Legal Bites

On March 10, 2011, the Massachusetts Supreme Judicial Court found that the inclusion of a mandatory arbitration clause in an employment agreement did not preclude a bound employee from filing a complaint with the Massachusetts Commission Against Discrimination (“MCAD”).  In Joule Inc. v. Simmons, a female employee was required to sign a document agreeing to arbitrate all claims arising out of her employment as a condition of her employment.  Upon her termination, the employee did not initiate arbitration proceedings, but instead filed a complaint with MCAD claiming that her employer had created a hostile work environment against women with children and terminated her in retaliation for complaining about the issue to a manager.  The employer filed a motion to compel arbitration in Superior Court, which was denied.

            The Massachusetts Supreme Judicial Court held that the arbitration agreement could not preclude the employee from filing a complaint before MCAD because the agency itself was not a party to the agreement.  It is well established by both Massachusetts and Federal law that employers may require employees to sign mandatory arbitration agreements.  However, under state law, MCAD is an independent party with the authority to investigate claims of discrimination both on its own, and at the request of individuals.  In an MCAD investigation, it is the agency, and not the complainant, that prosecutes the complaint.  Although a mandatory arbitration agreement may be binding on the employee, it cannot be enforced against entities that are not party to the agreement.  Therefore, the Court found that the arbitration agreement could not preclude MCAD from conducting an investigation of a discrimination claim unless the agency itself was a party to the agreement.  Nevertheless, the Court further held that a valid arbitration agreement could prevent the employee from intervening in the MCAD proceedings and proceeding in her own name.

            Under the Massachusetts Supreme Court’s decision, employers should be aware that an arbitration agreement cannot prevent an employee from filing a complaint with MCAD, or from participating in the agency’s investigation by supplying documents or testifying as a witness.  However, if an arbitration agreement clearly and unmistakably waives the employee’s right to bring an employment discrimination claim in court, it may preclude the employee from intervening in MCAD proceedings on their own behalf.

Keywords: Mandatory Arbitration Agreements, Massachusetts Commission Against Discrimination, Massachusetts Supreme Judicial Court, Hostile Work Environment

On March 15, 2011, the Boston Globe reported that Immigration and Customs Enforcement, or ICE, had begun an investigation into whether Upper Crust Pizzeria has harbored and exploited undocumented immigrants. According to the Globe’s sources, unidentified former employees of Upper Crust, the restaurant chain’s expansion over the past decade has relied on illegal laborers from a small town in Brazil.  The sources further stated that ICE is looking at how the employees arrived in the United States, whether Upper Crust is housing the workers, and other aspects of the arrangement.  This federal investigation is the second in the past few months, as the Department of Labor is investigating Upper Crust’s compliance with a 2009 order to pay back overtime wages to employees.

When asked for comment, ICE stated that it had no information on the investigation available.  An attorney for Upper Crust, however, was adamant that Upper Crust was unaware of any such investigation, and called allegations of exploitation of immigrant workers “false, malicious, and defamatory.”  Local activists, undeterred by Upper Crust’s claims of innocence, have started boycotts of the chain.

The full article is available here.

On January 31, 2011, the First Circuit refused to uphold claims that an employee’s termination violated the first amendment.  In Pacheco v. Pereira, a corrections officer suspected of raping a woman at gunpoint was terminated for violating several laws applicable to corrections officers.  The employee claimed that he was terminated on the grounds of his political affiliation with the New Progressive Party.  He alleged that his supervisor had harassed him and made comments that he should instead belong to the Popular Democratic party.  The First Circuit held that the corrections officer had not produced sufficient evidence that his employer was aware of his political affiliation to sustain a first amendment claim.  Although the employee’s supervisor was aware of his affiliation, he did not make the decision to terminate him.  There was no evidence that the person who did decide to terminate the corrections officer was aware of his political affiliation.  Additionally, there was no indication that the employee’s political affiliation was a substantial or motivating factor behind his termination.   

The First Circuit’s decision clarifies that an employer may violate the first amendment if there is sufficient evidence to demonstrate that employment decisions were made on the basis of political affiliation. To avoid liability, employers should therefore take precautions to minimize contentious political discussions in the workplace.

