Massachusetts Legislature Passes Non-Compete Legislation

By Jennifer Belli

The Massachusetts Legislature has passed a major overhaul of non-compete law, known as the “Massachusetts Noncompetition Act.”  Assuming Governor Charlie Baker signs the bill, it will apply to noncompetition agreements entered into on or after October 1, 2018.  This alert summarizes the key provisions of the Act.

What is a noncompetition agreement?

The Act imposes minimum requirements that noncompetition agreements between employers and “employees” (broadly defined to include independent contractors) must meet to be valid and enforceable.  For purposes of the Act, a “noncompetition agreement” means:

an agreement between an employer and 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.

Notably, non-disclosure/confidentiality agreements, invention assignment agreements, employee non-solicit/no-hire provisions, and covenants not to solicit or transact business with customers, clients or vendors are not “noncompetition agreements” governed by the Act.  Likewise, noncompetition agreements made in connection with the sale of a business are not covered (provided the signatory is a significant owner of the purchased business and will receive significant consideration from the sale), nor are noncompetition agreements made in connection with an individual’s separation from employment (provided the employee is expressly given seven business days to rescind acceptance).

Are noncompetition agreements with certain categories of employees prohibited?

Yes.  The Act provides that noncompetition agreements are automatically unenforceable against four categories of employees: (1) employees who are considered non-exempt from overtime under the federal Fair Labor Standards Act; (2) undergraduate or graduate students who enter into an internship or other short-term employment relationship while enrolled in school; (3) employees age 18 and younger; and (4) employees who have been terminated without cause or laid off.  The Act does not define the terms “without cause” or “laid off,” but Massachusetts cases arising in other contexts have defined the related terms “good cause” and “just cause” quite broadly from the employer perspective.

What requirements must noncompetition agreements meet to be valid and enforceable?

Noncompetition agreements must meet a number of requirements to be valid and enforceable, including the following:

  • An agreement signed in connection with an employee’s hiring must be in writing and provided to the employee by the earlier of a formal offer of employment or 10 business days before the start of employment. As a practical matter, this means that an employee cannot begin working for 10 business days after receipt of an offer if the non-competition agreement is to be enforceable.
  • An agreement entered into after the start of employment, but not in connection with separation from employment, must be supported by “fair and reasonable consideration independent from the continuation of employment” and notice of the agreement must be provided at least 10 business days before it is to become effective. The Act does not define the term “fair and reasonable consideration,” but it certainly requires more than a de minimus  One potential option is a signing bonus directly attributed to the noncompetition agreement that is large enough to be (at least arguably) “fair and reasonable” under the circumstances.
  • The agreement must be in writing, must be signed by both the employer and the employee, and must expressly state that the employee has the right to consult with counsel prior to signing.
  • The agreement must be supported by a “garden leave clause” or “other mutually-agreed upon consideration between the employer and the employee, provided that such consideration is specified in the noncompetition agreement.” A garden leave clause is an employer’s agreement to pay an employee on a pro rata basis during the non-compete period at least half of the employee’s highest annualized salary in effect during the two years preceding the employee’s termination.  Notably, the Act does not require noncompetition agreements to include expensive garden leave provisions.  Mutually-agreed upon alternative consideration is acceptable, and the Act does not specify the amount or type of such consideration.  That said, it does appear that noncompetition agreements signed at the start of employment likely need to be supported by some consideration above and beyond the mere hiring of the employee.  An upfront agreement to pay an employee a lump sum at the time of separation from employment, for example, may suffice.
  • The restricted period may not exceed 12 months from the end of employment (except the period may be extended to up to two years from the end of employment if the employee has breached his or her fiduciary duty to the employer or has unlawfully taken, physically or electronically, property belonging to the employer).

Apart from these specific requirements, noncompetition agreements must be reasonable in all respects and consonant with public policy, as is required under existing common law.  The Act specifically provides that noncompetition agreements must be (1) no broader than necessary to protect the employer’s legitimate business interests in trade secrets, confidential information, and/or goodwill; (2) reasonable in geographic scope relative to the interests protected; and (3) reasonable in the scope of proscribed activities relative to the interests protected.

The Act creates certain presumptions of reasonableness.  For example, a noncompetition agreement will be presumed reasonable in geographic scope if it is limited to the areas where the employee provided services “or had a material presence or influence” at any time during the last two year of employment, and it will be presumed reasonable in scope of proscribed activities if it is limited to the specific types of services provided by the employee at any time during the last two years of employment.

Can a court reform an overbroad noncompetition agreement?

Yes.  As under existing law, a court may reform or revise an overbroad noncompetition agreement to render it valid and enforceable to the extent necessary to protect the employer’s legitimate business interests.

Can employers avoid the strict requirements of the Act with choice of law and forum selection clauses identifying a state other than Massachusetts?

