Getting Sued for a Non-Compete in Massachusetts

If you have ever signed an employment contract, there’s a good chance that it included a “non-compete” or “non-competition” clause. The purpose of a non-compete clause is to prevent you from taking another job in the same field as your employer’s or otherwise competing with your employer after you leave. Employers often use these clauses to gain leverage over employees, but not all non-compete agreements are valid and enforceable.

The Legal Standard

A court will only enforce a non-compete if it is: (1) necessary to protect a legitimate business interest; (2) reasonably limited in time and space; and (3) consonant with the public interest. Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635 (2004). The burden of proving enforceability is on the employer. Ultimately, the reasonableness of a non-compete clause turns on the specific facts of each case.

If a court finds that a non-compete is partially unenforceable, it is empowered to essentially rewrite the unenforceable portions of the agreement. For example, if the geographic area defined by the non-compete is too large, the court can shrink the area and leave the remainder of the non-compete in place.

Legitimate Business Interests

To be enforceable, a non-compete clause must be tailored towards protecting a legitimate business interest. Courts have recognized a number of legitimate business interests, including: protecting trade secrets, confidential information, and an employer’s goodwill (Goodwill is “the value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology,” Investopedia). While simply preventing employees from engaging in “run-of-the-mill business competition” is not a legitimate business interest, courts have cited protection of an employer’s “good will” as a reason for enforcing a non-compete clause. See, e.g., Darwin Partners, Inc. v. Signature Consultants, LLC, No. 00-0277, 2000 WL 33159238, at *4 (Mass.Super. 2000) (Burnes, J.) (“Soliciting a potential client company whose relationship has been developed by the [former employer], while under the employ of [the former employer], certainly would constitute an invasion of [the former employer’s] good will”). However, if the employee is responsible for developing the good will, courts may not find a legitimate business interest. See, e.g., First E. Mortgage Corp. v. Gallagher, Civil No.1994-3727, 1994 WL 879546, at *1 (Mass.Super.Ct. July 21, 1994) (finding that good will “was the [employee’s] own making, which he had developed with customers as a result of his own enthusiasm, personality and abilities,” and therefore not a legitimate business interest).

Generally, where an employer’s purported business interest is dubious, or the non-compete clause is not drafted with an eye toward protecting the cited business interest, courts will not enforce, or will rewrite, the non-compete.

Reasonably Limited To Time And Space

A non-compete can only restrict an employee’s post-employment activities for a reasonable period of time and only within a reasonable geographic area. However, Courts have often approved non-competes that last two years. And geographic restrictions can be similarly significant, as the Supreme Judicial Court has approved a non-compete barring competition within 100 miles of the employer’s business.

However, permanent restrictions on conducting business within a geographic area are regularly found to be unreasonable. And whether the restrictions are otherwise reasonable turns on the circumstances of the case, including the type of employment at issue. For example, restricting a hairdresser from competing for two years has been found to be unreasonable given the nature of the business – the infrequency with which customers receive services (monthly intervals) does not necessarily warrant such a lengthy restriction. And where an employer attempts to restrict an employee from performing competing work in an area in which it does not conduct business, courts generally refuse to enforce such provisions.

The Public Interest

The public interest part of the three-part test requires a court to balance the benefit of enforcing contracts meant to protect an employer’s business interests with an employee’s interest in earning a living. To that end, courts generally only refuse enforcement if doing so would result in the employee being unable to work, or if doing so would harm the public interest in some tangible way. For example, a court found a negative impact on the public interest where enforcement of a non-compete would result in a community being deprived of a “fast service automobile lubrication service.” Grease Monkey Intern., Inc. v. Ralco Lubrication Services, Inc., 24 F.Supp.2d 120, 126 (D. Mass. 1998)

How To Handle A Non-Compete Lawsuit

A non-compete lawsuit begins when you receives a summons and complaint alleging that you violated your agreement. Under Massachusetts law, after you are served with a complaint, you have 20 days to file and serve a written response. If you fail to respond, you can be “defaulted,” meaning your employer can win the lawsuit based on your lack of a response. Moreover, if you file a response on your own, you may make a mistake that can harm your defense of the lawsuit and even your current employment. It is best to hire an attorney to defend you.