On the Massachusetts District Court held that the termination of an employee who had taken a seven-week faith based healing trip to the Philippines with her husband did not violate the Family Medical Leave Act. In Tayag v. Lahey Clinic Hosp. Inc, a female employee requested leave time under the FMLA to care for her husband who had recently undergone an angioplasty surgery. While the employee was in the Philippines, her husband’s doctor submitted a medical certification claiming that it was not necessary for the employee to take leave to care for her husband. The employee claimed that it was necessary for her to take FMLA leave because her husband believed that faith based healing was essential to his recovery and he was unable to travel without her assistance.
The District Court held that in the circumstances, the employee’s actions did not fall within the definition of “to care for” as defined by the FMLA. Under the FMLA, an employee is permitted 12 weeks leave to care for a family member if they are directly involved in the process of providing them with psychological or physical support. Nearly half of the healing trip in question was spent visiting family and friends. The Court therefore found that the trip could not be considered “care” for the employee’s husband. Consequently, the employee’s claim under the FMLA was unsuccessful.
The Court’s decision does not foreclose the possibility that a faith based healing trip could fall within the scope of the FMLA. Instead, it encourages employers to examine the specific circumstances of such a request to determine if care is the primary purpose of the requested leave.

On February 11, 2011, the U.S. District Court of New Hampshire in ANSYS Inc. v. Computational Dynamics North America Ltd, refused to award attorney’s fees to a software development company for costs incurred during litigation over a trade secret misappropriation claim filed by a competitor.
The suit arose after one of ANSYS’s highly skilled physicists left for its biggest competitor, Computational Dynamics North America Ltd (CDNA). A few days before leaving, the employee accessed and downloaded several highly secret documents prepared by ANSYS. Since the downloaded materials were not relevant to the employee’s position, ANSYS viewed this activity as highly suspicious and filed suit against the employee and CDNA seeking preliminary and permanent injunctive relief. The New Hampshire District Court denied ANSYS’s request for preliminary relief and that decision was affirmed on appeal last year. Following the First Circuit’s decision ANSYS decided to voluntarily dismiss the claims against CDNA. CDNA promptly filed the current suit for attorney’s fees on the grounds that ANSYS’s original claims had been frivolous.
The District Court found that attorney’s fees could not be awarded to CDNA under the Uniform Trade Secrets Act. To qualify for such fees CDNA needed to establish that ANSYS’s claim was frivolous and brought in bad faith. The First Circuit’s denial of ANSYS’s request for a temporary injunction was not alone sufficient to establish that its claims were made in bad faith. Although ANSYS was unable to identify the specific trade secrets that were allegedly misappropriated, it was able to identify the suspicious behavior of the employee and the specific type of secrets he had access to. As a result, the court found that ANSYS’s trade misappropriation claims were not frivolous and therefore attorney’s fees could not be granted to CDNA.
The District Court’s decision confirms the difficulty of gaining attorney’s fees under the Uniform Trade Secrets Act. To gain attorney’s fees, an employer must be able to fully demonstrate that the underlying action was brought in bad faith.

A bill that would overhaul the current rules relating to employee noncompetition agreements was recently re-filed in Massachusetts by Representatives Will Brownsberger and Lori Ehrlich. The original version of the bill was submitted in late 2009 as House No. 1799. During the summer of 2010, the bill was included in an economic development bill along with other provisions relating to business issues. Although the economic development bill passed in July 2010, the noncompetition section was dropped during the final negotiations.

The new bill, entitled “An Act Relative to Noncompetition Agreements” contains several significant changes to the existing law on non-competes:

• The bill requires that all non-competes to be embodied in writing, signed by both parties, and in most circumstances provided to the employee at least seven business days prior to the commencement of employment. If the employee is already employed at the time the non-compete is presented, the employer must provide notice and some form of benefit or consideration, beyond just continued employment.

• The bill codifies common law by requiring that non-compete agreements must be reasonable in duration. A period of six months from the end of employment would be considered presumptively reasonable. In no event could a non-compete limit an employee’s activities for longer than one year. Similarly, “garden-leave” agreements that compensate an employee for refraining from competitive activities would be restricted to two years.

• In the event that an employer claimed a breach of a non-compete agreement, the new bill would render the employer liable for the employee’s attorney’s fees. Such circumstances would include those where the court declined to enforce a material restriction embodied in the agreement or found that the employer acted in bad faith in connection with the agreement’s enforcement. However, the bill does provide a safe harbor for employers to avoid having to pay the employee’s legal fees. To fall within the safe harbor, the non-compete cannot be more restrictive than the “presumptively reasonable” restrictions that are set forth in the bill or the employer can objectively demonstrate that they reasonably tried to fit within the safe harbor provision.

• The bill prohibits multi-state employers from avoiding its provisions by involuntarily transferring employees out of the state of Massachusetts. If an employee has been a resident of Massachusetts or employed within the state for at least thirty days at the time of their termination, the provisions of the bill would apply.

• If enacted, the new bill would only apply to non-competes entered into after January 1, 2012.

Although the new bill would limit the extent of non-competes, it is significantly less restrictive than the bill that advanced through the House last summer. Absent from the new bill are requirements that the non-compete be embodied in a separate writing and that an employee make over $75,000 per year to be subject to a non-compete. Additionally, the endorsement of garden leave clauses and the creation of safe harbors to avoid liability for attorney’s fees are new to the re-filed bill.

