with whom noncompetition agreements may not be used and also expressly excludes from its coverage nondisclosure and non-solicitation agreements as well as noncompetition agreements executed in connection with a business sale or severance agreement.  Unlike Massachusetts and Maine, it does not require any advance notice to the employee.  It also does not apply to independent contractors.

Perhaps what is most noteworthy about each of these new laws are the areas addressed in the Massachusetts law which are left untouched in this summer’s enactments.

More details on these new laws and their comparison with the Massachusetts precursor will be set forth in Part 2.

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Employers Should Continue to Use Expired Form I-9

The U.S. Citizenship and Immigration Services (USCIS) recently announced that employers should to continue to use the currently available version of the Form I-9, even though the form lists an expiration date of August 31, 2019. USCIS intends to issue details about a new version of the Form I-9 when they become available.

The current version of the Form I-9 is available on the USICS’s website.

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More News on the Noncompete Front: Employers Should Still Expect Strict Scrutiny of Their Restrictive Covenant Agreements

In earlier posts, I reported on the passage of the new Massachusetts Noncompetition Agreement Act, which took effect on October 1, 2018. That Act significantly changed the law in this area, narrowing the permissible protections and imposing several new requirements on an employer who wants its employees to sign noncompetition agreements. 

While the Act did not ban noncompetition agreements altogether as certain constituencies had advocated, many commentators, including me, felt that the Act sent a dual message to employers. The first message was “you can still use noncompetition agreements if you must, but it isn’t going to be easy and they won’t be as useful as you would like.” The second implicit message was “you are better off using less restrictive agreements such as nonsolicitation agreements and nondisclosure agreements.” 

As evidence of the implicit message, the legislation provided a definition of noncompetition agreements covered by the Act as well as express exclusions: 

“Noncompetition agreement”, 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 he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended. Noncompetition agreements … do not include: (ii) covenants not to solicit or transact business with customers, clients or vendors of the employer 

Accordingly, many employers have embraced the dual messages and abandoned the use of noncompetition agreements, but continued to have employees sign nonsolicitation agreements. 

A recent decision by a judge in the Business Litigation Session of the Superior Court in Bruett v. Walsh reminds us not to misperceive this encouragement as meaning the more limited restrictions will always be enforced. While nonsolicitation agreements were placed outside the scope of the Act, they will still be subjected to the same strict scrutiny by the courts that existed prior to the Act’s passage. Consequently, enforcement will not be a sure thing. 

David Bruett was an insurance agent who had started in the insurance business with John J. Walsh Insurance Agency. Prior to beginning that employment, he had signed an agreement whereby he agreed that he would not: 

solicit, attempt to obtain, accept, write, service or transact insurance business of any nature for any customer or account on the books of the Agency. 

Fourteen years later, Bruett left to start his own agency. Bruett scrupulously did not solicit his former customers nor did he even notify them of his new agency. Several of the customers, however, found out where he had gone and contacted him. In violation of the express language of his agreement, Bruett transacted insurance business and wrote polices for those former Walsh customers. 

Judge Mitchell Kaplan was called upon to determine whether a preliminary injunction should issue restraining Bruett from doing business with the former Walsh customers for the remaining term of the agreement. The Court noted the express language prohibiting the acceptance or transaction of business. The inquiry did not stop there, however, and the Court carefully reviewed the underlying facts and circumstances. Ultimately, the Court refused to impose that restraint, enjoining Bruett only from solicitation, something he was not doing anyway. 

Central to the Court’s reasoning was the requirement that to obtain enforcement an employer must be attempting to protect a legitimate business interest, typically trade secrets, confidential information or good will. The judge found that there were no trade secrets and only limited confidential information at issue. 