Once your attorney files and serves an answer, he or she can engage in discovery (seeking information and documents from your employer) and take additional steps to help defend you in the lawsuit. In non-compete lawsuits, the employer often seeks “injunctive relief” – an order from the court stopping you from engaging in the activity, like working, that they believe violates your non-compete agreement. To that end, it is common for employers to seek a preliminary injunction early in the litigation to preclude you from engaging in the business activities right away. It is very important to fight smart and hard early in the case to prevent a preliminary injunction from entering.

Non-Compete Reform

Most people weren’t paying attention, but in July 2016 the Massachusetts House Of Representatives passed a bill making significant changes to non-compete law. That same month, the Massachusetts Senate followed the House by passing an even more sweeping reform bill. The changes in both bills were significant and include: (i) limiting the length of the duration of non-competes (3 months in the Senate bill or 12 months in the House bill); (ii) prohibiting non-compete agreements for employees who are not exempt from overtime and who are terminated without cause or are laid off; (iii) requiring employers to pay “Garden leave pay” – meaning the employer is required to pay all (Senate bill) or half (House bill) of an employee’s salary during their post-employment, non-compete period; and (iv) prohibiting courts from reforming unenforceable non-competes (Senate bill).

The legislative session ended on July 31, 2016, and non-compete reform was left on the cutting room floor due to political maneuverings and compromise. There remains strong interest in non-compete reform, for reasons of fairness to employees and for promoting fluidity of labor movement to support growth in the tech industry, so when legislators reconvene in January 2017, they may take another shot at it.

Delivery Fees and Tips Law

Many workers in Massachusetts earn the majority of their wages in tips. For this reason, Massachusetts has strong laws to ensure that tipped employees receive all of their earned tips. In other words, every dollar that a customer pays as a tip must go directly to the tipped employee. No part of a tip can go to the employer, or to a manager (including any employee with any managerial authority), supervisor, or any other non-tipped employee.

Even with these laws, we’ve seen companies charge customers delivery charges or other service fees that appear, at first glance, to be a tip, but are actually retained by the company and function as a price increase. In this way, companies can then keep their prices the same, but increase profits by adding on various charges that customers believe go directly to employee. This is illegal in Massachusetts. If a company charges its customers any sort of fee that a customer would expect to go to an employee, the company cannot keep any portion of that fee.

In the restaurant industry, an illegal service charges looks like this: at the end of the meal, the customer receives a bill that includes a 15% service charge. The customer then declines to add a tip, assuming that the 15% service charge goes to the wait staff. The employer, in turn, keeps the 15% service charge and the wait staff receives no tip. Similarly, delivery drivers are cheated out of tips when the restaurant adds a “delivery fee” to the customer’s bill, but the restaurant does not pay out the delivery fee to the driver. These arrangements are illegal, and extend to other industries as well: spas, hotels, catering companies and limousine companies that include various sorts of service fees must pay the entire amount of these fees to their employees.

The Tips Act, M.G.L. c. 149 § 152A, prohibits employers from taking any portion of a tip, delivery fee, or service charge. The law defines tips and service charges broadly to include any fee or charge that a customer reasonably expects will go to the employee, and includes service charges, delivery fees, porterage fees, and setup fees, among others. The law covers wait staff employees, service employees and service bartenders, and, again, defines each category of tipped employee broadly. Massachusetts courts have generally interpreted the Tips Act to provide as much protection as possible for employees, and to deter employers from implementing illegal tip policies.

