Changes may soon be coming to Massachusetts noncompetition laws. Bill H4434, which passed unanimously in the House and was referred to the Senate Rules Committee last week, would adopt the Uniform Trade Secrets Act and enact the Massachusetts Noncompetition Agreement Act. The bill has yet to be approved by the Senate or the Governor, so its enactment is not guaranteed. Given its strong support in the House, however, a preview of the bill is in order.

            We will be covering the bill as part of a two-part series, starting with Noncompetition Act. Next week, we will cover the Uniform Trade Secrets Act, which has already been adopted in 47 other states.

 

Massachusetts Noncompetition Agreement Act

            The Massachusetts Noncompetition Agreement Act prescribes rules for noncompetition agreements arising out of employment relationships and applies to competition with the employer after employment has ended. The bill lists more than a half-dozen types of covenants that would be exempted from the new law although otherwise fitting within the statutory definition of a noncompetition agreement.

 

            These exemptions include:

  • Covenants involving the solicitation or hiring of employees of the employer; 
  • Covenants not to solicit business with customers of the employer; 
  • Covenants made with someone who is a significant owner of a business entity when the agreement is made in connection with disposing the ownership interest of a business; 
  • nondisclosure or confidentiality agreements; 
  • Invention assignment agreements.

 

            Nondisclosure agreements not exempted by the proposed statute and entered into on or after October 1, 2016 would have to meet certain requirements in order to be valid and enforceable. The requirements include both technical and substantive requirements.

            The technical requirements are relatively straightforward. The agreement must be in writing, signed by both parties, and explicitly state that the employee has a right to consult with counsel prior to signing the agreement. Under the language of the bill, the agreement will have to be provided to the employee at a specific time to be enforceable: at the time of the formal offer of employment, or ten business days before the start of the employment, whichever is earlier. For contracts enacted after that deadline, an agreement will only be valid if it is supported by additional consideration — not just continuation of employment.

            The substantive requirements of the bill are far less clearly defined and therefore may be subject to some interpretation. Overall, the bill requires that the content of noncompetition provisions be no broader than necessary to protect a legitimate business interest of the employer, and limits the amount of time such an agreement could be effective to 12 months from the cessation of employment. (This timeframe would be extended to 2 years under certain circumstances involving misbehavior on the part of the employee.) The bill would also limit the geographical scope of any such agreement, to limit the restrictions on the employee only to the extent necessary to protect the employer’s interests.

            In addition, noncompetition provisions would not be enforceable against certain types of workers:

  • Nonexempt employees;
  • Students partaking in internships or other short-term employment while enrolled in undergraduate or graduate education programs;
  • employees that have been laid off;
  • employees age 18 and under.

            However, if such a provision were included in a comprehensive employment contract, the inclusion of a noncompetition provision would not render the rest of the contract unenforceable. In addition, the bill gives courts discretion to reform agreements to render them valid and enforceable, or impose noncompetition conditions as a remedy for other legal wrongs, such as breach of contract or tort.

            If this bill does pass, it will be important to review any standard employment contracts used by your business to ensure that they comply with the new law. If questions or issues arise, an attorney can help you ensure that your business’ interests are protected.

 

Thumbnail image for FullSizeRender.jpg A recent unpublished decision by the Massachusetts Appeals Court found that an employee could not establish a case for age discrimination under Massachusetts law when his entire job class was eliminated as part of a reduction in force. See Richard A. Porio v. Department of Revenue, 13-P-1621, (memorandum and order pursuant to Rule 1:28, August 27, 2015). Plaintiff is an employee who was laid off when his job class was eliminated, while other, younger members of his same job classification were “provisionally promoted” to a higher job class prior to the cuts. The court held that plaintiff could not establish a prima facie case of age discrimination — that is, his termination did not result in a reasonable presumption of age discrimination sufficient for the court to allow him to proceed with his claim against his employer. In order to raise that presumption, plaintiff would have had to show evidence that the employer failed to treat age neutrally in deciding which positions to eliminate, which the plaintiff failed to do.

The court also found that plaintiff could not proceed on a “disparate impact” theory. Disparate impact does not require a discriminatory motive, but instead focuses on business practices that have the effect of excluding a protected class of people from hiring or promotions. Generally, a plaintiff must show statistical evidence that a particular business practice, usually a testing or measuring procedure, has the same effect as intentional discrimination, and is not a practice that is related to job performance. The court did not specifically apply the facts of plaintiff’s case to this analysis, but instead found that the “fundamental premise” of disparate impact theory does not apply to this scenario, where an entire group of employees is affected by a reduction plan.