                No.  The Act states that any choice of law provision that would have the effect of avoiding the requirements of the law is not enforceable “if the employee is, and has been for at least 30 days immediately preceding his or her cessation of employment, a resident of or employed in Massachusetts at the time of his or her termination of employment.”  Additionally, the Act requires that all civil actions relating to covered noncompetition agreements shall be brought in the county where the employee resides or, if mutually agreed by the employer and employee, in the Superior Court of Suffolk County.  It is not clear whether this provision is an attempt to limit enforcement of noncompetition agreements in federal court (for example in diversity cases), which may be subject to challenge.

What Should Employers Do Now?

                Assuming the bill is signed by the Governor, employers should promptly review and revise any form noncompetition agreements to be used after October 1, 2018 and determine what consideration to offer employees in connection with such agreements.  Employers may also wish to consider whether noncompetition agreements are necessary for certain employees or whether the same objectives can be achieved with other restrictive covenants outside the scope of the Act, such as provisions prohibiting solicitation of and doing business with customers.  Employers should also review their hiring processes and severance agreements to maximize the enforceability of noncompetition agreements.   We at Bello Welsh are available to assist and work with our clients on compliance with this new law.

               

 

Massachusetts Equal Pay Act: An Overview of the Attorney General Guidance

By Martha J. Zackin

On March 1, 2018, the Massachusetts Attorney General’s Office published guidance on the amendments to the Massachusetts Equal Pay Act (MEPA), as described below.

By way of background, the amendments, signed into law in 2016 and effective July 1, 2018, seeks to ensure that men and women are paid equal wages for comparable work. In sum, MEPA broadens the definition of comparable work, describes the limited circumstances in which variations in pay may be permissible, and prohibits employers from restricting discussions of wages or from seeking salary history from applicants.  Importantly, MEPA provides employers with an affirmative defense against pay disparities if they have completed a good faith self-evaluation of its pay practices and can show that they have made reasonable progress towards remedying pay differentials.

The Guidance, titled “An Act to Establish Pay Equity: Overview and Frequently Asked Questions,” seek to provide employers with clarification around key issues including: Read more

Bello Welsh Partner Quoted in Law360 Article

Bello Welsh partner, Ken Bello, was quoted in an article about the new Massachusetts Pay Equity Law.  The article is posted on Law360, here, and below with permission:

How Mass. Employers Should Prep For New Pay Equity Law

By Brian Amaral

Law360, Boston (August 11, 2016, 4:40 PM ET) — Massachusetts’ sweeping new law against gender pay inequality doesn’t go into effect for another two years, but employment attorneys in the Bay State are already preparing for a new regulatory regime that experts say will likely result in broad revisions to hiring policies and an increase in lawsuits.

The Act to Establish Pay Equity, passed by a Democratic Legislature and signed on Aug. 1 by the state’s moderate Republican governor, takes aim at a stubborn pay gap: Women make up nearly half the workers in the commonwealth but earn only 82 percent of what men do, according to the Massachusetts Equal Pay Coalition, which includes the Massachusetts chapter of the National Organization for Women and the Women’s Bar Association, among other groups.

The law broadens the definition of comparable work, narrows the acceptable reasons for pay disparities and explicitly permits class action suits. It also provides employers incentives to review their own policies, giving them an affirmative defense against claims of pay disparities by showing they’ve done a good-faith self-evaluation to understand and reasonably remedy gender pay gaps.

Along with a first-of-its-kind provision that prevents employers from asking prospective job candidates about their salary history, the new law is perhaps the most aggressive state law aimed at battling gender pay inequality in the nation, experts say.

Businesses have plenty of time to prepare: The law doesn’t go into effect until July 2018. But experts say it will have an immediate effect as employers start to prepare for its implementation, whether that happens through guidance from the attorney general or a trickle of court decisions.

“There’s going to be a lot of time for employers to decide, ‘Let’s look at our own pay practices,’” said Nina Kimball of Kimball Brousseau LLP, a plaintiff-side employment attorney who helped draft the law. “’Let’s see if we can take some proactive steps to change things.’”

Here are six things experts in the field say employment attorneys should do as the act goes into effect.

Ditch the Questions About Past Salaries

When the pay-equity law goes into effect in July 2018, Massachusetts will become the first state to outright ban employers from asking job candidates about their salary history. So some employers will have to change old habits, tear up job application forms and adjust their websites accordingly.

“This is a totally new type of tool that can help end the wage gap,” said Kimball. “If you’ve got prior discrimination in wages, asking about your salary history can bring it into your new job.”

Workers will still be allowed to volunteer that information, and employers will still be able to ask how much a potential employee is looking for, but that’s the extent of the wiggle room: When the law goes into effect, employers will have to stop asking.