In a recent case, Tigges v. AM Pizza, Inc., a federal court in Massachusetts added an additional protection for employees in this context. The court held that even when tipped employees are required to sign arbitration agreements and class-action waivers prior to the start of their employment, they still have the right to bring class action lawsuits challenging their employer’s compensation practices in court. In Tigges, pizza delivery drivers sued their employer for charging customers a delivery fee on all delivery orders and keeping that fee rather than paying it out to the drivers. The company charged all customers a delivery charge, ranging from $1.99 to $2.99. The drivers were tipped employees who received an hourly wage less than the minimum wage. The delivery drivers brought their case as a class action, seeking damages for all delivery drivers who had lost wages due to the employer’s policy of not paying out the delivery charge.

The company argued that the case could not go forward in court because the drivers had signed arbitration agreements that contained a class-action waiver. In other words, the drivers had signed contracts when they were hired requiring them to resolve all disputes with the company through arbitration, that is, out-of-court settlement forums, and only as individuals, not as a class action.

The court disagreed and held the contracts unenforceable. It held that a federal statute, the National Labor Relations Act (NLRA), gives employees the right to engage in collective action related to their working conditions. That right includes the right to file class action lawsuits against employers. A class action waiver, like the one the delivery drivers were required to sign, would eliminate employees’ right to collective action in violation of the NLRA. The court explained that the NLRA exists to ensure that employees have a right to band together to hold employers accountable. If employers were allowed to require employees to forfeit that right in order to gain employment, the whole purpose of the NLRA would be defeated. To that end, the court held that the class action waivers would not be enforced, and the delivery drivers could bring their claims as a class.

This case signals strong judicial protection for employees’ rights and recognition of the need for class action lawsuits. Individual employees are hesitant to sue their employers over relatively small sums of wages and risk of retaliation (despite strong ant-retaliation laws under federal and Massachusetts law). But a class action lawsuit allows employees to approach their employer as a group and enforce their wage rights while minimizing their fears of retaliation.

If you want more information about the Tips Act and service or delivery charges, feel free to contact our office for a free and confidential consultation.

Massachusetts Sick Time Law

About one year ago, Massachusetts became one of only a handful of states that enacted an earned sick time law for employees. Under the law, most Massachusetts employees can earn up to 40 hours of sick time. If you work for an employer with more than 11 employees, this sick time must be paid; if you work for a smaller employer, the time can be unpaid.

Earning Sick Time Off

For every 30 hours you work, you earn one (1) hour of sick time, up to a total of 40 in a year. You begin earning sick time at the beginning of your employment, but can only begin using it 90 days after your start date.

Using Earned Sick Time

You can use sick time to:

  1. care for yourself, or your child, spouse, parent, or spouse’s parent suffering from a physical or mental condition or injury;
  2. attend a medical appointment (or an appointment for your child, spouse, parent, or spouse’s parent)
  3. address the physical, psychological, or legal effects of domestic violence; or
  4. travel to and from an appointment, a pharmacy, or other location related to the purpose for which the leave was taken.

You must notify your employer in advance before taking sick time, except when the need for the time is unforeseeable (e.g., emergencies or sudden illnesses). Sick time must be used in at least one-hour increments.

Carrying Over Sick Time

You can carry over up to 40 hours of unused sick time each year. Your employer can choose to pay out your 40 hours of earned sick time at the end of the year.

Paying Out Earned Sick Time

After you take sick time, it must be paid out on your next regular pay day and at your normal hourly rate. Employers are not required to pay out your earned and unused sick time at the end of your employment.

If your employer fails to provide you with paid sick time, or fails to pay out your earned sick time at your normal hourly rate, feel free to call us to speak with an attorney about your rights.

Controversial On-Call Scheduling in Massachusetts

The Massachusetts Attorney General recently joined the New York Attorney General and others in an inquiry into the controversial practice of retail on-call scheduling. Some large, national retailers receiving a letter were BCBG Max Azria, Carter’s Inc, Canada’s DavidsTea Inc, Forever 21 Inc, Ascena Retail Group Inc’s Justice, Pacific Sunwear of California Inc, Payless ShoeSource, Tillys Inc, Fast Retailing Co’s Uniqlo, VF Corp’s Van’s and Zumiez Inc, Aeropostale Inc, American Eagle Outfitters Inc, Coach Inc and Walt Disney Co.