Age discrimination suits in Massachusetts can have costly impacts on businesses. Even in the case discussed above, which was ultimately a win for the plaintiff’s employer, the parties were involved in proceedings from 2002 to 2015. Massachusetts businesses are subject to both federal and state age discrimination statutes, and may be liable if age was a contributing factor to a decision at any stage in the employment process, including hiring, promotion, and termination. In addition tothe time and cost of litigation, if found liable, a business may need to pay extensive damages, including emotional distress and treble damages. Furthermore, employers may be hit with fines and other administrative penalties through the Massachusetts Commission Against Discrimination (MCAD).

America’s workforce is growing older, and will continue to do so for the foreseeable future. Now more than ever, employers should begin to think about mitigating the risk of an age discrimination lawsuit through planning and development of employment practices. Whether you are facing a lawsuit or trying to avoid one, an experienced business attorney can help mitigate potential losses in a way that is right for your business.

On November 7, 2014, the Australian Department of Immigration and Border Proteciton gave notice of a data breach that morning affecting the leaders of the G20.  As described:

The personal information which has been breached is the name, date of birth, title, position nationality, passport number, visa grant number and visa subclass held relating to 31 international leaders (ie prime ministers, presidents and their equivalents) attending the G20 leaders summit.

Affected by this data breach were, among others, President Barack Obama, Russian President Vladimir Putin, German Chancellor Angela Merkel, and UK Prime Minister David Cameron.  The cause of the data breach was the autocomplete feature of the “To:” field in Microsoft Outlook.

The autocomplete feature is a useful way to send an e-mail without having to look up an email address.  Unfortunately, without careful attention, it is easy for any person within a government agency, nonprofit organization, or commercial enterprise to accidentally send a message to the wrong person.  

As with the unfortunate Australian government employee, it is all too common for emails to contain personally identifying information and for such emails to be unencrypted.  It is easy to imagine the same occurring with trade secrets, protected health information, or attorney-client privileged material.

Massachusetts businesses are required to protect personal information pursuant to G.L. c. 93H and the implementing regulations at 201 CMR 17.00.  Business owners and managers should take care to review their e-mail policies regarding the transmission of unencrypted personal information and the use of the autocomplete feature as part of their written information security program.  Employers should take care, further, to ensure that such a program does not conflict with the NLRB’s December 2014 decision in Purple Communications.  In developing such a program, it is best to consult with experienced privacy attorneys.

 

On June 25, 2013, the Massachusetts General Court’s (the State Legislature) Joint Committee on Labor and Workforce Development  held a hearing on, among other items, HB 1766, the Healthy Workplace Bill.  The bill would create a new Chapter 151G of the General Laws; Section 3(a) is the key provision.  It states “No employee shall be subjected to an abusive work environment.”  An abusive work environment under the bill is one where the employer or employees subjects the victim to “abusive conduct” intentionally causing physical or psychological harm.  “Abusive conduct” is defined as including repeated “derogatory remarks, insults, and epithets…conduct of a threatening, intimidating, or humiliating nature; or the sabotage or undermining of an employee’s work performance.” A single instance may be sufficient to give rise to a violation.   A claim may be made directly against the employer and the offending employee via direct lawsuit; unlike racial or sexual harassment claims, there is no prerequisite of filing with the Massachusetts Commission Against Discrimination.  A victim may be awarded back pay, front pay, emotional distress damages, punitive damages, and attorney’s fees, among other things.  It puts the burden on the employer to prove a defense that the complaint was the result of a reasonable performance evaluation, poor performance, or misconduct.

The law is being promoted in Massachusetts, with variants nationwide, to fill a perceived gap.  Claims for intentional infliction of emotional distress may require a physical manifestation that does not always occur.  Claims for tortious interference with contractual relationship lack an emotional distress component and may require additional proof to give rise to liability.  Defamation claims are of no use when the vitriol is actually true, though it is said offensively.  Anti-discrimination laws only protect against harassment on the basis of protected class status (e.g., race, gender, religion, orientation). 

Such a law, if passed, should give a Massachusetts employer pause.  If an employee has a bad day and becomes angry with another employee, the employer may become liable.  If an employer places an employee on a performance improvement plan due to poor performance, the employer has to prove the performance was poor, unlike simply arguing such claim is not pretext as in discrimination claims.  An accused employer or employee may be protected, however, under the First Amendment to the U.S. Constitution.  Prof. Eugene Volokh has analyzed a number of cases on the question of workplace harassment and the First Amendment, finding that the issue remains an open one. 

Raymond Law Group is watching the developments with this legislation and will ensure its clients are properly advised on their rights and responsibilities. 

The Supreme Judicial Court of Massachusetts ruled last week that a city cannot recharacterize vacation pay from a recently-terminated administrator.  The case centered on the 2007 termination of Gary Dixon, administrator of the McFadden Memorial Manor nursing home in 2007.   Dixon brought suit against the city of Malden, which operated the nursing home, seeking $13,700 in unused vacation pay.