Laurie Rubin, an employment attorney for Prince Lobel & Tye LLP, said it might be a good idea for employers to ditch the salary-ask question right away, even though it’s not banned for another two years. If employees after 2018 have a pay gap as a result of the practice of asking for salaries, the employers will be in noncompliance, Rubin said.

“They need to stop, I would say now, basing wages based on prior earnings,” Rubin said. “It’s only going to become a problem down the road.”

Take a Hard Look — And a Deep Breath

Another thing employers will have to start thinking about soon is the new affirmative defense in the bill. If faced with a pay-disparity or discrimination suit, an employer’s best shot might be to argue at the summary judgment stage that it has reviewed its salary practices in good faith and taken steps to address disparities.

If an employer has made a good-faith self-evaluation and can show reasonable progress toward eliminating gender-based wage differentials for comparable work, it can use that as an affirmative defense for three years.

“I do believe that will be a key element for employers to implement,” said Kenneth Bello of Bello Welsh LLP, who represents employers. “However, I would not be rushing to do that at this juncture. I would first be looking at, and thinking through, what should the elements of that self-evaluation be?”

Bello’s advice before diving into a study: Tread lightly.

“My first advice to clients has been and remains, ‘Take a deep breath,’” Bello said. “The law does not take effect until July 1, 2018. This provides a substantial amount of time for a company to think through and prepare for, first, how best to comply with the law, and second, to be able to defend itself in the event of a challenge.”

Attorney General Maura Healey, a vocal backer of the law, has been tasked with developing regulations on what those reviews will look like.

“The spirit of the new law requires that employers take a long, hard look at what is really going on in the workplace to uncover any gender issues that may exist, and to take affirmative steps to effectuate positive change,” said Lori Jodoin, the immediate past president of the Massachusetts Employment Lawyers Association and an attorney with plaintiff-side firm Rodgers Powers & Schwartz LLP. Rubin, of Prince Lobel, said that employers might want to consider conducting a pay disparity study with counsel to allow attorney-client privilege to shield the study from forced disclosure.

Lift Rules on Salary Secrecy

Under the law, employers will also not be able to prevent their employees from discussing their own salaries among each other, or asking one another how much they make. An employee can decline to reveal that information, and companies won’t be forced to reveal it.

But being able to ask is an important step to increase transparency, experts say. The new provision follows a trend around the country.

“Increasing pay transparency may help unearth more pay disparities in the workplace,” said Jodoin. “The revised statute encourages people to talk openly about what they earn, to consider whether their workplace is fair and equal, and to take affirmative steps to address inequality without fear of retaliation.”

Get Ready for More Lawsuits

Many bills passed by the Massachusetts Legislature prompt false predictions of an increase in lawsuits, said Bello of Bello Welsh. This one is different.

The law has several built-in incentives to encourage lawsuits, one of which is an explicit provision allowing class action lawsuits. The law allows for double damages and recovery of attorneys’ fees for the successful party.

It also extends the statute of limitations from one year to three years, and makes explicit that each paycheck that is unlawfully unequal is a new act of discrimination, rather than just the act of first setting the salary.

“I believe that come 2018 and beyond, there will be substantial litigation around multiple aspects of this law,” Bello said, adding: “Litigation of these cases will be enormously expensive as it will be factually intense, and the more fact-intensive a case is, the more difficult it is for an employer to get summary judgment.”

Except for the affirmative defense mentioned above, the cases probably won’t be resolved on summary judgment.

He added: “I do not know any attorney — management- or employee-oriented — who disagrees with the concept or the goal of the pay equity law. The issue is not the concept, but the means to achieve this goal. The pay equity law has incredible uncertainty in terms of its ultimate scope, and the costs of defending likely litigation will be enormous.”

Kimball, of Kimball & Brousseau, said: “I absolutely do believe that it will be used more, but I think it can also be used by employers to be proactive about instituting practices that are themselves going to help.”

Get Familiar With ‘Comparable’ Work

If it does come, the wave of litigation is still a few years away, leaving enough time to get familiar with what the law means by “comparable” work. Court decisions and policy guidance from the attorney general should help decide some of the operative terms.

Employers and attorneys should brush up on what the law says right away. The new law says that absent some exceptions, employers can’t pay any person less than employees of a different gender for comparable work, which is defined as “substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions.”

Massachusetts has long barred employers from paying women less than men for comparable work — indeed, in the mid-1940s, it became the first state in the nation to pass a gender pay equality law, advocates say. But the way that case law had shaped the old statute, the law required courts to look first at whether two jobs shared “important common characteristics” before even answering whether it required a substantially similar skill, effort and responsibility, said Rubin of Prince Lobel.

The new law “uses a broader view,” Rubin said. “It rejects the earlier interpretation, which also required you to look at content. It’s sort of rejecting that approach and taking a broader approach.”