Turning to the question of good will, the Court noted that good will “is the prior history of reliability, integrity, knowledgeability, insurance experience, and prompt service that would cause present insurance clients to renew their existing insurance policies …, procure new policies … and to refer their friends and colleagues ….” The Walsh Agency had argued that this good will was its good will because it had invested the time, effort and expense to support Bruett’s development of the relationships with the customers. It was therefore entitled to protect it by the restraint requested. 

The Court did recognize that good will is typically the result of the combined efforts of the agent, as the public face of the Walsh Agency to the customers, and the management team, clerical and technical staff, who the customer may never see nor speak with. Despite noting that the company’s good will and the employee’s good will with those customers were “inevitably intertwined,” the Court drilled down to determine where the good will line should be drawn and whether Bruett should be restrained. 

In that regard, the Court’s inquiry was industry specific. It distinguished the insurance business from the business of a financial investment advisor that provides “handcrafted products.” In contrast, the Court found that the “products” of an insurance agency are not created by the agency, but rather the Agency steers the customer to the lowest price policies, provides assistance with claims and makes sure the policies don’t lapse. The Court then concluded that, by the nature of the insurance business, “most, although not all, of the good will belongs to the agent himself.” Granting the requested injunction, the Court said, would unfairly take away the good will that belongs to Bruett. The Court also noted that such restraint would impose a significant burden on the agent’s former customers who have come to trust him, not the agency, to handle their insurance needs.

As a result, the Court came down on the side of Bruett, leaving him free to do business with his former customers provided those customers had made, or in the future make, the first contact. 

Bruett does not pave new ground. It should, however, serve as a reminder to employers and their counsel that efforts at enforcing any type of restrictive covenant will occasion the same strict scrutiny that existed prior to the passage of the Noncompetition Agreements Act.   

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MA Paid Family and Medical Leave Act

On June 14th, we reported that Massachusetts delayed the implementation of the payroll tax under the Family and Medical Leave law by three months (i.e., until October 1, 2019). At the time, the government informed the public that the contribution rate would be increased from 0.63% to 0.75% of wages when withholding of contribution amounts begins on October 1st, but we were not informed about how the 0.75% contribution amount would be allocated between family leave and medical leave contributions. Last week, the Massachusetts Department of Family and Medical Leave answered that question and published two updated rate sheets and employer notices – one for employers with 25 or more covered individuals and the other for employers with fewer than 25 covered individuals.

Employers who completed the notification process prior to the June 14th extension will need to issue an amendment to the form and distribute it to all employees with the modified contribution rate. However, the amendment does not need to be signed by employees and can be sent electronically. The Department of Family and Medical Leave noted that this process will need to be completed each time that the rate changes. The revised notice forms, as well as the amendments, can be found here.

We will continue to monitor all developments regarding the Paid Family and Medical Leave law. Please contact any member of the Labor, Employment and Employee Benefits group if you have any questions.
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Massachusetts Delays Family and Medical Leave Act Payroll Contribution Three Months

Late Tuesday evening, news broke from Beacon Hill that the payroll tax funding the Paid Family and Medical Leave Act – scheduled to take effect on July 1st – is being delayed three months to October 1, 2019.  According to a joint statement issued by Governor Baker, House Speaker DeLeo, and Senate President Spilka, the delay is intended “[t]o ensure businesses have adequate time to implement the state’s Paid Family and Medical Leave program….”  It is expected that the legislature will pass, and the Governor will sign, an emergency bill over the next few days to officially delay the implementation of the payroll tax.

The joint statement also foreshadowed the legislature’s intent to “adopt technical changes to clarify program design.”  At this time, it is not clear what “technical changes” the legislature is considering.  It appears, however, that to maintain the amount of pre-funding and not reduce total contributions paid to the new family and medical leave trust fund, the contribution rate will be increased from .63 percent to .75 percent of wages when withholding of contribution amounts begin on October 1, 2019.

We will continue to monitor all developments regarding the Paid Family and Medical Leave Act.  Please contact any member of the Labor, Employment and Employee Benefits Group if you have any questions.

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