Despite high quality evaluations, McFadden had proven unable to fill to capacity, and the cost of repair was estimated at $1 million.  Dixon was terminated while the city was deliberating whether or not to put public money toward renovation of the nursing home. 

The Superior Court dismissed the suit due to the city’s continued payment of additional pay and benefits, the Supreme Judicial Court reversed the decision.  The SJC instruced the Superior Court to award Dixon vacation pay, attorneys’ fees, and court costs.  The Supreme Judicial Court noted that payment of salary and benefits post-termination does not substitute for payment of unused vacation time, which was shown to be 50 days.  Under the Massachusetts Wage Act, a terminated employee is explicitly entitled to payment of unused vacation upon termination.

Massachusetts employers and employees alike should take heed of this ruling.  Raymond Law Group can help make sure clients are advised of the requirements of way payment laws. 

If you manage a business that deals with Massachusetts residents or property, you need to know a few things about the new medical marijuana law and coming regulations.

In November, Massachusetts voters approved a ballot question which allows patients with qualifying medical conditions to obtain and use medical marijuana. Seventeen other states currently allow medical marijuana with varying degrees of regulation. By May 1, 2013 the Massachusetts Department of Public Health will issue regulations concerning applications for non-profit medical marijuana treatment centers as well as details on the rules that will govern such dispensaries, their employees and qualifying patients.

Some businesses may think the new medical marijuana law will not impact them, but they are mistaken. There will be at least two areas where the medical marijuana law will have an immediate impact: employment law and landlord/tenant law.

In terms of employment law, employers will need to address how the law impacts their controlled substance policies including, but not limited to, drug testing. The law contains an anti-discrimination clause that prohibits any qualifying patient from being penalized or denied any right or privilege for using medical marijuana. Employers should review their employment handbooks to ensure their employment policies and procedures are in accord with this new law and that their controlled substance policies will not be in violation.

Another business segment that will be immediately affected will be landlords and their tenants. Commercial and residential Landlords, property managers and leasing agents will be faced with how to address prospective dispensaries as tenants as well as marijuana use by tenants who are qualified patients. The anti-discrimination clause in the new law is broad and encompasses any denial of any right or privilege based on medical marijuana use. In addition to preventing discrimination based on marijuana use, the law also will allow certain persons a hardship cultivation license which will allow a person to cultivate and store a limited number of marijuana plants. Landlords need to be prepared to address these concerns and review their leases and procedures to confirm they are in accord with the new law.

There will be many novel legal issues associated with the medical marijuana laws in Massachusetts and other states. Businesses will be well advised to review the law with qualified attorneys to develop a strategy to address these many issues.

While companies are often focused on outsider risks such as breach of their systems through a stolen laptop or hacking, often the biggest risk is from insiders themselves. Such problems of access management with existing employees, independent contractors and other persons are as much a threat to proprietary information as threats from outside sources.

In any industry dominated by two main players there will be intense competition for an advantage. Advanced Micro Devices and Nvida dominate the graphics card market. They put out competing models of graphics cards at similar price points. When played by the rules, such competition is beneficial for both the industry and consumers.

AMD has sued four former employees for allegedly taking “sensitive” documents when they left to work for Nvidia. In its complaint, filed in the 1st Circuit District Court of Massachusetts, AMD claims this is “an extraordinary case of trade secret transfer/misappropriation and strategic employee solicitation.” Allegedly, forensically recovered data show that when the AMD employees left in July of 2012 they transferred thousands of files to external hard drives that they then took with them. Advanced Micro Devices, Inc. v. Feldstein et al, No. 4:2013cv40007 (1st Cir. 2013).

On January 14, 2013 the District Court of Massachusetts granted AMD’s ex-parte temporary restraining order finding AMD would suffer immediate and irreparable injury if the Court did not issue the TRO. The TRO required the AMD employees to immediately provide their computers and storage devices for forensic evaluation and to refrain from using or disclosing any AMD confidential information.

The employees did not have a non-compete contract. Instead the complaint is centered on an allegation of misappropriation of trade secrets. While both AMD and Nvidia are extremely competitive in the consumer discrete gpu market involving PC gaming enthusiasts, there are rumors that AMD managed to secure their hardware to be placed in both forthcoming next-generation consoles, Sony PlayStation 4 and Microsoft Xbox 720. AMD’s TRO and ultimate goal of the suit may therefore be to preclude any of their proprietary technology from being used by its former employees to assist Nvidia in the future.