Bello is advising clients to do a related or even separate review of their practices beyond just the affirmative defense that the law allows for. “All of this starts with a review and analysis of what a company’s current compensation picture looks like now, particularly for positions that have the same title or substantially perform the same functions, even if they have different titles,” said Bello. “Ultimately, companies will be well-served by having documentation clearly reflecting why a compensation decision was made. When and if there was a challenge, an employer can say, ‘You want to know why Mary got more than Bob or Bob got more than Mary? Here is the memo.’”

But Bello added a note of caution: “That said, documentation can either be your best friend or your worst enemy. If it’s done well — and accurately — it’s extraordinarily helpful. If it’s done poorly, then it is more harmful than no documentation.”

And Forget ‘Any Other Factor’

While federal law allows employers to vary salaries based on “any other factor” besides gender, this one does not.

Employers are given explicit ways to vary salaries, narrowed to just six factors: seniority — without taking into account pregnancy or other family leave; a merit system; a system that measures quantity or quality of production, sales or revenue; the geographic

Massachusetts Legislature Passes An Act to Establish Pay Equity

On July 23, Massachusetts lawmakers unanimously approved An Act to Establish Pay Equity (the “Bill”), which seeks to ensure that men and women are paid equally for comparable work. Variations in pay must be based on legitimate reasons, as enumerated in the Bill. If Governor Baker signs the Bill into law, which he is expected to do, it will be effective in 2018, on either January or July 1.

Importantly under the Bill, an employer that has both completed a good faith, self-evaluation of its pay practices and can demonstrate that reasonable progress has been made towards eliminating compensation differentials based on gender for comparable work in accordance with that evaluation shall have an affirmative defense against claims. The self-evaluation, which shall not be admissible in any proceeding as evidence of a violation that occurred prior to the date the self-evaluation was completed or within six months thereafter, may be of the employer’s own design.

We will be working with clients on how to develop a “best practices” self-evaluation. This is new and uncharted waters for Massachusetts employers, and how best to design and implement a self-evaluation needs to be carefully considered and effectively implemented. As there is substantial time for this to occur, we do not recommend that employers rush to do the self-evaluation, but instead to take the time first to develop   “plan of action” of how best to evaluate current pay structures generally and how those structures are applied to employees, and then to determine what is the best form and scope of a self-evaluation. We also recommend that this be done with legal counsel, not only in order to get appropriate legal advice and counsel, but also to be able to do so in a manner that is subject to the attorney-client privilege.

Over the coming weeks and months, we will be developing our own suggested best practices and working with clients as they proceed down this path.
In the meantime, we invite our clients to call any of our attorneys with any questions about this new law.

Massachusetts: An Act to Establish Pay Equity

On January 28, the Massachusetts Senate passed S. 2119, titled “An Act to Establish Pay Equity” (the “Proposed Law”).   Touted by one of the Act’s co-sponsors as a way to “further close the wage gap between male and female workers in the Commonwealth,” the Proposed Law is claimed to ensure equal pay for comparable work by “establishing pay transparency and requiring fairness in hiring practices.” If enacted, the law virtually assures that there will be new litigation battles fought as employers defend against single plaintiff, class and collective actions asserting unlawful pay disparity. Beyond expensive litigation, another unfortunate consequence of the Proposed Law may be that many employers will assess and reassess whether it makes sense to continue to do business in Massachusetts.

Key provisions of the Proposed Law include:
•    Makes unlawful any disparity in the payment of wages (including benefits and other compensation) between different genders for “comparable work”, which is defined as work that is “substantially similar” in that it requires “substantially similar” skill, effort and responsibility, and is performed under “similar” working conditions. “Working conditions” is defined to include the “circumstances customarily taken into consideration in setting salary or wages, [such as] reasonable shift differentials, physical surroundings and hazards encountered by employees performing a job.” The Proposed Law provides no definition or further guidance as to what is meant by “substantially similar,” meaning that any such determination could only be made following an intensive and individualized factually inquiry in the context of litigated cases. Because of this, these cases will be extraordinarily expensive to defend.

•    Provides that employers can pay wages (including benefits and other compensation) that are different for comparable work if based upon (1) a “bona fide” seniority system; (2) a “bona fide” merit system[1]; (3) a “bona fide” system that measures quantity or quality of production or sales; (4) the geographic location in which a job is performed; (5) education, training, or experience, to the extent such factors are “reasonably related” to the particular job in question and “consistent with business necessity;” or (6) travel, if travel is a regular and necessary condition of the job. While some of these factors can be objectively measured (e.g., sales production), none of these factors permit differentials based on real workplace differentials influenced by qualitative performance and market differentials. In an economy that is driven by industries such as biotechnology (pharma and device), high technology, education and health care, many of these “exceptions” will have no practical application. As with the definition of comparable work, the one certainty is that there will be time consuming and expensive litigation over what these terms actually mean and their application to specific circumstances.