Although noncompetition legislation has been controversial in Massachusetts, the original version of the bill received considerable support last year. The co-sponsors of the bill hope that the modified legislation will pass during the current session as a result of the revisions. Currently, there is no timeline for a vote on the modified bill.

On February 8, 2011, after four days of deliberation, a jury awarded $46 million to plaintiffs in a case involving a 2007 shooting at a Denny’s restaurant near Seattle, after finding the family-dining company negligent for not adequately protecting its customers and employees. The award was a record amount for personal injury cases in Washington state. Throughout case, Denny’s maintained that it was not negligent and that the shooting was a random act of violence which Denny’s could not have prevented. In a statement issued after the verdict, Denny’s officials said, “We continue to believe that this tragedy was the result of a random act of violence that could not have been foreseen or prevented by the company or its local restaurant personnel.” Nevertheless, faced with such an astronomical jury verdict, Denny’s insurance company has negotiated a settlement with the plaintiffs which reduced the payment to the plaintiffs from $46 million to $13 million in exchange for an agreement by Denny’s to refrain from appealing the verdict, which would likely have tied the case up for several years. This verdict may indicate a trend for the pubilc, of whom juries are made up, to expect restaurants and other business owners to know more about their customers and to pay greater attention to protecting customers, staff and personnel, or else face serious legal and financial consequences.

Many business owners, big and small alike, are anticipating that the federal government may become more “business friendly” now that the Republicans have gained control of the majority of seats in the House or Representatives.  However, complicating this new “business friendly” approach is the fact that labor and employment matters are largely driven by the President because he is responsible for staffing, operating, and managing administrative agencies such as the EEOC, the DOL, and the NLRB.  For example, the U.S. Department of Labor recently adopted a strategic plan for the next 5 years which fairly abashedly favors the employee.  To quote the DOL, the strategic plan is “about workers” and “about accountability” for employers.  Under the plan, the DOL has made clear its expectations that employers have the burden to comply with employment laws and that employers will be expected to be in compliance if and when visited by a DOL investigator.  Creating even greater work for employers, the DOL is considering establishing new regulations which, if passed, might requiring employers to adopt written plans to address any violations of labor law, or face consequences, including potential financial penalties, if the plans have not been adopted.  Department of Labor Strategic Plan FY 2011-2016  This examples shows that unless the President initiates a change in his policies or Congress revises a statute that these federal agencies are charged with enforcing, the landscape for businesses may not actually change that much.

On January 19, 2011 the Supreme Court in NASA v. Nelson unanimously determined that it is constitutional for the federal government to conduct background checks on the employees of government contractors in its capacity as an employer.  The suit was filed by twenty-eight employees of the Jet Propulsion Laboratory in Pasadena, CA following a decision by the Federal government to expand the hiring process used for federal employees to employees of government contractors.  Rigorous background checks have always been required for full time employees of the federal government.  However, prior to 2007, employees of government contractors were only obligated to undergo the application process instituted by their employers and were not subject to the federal requirements. 

The Jet Propulsion Laboratory is owned by NASA, but exclusively operated by the California Institute of Technology, a private university.  Since 1958, it has developed most of the country’s unmanned space missions.  The employees who filed the suit had all been hired without background checks and several had worked at the lab for decades.  In 2007, the lab employees were informed that they had to submit to background checks by the federal government or face termination.  The background checks consisted of interviewing past employers, landlords and schools and requiring employees to fill out a form inquiring into their drug history and any subsequent counseling received.  The plaintiffs to the suit claimed that when made by the federal government, these inquiries were an unconstitutional violation of their right to informational privacy.

The Supreme Court held that the government’s background checks were not unconstitutional.  Although the majority did presume the existence of a constitutionally protected interest at play in the case, it found that it was not relevant to reasonable requests by the government in its capacity as an employer.  The Court found that like private employers, the government has a legitimate interest in ensuring the security of its facility as well as the reliability and competence of its workforce.  The decision thus cited the wide use of similar open-ended questions in the private sector as testimony to their reasonableness.  Furthermore, the court found that requiring employers to ask more detailed questions would be over-burdensome due to the difficulty in creating an exhaustive “laundry list” of questions that would capture the reasons why a person might not be suitable for a particular job.

Following the Supreme Court decision, both public and private sector employees may be subject to background checks.  The ruling indicates that when acting in its capacity as an employer, the government should be treated similarly to private employers. Consequently, all employers may take reasonable steps within the bounds of other state and federal laws to ensure the reliability of their work force, even where it requires asking sensitive information.