The practice goes like this: In order to keep wages low by minimizing the number employees on a sales floor, some retailers use software to track customer flow and make shift staffing decisions just before a shift start. When a system like this is utilized, employees must be ready to work but call in beforehand to see if they will actually be working. If they are not needed, they are paid nothing. Obviously, if you have to block out time to work, and then that work is cancelled, you miss out on other opportunities in life, like other work or personal pursuits. Aside from this opportunity cost, you might also incur financial costs, like for child care.

So is this legal?

Although many states have similar regulations (like New York, 12 NYCRR 142-2.3), I’ll focus on Massachusetts. An important provision of our state minimum wage regulations states:

(1) Reporting Pay. When an employee who is scheduled to work three or more hours reports for duty at the time set by the employer, and that employee is not provided with the expected hours of work, the employee shall be paid for at least three hours on such day at no less than the basic minimum wage. 454 CMR 27.04 shall not apply to organizations granted status as charitable organizations under the Internal Revenue Code. 454 Code. Mass. Regs. 27.04.

The retailers will undoubtedly claim that employees subject to this practice are not “scheduled” for a shift or reporting for duty, and that they are only required to call in to see if they will work. I don’t think this is a good argument or meaningful distinction. There is no real difference between being scheduled to work and on-call scheduling. In each, you have to be ready to work, and when there is only a short duration between when you learn you are not needed and when you were planning to work, you will have already missed out on planning other work or activities. Therefore, these practices prevent employees from being “effectively free to use his or her time
for his or her own purposes,” which the same regulations also require when an employee is not on the clock.

Have you been subject to this practice at a large retailer? If so, feel free to give us a ring at 617-338-9400 for a confidential chat.

Prevailing Wage and False Claims Acts

The Intersection of the Prevailing Wage Laws and False Claims Acts.

Federal and state prevailing wage laws set hourly rates for workers on “public works,” which are government-financed construction, renovation, and other projects. Federal and state false claims acts (also called “qui tam” laws) allow private individuals to bring claims to recover money obtained by government contractors under false pretenses. When a contractor or subcontractor on a public work fails to pay their workers the prevailing wage, a false claim lawsuit is often possible. In these cases, the person who blows the whistle can recover a percentage of the amount recovered for the government.

For workers, this adds an incentive to come forward with knowledge of prevailing wage violations, and potentially recover significant damages.

The Davis Bacon Act and the False Claims Act

The Davis Bacon Act, 40 U.S.C. 276a, is the federal prevailing wage law. It sets the wage rates contractors must pay employees who perform certain types of work on federal construction projects costing more than $2,000. The rate is known as the “prevailing wage rate,” and it is set by the Department of Labor. The purpose of the law is to create a level playing field for contractors bidding on government-founded projects. By requiring certain minimum wage rates, contractors cannot decrease wages lower than the wage for a specific type of work in the area to win a government bid. The prevailing wage laws also give local laborers and contractors fair opportunity to participate in government projects by preventing large construction companies from underbidding them through low wage rates.

Specifically, the Davis Bacon Act requires contractors and subcontractors to pay workers no less than the prevailing wage for the specific type of work performed, which the government sets. The contractor can meet the prevailing wage rate by paying simply regular wages, or by paying a combination of regular wages and employer-provided fringe benefits

The government enforces the Davis Bacon Act by requiring contractors and subcontractors to submit weekly certified payroll records to the government agency in charge of the project. Contractors thus have to classify each worker based on the type of work performed, and then pay the worker according to the rate set by the Department of Labor for that specific type of work. The government agency in charge of the construction project will not pay the contractor unless it receives these weekly certified payroll reports. Contractors are also responsible for ensuring that any sub-contractors engaged on the project comply with the prevailing wage rates and submit weekly payroll reports either to the prime contractor or to the government directly.