•    The Proposed Law requires pay equity for all compensation and benefits – it expressly provides that it covers “wages, including benefits or other compensation. This presumably includes bonuses, stock options or other equity awards, or any other economic benefit. This will have enormous impact for employers that attract new employees and/or reward top performers with periodic equity awards.

•    Provides that an aggrieved employee can bring a lawsuit, whether on his or her own behalf or on behalf of others (i.e, as a class or collective action). If the individual or group prevails, the employer is automatically liable for twice the lost wages (framed as liquidated damages), benefits and other compensation (with lost wages, benefits and other compensation calculated as the difference between what was paid and what should have been paid), and attorneys’ fees. A prevailing employer gets nothing.

•    There is a three year statute of limitations.

While The Attorney General also may also bring suit on behalf of one or more employees, it is far more likely that the litigation will be brought by the industry of plaintiffs’ attorneys who stand to be paid their attorneys’ fees, either by settlement or if they prevail .
An employer may defend against a claim if, within three years prior to the commencement of such claim, it completed a self-evaluation of its pay practices (which practices include wages, benefits, and other compensation) and can demonstrate that reasonable progress has been made towards eliminating any gender-based compensation differentials that may have been found. Amazingly, however, an employer that conducts a self-audit and discovers that one or more employees are overpaid in relation to other employees cannot reduce employees’ wages, benefits or other compensation to come into compliance.

In addition, if the Proposed Law is enacted as drafted, employers will not be allowed to:

•    Prohibit employees from discussing their own or other employees’ wages (this is already protected by federal law, specifically the National Labor Relations Act and, for federal contractors and subcontractors, Executive Order 13665).
•    Screen job applicants based on their wage history, or requesting or requiring an applicant, as a condition of being interviewed or continuing to be considered for an offer, disclose prior wage history. As with all other aspects of the Proposed Law, “wages” includes benefits and other compensation. This will make it very difficult to determine how to make a competitive offer to an individual.
•    Seek the compensation history of any prospective employee from any current or former employer, unless an offer of employment has been made and the prospective employee so authorizes, in writing.
•    Retaliate in any way against an employee exercising his or her rights under the Proposed Law.

Many employers obviously are concerned about the impact that this Proposed Law will have on their businesses. By way of example only, employers are concerned about the ability to attract talent at market rates that may be different than individuals already employed, as well as the myriad other circumstances where the Proposed Law may impede business decisions and expose them to costly and uncertain litigation. As the Proposed Law has not been enacted, for those employers who are concerned about it, now would be the time to contact industry associations, legislative representatives and any others with political involvement to raise their concerns about the negative consequences of this legislation as presently drafted.
[1] A published Federal Jury Instructions provides that in order to establish a bona fide merit system, an employer must demonstrate a “structured process under which employees are systematically evaluated according to established standards that are designed to determine the relative merits of their performance”. Such a definition defies the reality that an individual’s performance is measured in multiple ways, many of which are not easily measured (e.g., enthusiasm, commitment to a job, level of effort, etc.).

State Wage Penalties Available for Non-Payment of Federal Overtime

By Kenneth M. Bello and Louise Reohr

A recent case highlights the need for Massachusetts’ employers to tread carefully around the so-called Wage Act, M.G.L. c. 149, § 148.  Under this law, an employee who successfully makes out a claim for non-payment of wages “shall be” awarded automatic treble damages together with litigation costs and attorneys’ fees.  Unlike the FLSA which permits the award of double damages as a liquidated remedy, the treble damages provision of the MA Wage Act is automatic, regardless of any good faith by the employer.  While there remain arguments automatic treble damages is an unconstitutional punitive remedy, to date there is no definitive state court ruling on such a challenge.  Read more

Massachusetts Appeals Court Protects Staffing Companies – and their Clients

By Martha J. Zackin

In 2013, as reported here, a Massachusetts trial court upheld efforts by staffing companies and workers compensation insurers to close a loophole that allowed staffing-firm employees injured while providing services to a client company both to collect workers compensation benefits from their staffing company employer and to sue the client company.  Specifically, the court held that by virtue of an alternate employer endorsement naming a staffing company’s client as an insured under the staffing company’s workers’ compensation policy, the client company is entitled to the same immunities as the staffing company under the Workers Compensation Act (the Act).

