Following weeks of piecemeal changes and updates, the Department of Family and Medical Leave (“DFML”) has now issued the final regulations (effective July 1, 2019). Click here for a revised Bello / Welsh alert, which has been updated to be consistent with both the final regulations and the bill passed last week. The most significant changes are as follows: Read more
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.
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
Now that a federal judge has issued a preliminary injunction staying implementation of the new DOL regulations revising salary thresholds for determining application of the white collar minimum wage and overtime pay exemptions, otherwise slated to go into effect on December 1st, what happens next, and how quickly will that occur? Here are the possibilities.
- An interlocutory appeal to the 5th Circuit Court of Appeals. How that comes out is anyone’s guess, but the case is vulnerable in its analysis, as detailed below.
- Congressional Action that renders the decision academic. On September 28, 2016, the House of Representatives passed H.R. 6094, titled Regulatory Relief for Small Business, Schools, and Nonprofits Act. The bill would have changed the effective date of the revised overtime regulations from December 1, 2016 until June 1, 2017. With a Republican majority in both the House and Senate, there is a very real possibility that some form of law will be filed and passed in 2017. The question of course is what will that bill look like – for examples, will it exempt “small business”, and will it change the minimum salary amounts and/or remove automatic indexing?
EEOC recently published its Strategic Enforcement Plan (SEP) for Fiscal Years 2017-2021, in which it outlines the areas in which it intends to focus its strategic litigation and enforcement activities in the coming years. Not surprisingly, the EEOC indicates that it intends to expend significant resources on understanding and protecting temporary employees and members of the gig workforce.
As described in the SEP, EEOC’s substantive priorities for Fiscal Years 2017-2021 are: Read more
On August 25, 2016, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) issued a Final Rule amending the Federal Acquisition Regulation (FAR) to implement Executive Order 13673, the Fair Play and Safe Workplaces Executive Order (also known as the “blacklisting rule”). The Department of Labor (DOL) also issued Final Guidance to assist the FAR Council and federal contracting agencies in the implementation of EO 13673.
Signed on July 31, 2014, and as described here, EO 13673 requires prospective and current federal contractors and subcontractors to disclose all violations of federal labor laws that result in administrative merits determinations, arbitral awards or decisions, or civil judgments. The Order also requires contractors and subcontractors to disclose specific information to workers each pay period regarding their wages and prohibits contractors from requiring that their workers sign arbitration agreements that encompass claims of sexual assault or harassment.
The Final Rule is effective October 25, 2016, which is earlier than had been expected. Fortunately, certain obligations under the Final Rule are now phased in, meaning that contractors and subcontractors have time in which to come up to full compliance. Contracts valued at or under $500,000 are excluded from the Final Rule, as are subcontracts for goods that are “commercially available off-the-shelf” items.
Disclosure. When fully implemented, contractors will be required to disclose violations of fourteen federal workplace laws from the previous three years – including laws addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. The provision of EO 13673 requiring contractors to disclose violations of “equivalent” state laws has been paused, pending the DOL’s release of a comprehensive list of state laws covered by the Order; when released, this list will be subject to notice and comment before becoming effective.
Certain information pertaining to violations contractors disclose will be made public. These include: (1) the law violated; (2) the case number, charge number, docket number, or other unique identifier; (3) the date of the decision finding a violation; and (4) the name of the court, arbitrator, agency, board or commission that rendered the decision. Any other information provided voluntarily or at the request of the contracting officer (including information pertaining to mitigating factors and steps taken to achieve compliance) will not be made public unless the contractor chooses to make it so.
The process by which violations will be assessed is set forth in the Final Rule and Guidance. Initially, a new type of government official – an Agency Labor Compliance Advisor (ALCA) – will review the nature of the violations, to determine if any are serious, willful, repeated, or pervasive. After weighing any such violations against the severity of the violations, the size of the contractor, and any mitigating factors, the ALCA will provide his or her recommendation to the contracting officer. As before, the decision to award or extend a contract rests with the contracting officer, who must determine whether the contractor is responsible and has a satisfactory record of integrity and business ethics.
Pay Transparency. The Final Rule also requires contractors to provide workers with detailed wage statements every pay period, which must include: (1) total number of hours worked per pay period; (2) any overtime hours worked; (3) rate of pay; (4) gross pay; and (5) itemized additions to or deductions from gross pay. Contractors must also provide employees with written notice of their status as exempt or non-exempt from the overtime compensation requirements of the Fair Labor Standards Act. Workers treated as independent contractors must be notified, in writing, of this status.
Arbitration. In addition, the Final Rule prohibits pre-dispute arbitration agreements that cover claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to or arising out of claims of sexual assault or harassment. These disputes may be arbitrated, but only by voluntary consent given after any such dispute arises.
Implementation Schedule. The Final Rule sets forth a “phased-in” reporting requirement as follows (and as summarized by DOL here):
- September 12, 2016: Preassessmentbegins, through which current or prospective contractors may come to DOL for a voluntary assessment of their labor compliance history, in anticipation of bids on future contracts but independent of any specific acquisition.
- October 25, 2016: Mandatory disclosure and assessment of labor law compliance begins for all prime contractors under consideration for contracts with a total value greater than or equal to $50 million. At first, the reporting disclosure period is limited to one (1) year and will gradually increase each year to a maximum disclosure period of three (3) years by October 25, 2018. Also, contractors and subcontractors whose contracts are valued at more than $1,000,000 are prohibited from requiring employees to sign pre-dispute arbitration clauses covering claims arising out of Title VII or claims for sexual assault or harassment.
- January 1, 2017: The Paycheck Transparency clause takes effect, requiring contractors to provide wage statements, notice of overtime status, and notice of any independent contractor relationship to their covered workers.
- April 25, 2017: The total contract value threshold for prime contracts requiring disclosure and assessment of labor law compliance drops to $500,000.
- October 25, 2017: Mandatory assessment begins for all subcontractors under consideration for subcontracts with a total value greater than or equal to $500,000 (other than subcontracts for commercially available off-the-shelf items).
Action Items. Even with a phased-in implementation schedule, there is much to be done. For example:
- Current or prospective contractors should decide whether to participate in the DOL’s preassessment process. According to information provided by DOL (here), using the published Final Guidance, if a contractor that has been assessed by the DOL as responsible subsequently submits a bid, the contracting officer and the ALCA may use the DOL’s assessment that the contractor has a satisfactory record of labor law compliance unless additional labor law violations have been disclosed.
- Contractors (and subcontractors) should begin developing and implementing processes for capturing information required by the Final Rule.
- Existing arbitration agreements should be reviewed for compliance.
- Existing training and compliance programs should be reviewed and revised, as appropriate, or new programs developed. A well-educated workforce can help minimize the risk of violations that must be reported
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.
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.
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.
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.
On election day, Massachusetts voters approved a ballot initiative requiring employers to provide sick time to their employees. Absent legislative repeal, the mandatory sick time law will become effective on July 1, 2015. Organizations with eleven or more employees will be required to provide paid sick time, while organizations with fewer than eleven employees must provide unpaid sick time. Employers should review their sick time or PTO policies in the coming months to ensure compliance by the July 1, 2015 deadline. Employers who meet the specific requirements of the new law (including those described below) in a PTO, vacation or other paid leave policy do not need to provide a separate sick time entitlement.
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