The Davis Bacon Act, however, does not create a private right of action for individuals, meaning that the law does not allow individuals to sue for violations of the Davis Bacon Act. However, the federal False Claims Act, 31 U.S.C. § 3729, et. seq., goes hand in hand with the Davis Bacon Act because the False Claims Act prohibits individuals or companies from submitting false claims to the government for payment. An individual violates the False Claims Act when he or she (1) makes a false statement or creates a false record, either knowing that it is false or with deliberate ignorance that it is false, (2) submits a claim for payment to the federal government, (3) makes the false statement or record with the purpose of getting a false claim paid or approved by the government, and (4) the false statement or record was important to the government’s decision to make the payment.

Thus, if a contactor submits a certified payroll report as required by the Davis Bacon Act in order to receive money from the government to fund the project, but has misclassified workers or falsely claims to be paying prevailing wages to its workers, the contractor not only violates the Davis Bacon Act, but also the False Claims Act. In most cases, a violation of the Davis Bacon Act will result in a violation of the False Claims Act. In this way, workers can enforce their rights to prevailing wages by bringing cases under the False Claims Act when they believe their employer is violating the Davis Bacon Act.

Recent Prevailing Wage False Claims Cases

The federal courts have recently reinforced the principle that violations of the Davis Bacon Act create liability under the False Claims Act.

For example, in Wall v. Circle C Construction, 2014 WL 4477367 (6th Cir. 2012) a federal court held the defendant contractor liable for violations of both the Davis Bacon Act and the False Claims Act. In that case, the defendant, Circle C, won a federal contract to construct buildings on a military base. Circle C signed a contract in which it agreed to pay all workers involved in the project at the applicable prevailing wage rates. Circle C then hired a separate company as a sub-contractor to complete the project’s electrical work. When Circle C submitted its certified payroll reports to the government, as required by the Davis Bacon Act, it failed to include the sub-contracted electricians. However, Circle C did submit payroll reports for its other subcontractors. Circle C did not inform the electrical subcontractor of the Davis Bacon Act obligations or verify that the subcontractor would submit its own payroll reports.

The court ultimately found Circle C in violation of the Davis Bacon Act because it failed to include the electricians in its payroll reports, and because the electricians had been paid less than the prevailing wage rate. The court also held that Circle C had violated the federal False Claims Act. Circle C made two false representations to the government: first, Circle C failed to include all of the electricians working on the project in its payroll reports; and second, the payroll reports falsely asserted that Circle C paid the prevailing wage rate to its employees. These payroll reports were submitted to the government in order to get the government to pay Circle C for the project. Lastly, the Circle C case affirmed that prime contractors are responsible for the prevailing wage violations of their sub-contractors.

In another recent case, International Brotherhood of Electrical Workers, Local Union No. 98 v. Farfield Company, 2013 WL 3327505 (E.D. Pa. 2013), the court found the defendant liable under the Davis Bacon Act for misclassifying electricians as laborers and groundsmen in order to pay them at a lower prevailing wage rate. This misclassification allowed Farfield to underestimate its labor costs and underbid competitors in order to win several federally-funded construction projects. Farfield tried to argue that because it actually saved the government money, it could not be liable under the False Claims Act. The court disagreed, holding that “false certification of [payroll records] creates liability when certification is a prerequisite to obtaining a government benefit.” Because Farfield had submitted a claim to the government stating that its workers were paid the proper prevailing wage in order to obtain money from the government, that was sufficient to find Farfield in violation of the False Claims Act.

State False Claims Laws

Most states have similar prevailing wage laws for state construction projects. For state contracts, various local agencies are responsible for setting the prevailing wage rate. For example, in Massachusetts, the state prevailing wage law, M.G.L. c. 149, § 26, et. seq. requires contractors on all “public works” projects to pay employees engaged as “mechanics and apprentices, teamsters, chauffeurs and laborers” at a “rate not less than the rate or rates of wages to be determined by the commissioner.” State “public works” projects include work on state or municipality projects, for example installing new equipment at public schools, or building a new police station. And, Massachusetts has a False Claims Act, M.G.L. c. 12, §§ 5A-5O, that prohibits false claims for payment to the state government.