Today, the Appeals Court of Massachusetts affirmed the trial court’s decision (disclosure: I represented State Garden both before the trial court and the Appeals Court).  Specifically, the Appeals Court held that an “alternate employer endorsement” to a staffing company’s workers’ compensation policy satisfies the requirements of the Massachusetts Workers’ Compensation Act, such that the staffing company’s client is entitled to the protection of the exclusivity provision of the Act.  In other words, the client company cannot be sued in tort by an employee of the staffing company who is injured while performing services to the client company, provided that the staffing company had obtained an alternate employer endorsement to its workers’ compensation policy that specifically names the client company as an additional insured.

The Appeals Court also held that the injured employee’s claim is barred by the terms of a valid waiver and release he signed at the beginning of his employment, pursuant to which he agreed not to sue a client company for damages based upon injuries covered by the Workers’ Compensation Act.

This case is important for at least three reasons.  First, the decision protects staffing companies from having to indemnify clients against claims arising out of workplace injuries – or fighting with clients about responsibility for such claims – the costs of which are almost never factored into the fees charged by staffing companies to their clients.  Second, the case protects companies that use staffing companies against claims for damages covered by their staffing company’s workers’ compensation policy.  And third, the Appeals Court’s decision is consistent with and supports the intended effects of the Workers’ Compensation Act, as well as all parties’ bargained-for rights and obligations.

In sum:

  • Staffing companies- obtain alternate employer endorsements that specifically name your client companies as additional insureds.
  • Workers’ compensation insurance carriers- tell your staffing company clients to obtain, and your client company clients to demand, appropriate alternate employment endorsements.

Final Regulations for Massachusetts Earned Sick Time Law

By Emma L. Melton and Alexandra D. Thaler

Last November, voters approved a ballot initiative granting earned sick leave to Massachusetts employees. As we wrote in an earlier article, beginning on July 1, 2015, employees working in Massachusetts are entitled to earn up to forty hours of paid sick leave per calendar year. Employers with ten or fewer employees are not required to pay employees during this leave but must provide unpaid leave to their employees.

On April 27, 2015, the Massachusetts Attorney General’s Office released long-awaited proposed regulations, which we described here. After receiving many comments, both written and in the course of the six public hearings conducted across the Commonwealth, on June 19 the AGO issued final regulations implementing the Massachusetts Earned Sick Time law. Below we update our earlier advisory by summarizing the important changes from the draft regulations. Read more

New Earned Sick Time Notice and Updated Safe Harbor Regulation

By Alexandra D. Thaler

With just weeks to go before the Massachusetts Earned Sick Time law goes into effect on July 1, 2015, the Massachusetts Attorney General’s Office is continuing to issue guidance and documentation relevant to the law, including the required notice posting and an update to its safe harbor regulation.

The AGO’s current draft regulations provide that this Notice of Employee Rights (and not an employer-drafted alternative), must be both posted in a conspicuous location at Massachusetts worksites and distributed to employees.  The English language version of the required poster is now available here.  The AGO’s notice contains the basic outlines of the law’s requirements, including, among other things, minimal required rates of accrual and carry-over, permissible reasons for use, employee notice obligations, and contact information for the AGO (as required by the authorizing legislation).  It also reminds employees that sick time cannot be used as an excuse to be late for work, and that misuse of sick leave may result in discipline. Read more

Massachusetts Attorney General’s Office Issues Proposed Earned Sick Time Regulations

Last November, voters approved a ballot initiative granting earned sick leave to Massachusetts employees.   As we wrote in an earlier article, beginning on July 1, 2015, employees working in Massachusetts are entitled to earn up to forty hours of paid sick leave per calendar year.  Employers with ten or fewer employees are not required to pay employees during this leave but must provide unpaid leave to their employees.

Many questions were left unanswered by the text of the statute.  On April 27, 2015, the Massachusetts Attorney General’s Office released long-awaited proposed regulations.   Although the proposed regulations offer some guidance to employers, questions remain that we hope will be addressed in the final regulations that will be implemented in June shortly before the law goes into effect.  A summary of the guidance offered and the challenges that remain is provided below.

In the meantime, the AG’s Office is seeking public comment regarding the proposed regulations.  Six public hearings are scheduled to take place across the Commonwealth during May and June.  Written comments must be received by 5:00 p.m. on June 10.  Dates and times of the public hearings, and a description of the process by which the AGO will accept written comments, may be found here.  We plan on submitting written comments and welcome your input in presenting any questions you may have.

Guidance:

Employer size.  The new law provides that employers with eleven or more employees must provide up to 40 hours per year of paid sick leave.  For the purpose of determining employer size, employers must include all of their employees, including full time, part-time, seasonal and temporary employees, and interns.  Although sick time benefits need only be provided to individuals working “primarily” in Massachusetts, all employees are counted in determining whether an employer has eleven employees for purposes of the law, whether those employees work within the Commonwealth or outside of Massachusetts.