The law does protect companies and individuals such as AMD from having their trade secrets misappropriated. The AMD case has only recently been filed and therefore it is unclear what the response from the employees will be. What is clear is how fast AMD was able to move to deal with such a potential insider threat. Companies need to be aware of who has access to what data and for how long. Therefore, in the event of a breach, whether internal or external, companies can move quickly to isolate and identify the breach and take steps such as litigation to ensure their proprietary information is protected.

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Though public employees tend to enjoy greater protections that private sector employees, their personal activities posted online can cost them their jobs.  On January 11, 2013, the California Commission on Professional Competence issued an influential ruling upholding the termination of an adult actress turned teacher.  The three-judge panel issued a 46-page decision denying the Stacie Halas’s appeal to return to work after her school’s administration discovered her previous career. 

Halas, formerly known as Tiffany Six, was three years removed from a brief career in the adult entertainment industry when she was hired in 2009.  She taught science at the Richard B. Haydock Intermediate School in Oxnard, California.  Halas did not disclose her past upon hiring or during her employer.  

This past April, however, students and teachers became aware of Halas’s past, with explicit content readily available online.  This caused an immediate disruption, physically manifested by profanity engraved on her classroom window.  Halas was terminated because she could no longer be an effective teacher.  Halas was fired from two previous teaching jobs for similar reasons.

Ethics scholar Jack Marshall has long studied the “Naked Teacher Principal,” which he describes as being an irreversible stain on a teacher’s professional ability and reputation.  Marshall writes, “The principle, based in accountability and responsibility, holds that once a teacher has allowed naked or otherwise sexually provocative photographs of herself or himself to become available over the internet, that teacher will be unable to properly maintain the respect of and proper professional relationship to students, serve as a role model, or be trusted to meet professional standards.” 

Halas appealed the decision to the California Commission on Professional Competence, who ruled last week that the ever-present availability of Halas’s adult film work inhibited her ability to effectively teach and run a classroom. 

 While this decision may not apply to many because it deals specifically with pornographic videos, it is yet another reminder to be careful about what you put in the public purview and to always be up front about your past when seeking work.  Even if the subject matter is embarrassing and not itself a bar to employment, a lack of candor in the job application process is a frequent cause for lawful termination.

*Special thanks to Aaron Spacone for assisting with the drafting of this post.

 

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If you are a Massachusetts business owner, you have the right to see the books!

Raymond Law Group regularly represents clients seeking full access to the company books and records.  Here are the most important things to know:

  1. Whether you are an owner of a corporation; Limited Liability Company (LLC); or partnership; the law in Massachusetts  gives you the right to view the company books and records. See the following:  non-stock corporations – Mass. Gen. Laws Ann. Ch. 156C, § 9(b) ; partnerships -Mass. Gen. Laws Ann. Ch. 108A, §19;  Limited Partnerships – Mass. Gen. Laws. Ch. 109, §5(b ); see also inspections by shareholders ; Mass. Gen. Laws Ann. Ch. 156D, §§ 16.01 et seq
  2. Look to Your appropriate business agreement to identify the specific contract language that applies, if any;
  3. Make a written request / demand to see the records in a manner consistent with the operating agreement and applicable statute;
  4. If your demands are ignored; you may consider hiring an attorney. Your lawyer may file an action in the superior court to compel management to produce requested records.

Click Here to contact Raymond Law Group for assistance with getting access to the books. 

An issue that often arises is an employee, upon terminating his or her employment, attempting to solicit his former employer’s customers. An employee can plan to go into competition with his employer and may even take active steps to do so while still employed. However, an employee may not use his employer’s confidential information to do so.

A recent decision highlights the perils and remedies of trade secret misappropriation. Under Massachusetts law, trade secrets can include anything tangible or intangible or electronically kept or stored which evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement. While the recent decision by the 1st Circuit Court of Appeals highlights the perils of misappropriating a trade secret in the context of a physical product, trade secret protections extend far beyond physical products to proprietary business information such as customer lists. Confidential information such as customer lists, which companies invest time and money in developing, are protected under Massachusetts law.

The key factor in determining the existence of a trade secret is confidentiality. Factors in determining the confidential nature of business information include:

–          The extent to which the information is known outside the business

–          The extent to which it is known by employees and others involved in the business

–          The extent of measures taken by an employer to guard the secrecy of the information

–          The value of the information to the employer and to his or her competitors

–          The amount of effort or money expended by the employer in developing the information

–          The ease or difficulty with which the information could be properly acquired or duplicated by others

A list of customers is a trade secret and if a former employee utilizes such a list they can be found liable for misappropriation of trade secrets. If you or your company has been the victim of a former employee utilizing your confidential and proprietary information to strike out on their own, an attorney can help you protect your trade secrets and recover damages including lost profits.