In conjunction, these laws work much like the federal laws discussed above, but apply to construction projects funded by the state government. Notably, however, the Massachusetts prevailing wage law allows workers to bring a lawsuit to enforce its provisions, independent of a false claims lawsuit.

Likewise, California has a prevailing wage statute, Cal. Lab.Code §§ 1770-80, that is administered by the state’s Department of Industrial Relations. It applies to all public works construction projects valued at more than $1,000.00. California’s False Claims Act, Gov. Code, § 12651, mirrors the federal False Claims Act, and has been interpreted by California state courts to hold contractors liable for false claims in the context of prevailing wage violations. See, e.g., Thompson Pacific Construction, Inc. v. City of Sunnyvale, 66 Cal.Rptf.3d 175 (2007).

Similarly, New York’s prevailing wage law, N.Y. Lab. Law Art. 8 and Art. 9, enforces minimum wages on public works, and New York’s False Claims Act, N.Y. Fin. Law. §§ 187-194, prohibits the making of a false claim to the government.

Many other states also have enacted prevailing wage and false claims laws that operate to draw increasing attention to workers’ rights, and provide multiple legal avenues for workers to address violations.

Bringing a false claims case for prevailing wage act violations

Bringing a claim under the False Claims Act is somewhat different than most legal claims. The law prohibits individuals from making false claims to the government. As such, the “injured party” in these cases is the government. However, the Act allows individuals to bring claims on behalf of the government for violations that they witness or that affect them in some manner. This is known as a “qui tam” lawsuit, and the individual who brings the claim is known as a “relator,” or, more commonly, a “whistleblower.” Once a whistleblower files a false claims act complaint with the government, the government investigates the claim and decides whether it will intervene in the lawsuit itself, or whether the whistleblower can proceed with the action on his or her own.

The Act provides strong incentives for individuals with inside information, for example a worker who knows his supervisor is submitting false claims to the government, or not paying the prevailing wage, to come forward and report such violations. The initial complaint filed with the government is strictly confidential, and the law prohibits any form of retaliation against the whistleblower by the defendant. And, in cases where the government intervenes, whistleblowers receive 15%-25% of the total amount recovered from the defendant, in addition to attorney’s fees. If the government does not intervene, and the whistleblowerer brings their own lawsuit against the defendant, the whistleblower is entitled to 25%-30% of the amount recovered from the defendant, plus attorney’s fees.

In many cases, this amount is in the hundreds of thousands of dollars. The False Claims Act provides for a civil penalty of between $5,000 and $10,000 for each false claim, and each false payroll report submitted to the government is considered a separate violation. The Act also provides for treble damages, meaning the liable party is on the hook for three times the amount of money it receives from the government as a result of the false claim. Thus, the whistleblower stands to receive a significant reward.

False Claims Act cases must be filed within six years of the violation, or within three years of when an individual should reasonably know that a violation has occurred.

If you believe your employer is not paying you properly, feel free to call our office for a free and confidential consultation to discuss your rights and your options. Our Massachusetts law firm works with local counsel throughout the country to enforce worker’s rights and ensure that government funds are distributed properly.

Case Report: Longwood Security Class Action Notice Mailed

Yesterday 812 former and current security officers were mailed a notice informing them that (1) there is a pending case against Longwood Security Services, Inc. for unpaid wages, (2) the court certified the case as a class action, (3) they are class members, and (4) that we are the lawyers for the class (Nicholas F. Ortiz and Elizabeth Ryan, co-counsels). The case is based on Longwood’s practice of deducting pay from hourly security officers’ wages despite those officers being required to perform job duties during those breaks, such as remain on site, stay in uniform, monitor radios and respond to calls. Also, those officers were often so busy during shifts that taking any kind of break was very difficult or impossible.

A copy of the notice can be viewed here: Longwood Wage Class Action Notice. If you got a copy of the notice, or think you should have, and want to talk, please feel free to give us a call.