Eligibility. An employee is eligible to accrue and use earned sick time if his or her “primary place of work” is in the Commonwealth of Massachusetts.  According to the proposed regulations, if an employee works more hours in Massachusetts than in any other state (where, for example, an employee works 40% of his or her hours in Massachusetts, 30% in New Hampshire, and 30% in Maine), then Massachusetts is the employee’s “primary place of work” and all hours work count for accrual purposes.  Employees with a break in service of less than one year return to work with full credit for prior service and prior unused accruals.

Accrual and breaks in service. Nonexempt employees accrue earned sick time at a minimum rate of one hour of earned sick time for every 30 hours of work, including overtime hours. Exempt employees will be assumed to work 40 hours per week, provided that their job description or other terms and conditions of employment do not specify a lower number of hours per week.  In such a case, earned sick time accrues based on that specified number of hours per week.  In addition, employees who are rehired after a break in service of up to one year keep all previously accrued earned sick time, and their employment is deemed to have commenced as of the start of employment prior to the break in service.

Calendar Year.  Employees are eligible to earn up to 40 hours of earned sick time per “calendar year.”  The term “calendar year” is defined in the proposed regulations as “any consecutive 12-month period of time as determined by an employer.”  By way of example, the proposed regulations explain that employers may choose a year that runs from January 1 through December 31, a tax year, the employer’s fiscal year, or the year running from an employee’s anniversary date of employment.  Employers must apply the choice of “calendar year” uniformly, and must inform employees by written notice at the time of hire what constitutes a “calendar year.”

Increments.  Employers must allow employees to use earned sick time in increments of one hour or the smallest increment the employer’s payroll system uses to account for absences or use of other time.  If the employee’s absence at a specific time requires the employer to hire or assign a replacement worker, however, and if the employer does so, the employer may require the employee to use up to a full shift of earned sick time.

Rate and time of payment.  When used, earned paid sick time must be paid on the same schedule as when regular wages are paid.  Employers cannot delay payment pending receipt of written verification or documentation of the use of earned sick time.   Employees are paid at a rate equal to his or her hourly base rate wage, which rate does not include commissions, overtime, or other premium rates.    The proposed regulations provide guidance on how to calculate payment for employees who are paid on commission or who receive different pay rates depending on the tasks performed or hours worked.  In no event may an employer pay an employee a rate less than the effective minimum wage.

Carryover.  Employers must allow employees to carryover up to 40 hours of accrued but unused earned sick time from one calendar year into the next, unless the employer provides a lump sum of 40 hours of earned sick time at the start of employment and at the start of each subsequent calendar year.  Even if hours are carried over, employers are not required to allow employees to take more than 40 hours of earned sick time per calendar year.

Documentation.  The regulations seem to prohibit an employer from requiring medical verification until and unless an individual has been absent for 24 consecutive business hours.  Employees who do not have a healthcare provider may be required to provide a signed written statement that the hours were used for an authorized purpose.   Employees who take earned sick leave for fewer than 24 consecutive business hours may be asked to submit written verification that they have used earned sick time for an allowable purpose.  In no case may an employer ask employees to explain the nature of the illness or the details of the domestic violence that underlies the need to take the earned leave.  The AG’s Office will be releasing a model form that employers may use; we will provide a copy when it becomes available.

Notification.  Employers may require up to seven days’ advance written notice of foreseeable leave, provided a written policy is in place that so requires.  Employers may require employees to follow existing call-out requirements, including the requirement that an employee provide notification each day he or she is absent.  If the need for leave is unforeseeable, the employee must notify the employer of the need for leave “as soon as practicable,” and must comply with the employer’s normal policies and call-out procedures with respect to notifications of unforeseeable absences, “provided that such requirements do not interfere with the purposes for which the earned sick time is needed.”  The proposed regulations also contemplate situations where notification is not feasible, such as accidents and sudden illness, and suggest that failure to provide notification in such circumstances must be excused.

Notice and Record Keeping Provisions.  Employers must provide employees with written notice as to what constitutes a “calendar year” for accrual purposes.  Employers must provide employees with a copy of notice to be prepared by the Attorney General’s Office summarizing the law and regulations,  and must also post a notice of the law and regulations in a conspicuous location accessible to employees in every establishment where employees who are entitled to earned sick time work. Employers are expected to maintain records of accrual and use of sick time for a period of three years and provide a copy of the records upon demand by the AG.

Allowable substitution of paid time off.   An employer may choose to frontload 40 hours of sick leave at the start of employment and at the beginning of every subsequent “calendar year” rather than tracking accrual rates throughout the year.  Moreover, employers may substitute paid time off for earned sick leave if the PTO policies provide that time off:

    • accrues at a rate of no less than one hour of PTO for every 30 hours of work;
    • is paid at an employee’s same hourly rate, as defined by the regulations;
    • is accessible on the same basis, meaning that time may be taken for the authorized uses under the statute;
    • comes with the same notice requirements to employees; and
    • affords employees with the same job protections as provided under the statute.

Discipline.  Employers may discipline employees who are committing fraud or abuse by engaging in an activity that is inconsistent with allowable purposes for leave or by exhibiting a clear pattern of taking leave on days when the employee is scheduled to perform duties perceived as undesirable.   The proposed regulations clearly state that employers may consider an employee’s use of earned sick leave when offering an attendance bonus or reward, and that an employee’s failure to qualify for such a bonus or reward does not constitute interference with the employee’s rights under the law.

Payout at end of year or upon termination.  Employers are not required to pay employees accrued but unused earned sick leave at the end of the year or upon termination.  The proposed regulations provide, however, that an employer who chooses to pay employees for unused earned sick leave at the end of a calendar year may do so, provided the employer makes available at least sixteen hours of paid sick time as of the start of the next calendar year.

Transition year.  For 2015, paid leave provided prior to July 1 will be credited toward the paid leave required beginning on July 1 provided such leave was made available under terms consistent with the law and regulations.

Challenges:

Interaction with other leave policies.  The proposed regulations state that earned sick leave is in addition to time off provided by the FMLA, the Massachusetts Parental Leave Act, the Massachusetts Domestic Violence Leave Act, the Small Necessities Leave Act, “and the like,” which suggests that earned sick leave may not be used concurrently with any of these other types of leave.  In other words, the proposed regulations suggest that an employee who qualifies for FMLA leave and earned sick leave, for example, would be entitled up to a total of thirteen weeks of job-protected leave (or twenty-seven weeks, if the need for the leave qualified the employee for military-related family leave).  This interpretation presents a marked difference in the way in which Massachusetts has implemented leave laws, and we are hoping that the Attorney General’s Office will provide further clarity on this important issue.

Notification.  Practical issues abound under the proposed regulations guidance regarding employee notification.  If employers cannot require an employee to provide medical verification before he or she is absent for 24 consecutive scheduled business hours, it will be a struggle to enforce existing attendance policies and to prevent fraud.  Moreover, the proposed regulations leave many questions unanswered, including whether the prohibition against requesting medical verification applies generally or only when employees seek to use earned sick leave.  We plan on alerting the Attorney General to these and other problems attendant to the proposed regulations, and hope that the Attorney General’s Office will offer further clarification and practical guidance.

Discipline.  Although the proposed regulations allow employers to discipline employees who engage in an activity that is not consistent with allowable purposes for leave or who engage in a “clear pattern” of taking leave when the employee is scheduled to perform duties perceived as undesirable, the proposed regulations do not provide any guidance as to what would constitute a “clear pattern.”  It unclear, therefore, whether employers may discipline employees who exhibit clear patterns of arriving late on Mondays or leaving early on Fridays without facing a claim of retaliation or interference under the law.

Penalties.  The Attorney General may bring an enforcement action against employers, their officers, agents, superintendents, foremen, or employees thereof, or staffing agencies or work site employers, all of whom may face both criminal and civil penalties for violation of the law.  Penalties vary based upon whether the violation is willful or not willful, with even first-time willful violations punishable by $25,000, up to one year of imprisonment, or by both.  Repeat willful violations are punishable by a fine of not more than $50,000, by imprisonment or up to two years, or by both.  Non-willful violations are punishable by a fine of not more than $10,000 or by imprisonment for not more than six months for first offenses.  Subsequent non-willful violations are punishable by a fine of not more than $25,000, by imprisonment for not more than one year, or by both.  As has been the case with the Wage Act, we do not believe it likely that the Attorney General will bring criminal proceedings absent egregious and repeated violations.  That said, the threat is real and raises the stakes substantially.

Of greater concern is that the statute creates a private right of action for employees to sue over alleged violations of earned sick time law, with damages identical to those under the Massachusetts Wage Act.  Specifically, prevailing plaintiffs are entitled to mandatory treble damages for any lost wages and other benefits, as well as the costs of the litigation and reasonable attorneys’ fees.  Although the amount of damages available for lost earned sick time are not likely to be substantial, to the extent an employee (or group of employees) bring claims for interference with rights under the law or retaliation of exercising those rights (for example, following termination of an employee who has recently taken sick time), there may be substantial economic exposure.

Recommendations:

Employers should prepare for the July 1 effective date of the Earned Sick Time law by:

  • Review existing leave policies to determine if such policies will comply with the Massachusetts law and the proposed regulations.
  • Work with legal counsel to modify existing policies.
  • Contact their outside payroll providers to ensure that they have the ability to track and record the use of earned sick time.
  • Consider providing suggestions (either directly or through counsel) to the Attorney General’s Office by written comment or by voicing their concerns at the upcoming public hearings.
  • Check back here for updates.