Monthly Archives: October 2008

Non-Competes Presumptively Illegal as to Certain Professions: Social Workers Newest Category

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In Massachusetts, non-compete agreements are presumptively unenforceable as to certain professions: physicians; nurses; lawyers; broadcasters; and just recently, social workers.

Under M.G.L. c. 112, s. 12X, non-compete agreements are null and void as to physicians. In Falmouth Ob-Gyn Assocs., Inc. v. Abisla, the Supreme Judicial Court struck down a doctor’s contractual obligation to pay $250,000 in liquidated damages after leaving to compete against his former practice. In a similar vein, M.G.L. c. 112, s. 74D nullifies non-competes as to registered or licensed practical nurses.

Under the Massachusetts Rules of Professional Conduct, non-competes are unenforceable as to lawyers. However, in Pettingell v. Morrison, Mahoney & Miller, the Supreme Judicial Court considered the enforceability of a forfeiture-for-competition clause contained in a law firm’s partnership agreement. The clause required partners who withdraw from the firm, and who later compete, to forfeit certain payments. Although the Supreme Judicial Court ruled that the clause was unenforceable in that particular case, it noted that forfeiture-for-competition clauses are not per se illegal and may be upheld if a law firm could demonstrate that its survival and well-being justified such a clause.

In 1998, the Massachusetts legislature exempted individuals in the broadcasting industry, including television stations and radio stations. In particular, M.G.L. c. 149, s. 186, nullifies non-compete agreements in the broadcasting industry where: (1) the employer terminates the employee, (2) the employment relationship is terminated by mutual agreement, or (3) the employee’s contract expires. Notably, Section 186 does not prohibit the enforcement of non-compete agreements where the employee voluntarily terminates his or her employment prior to the expiration of an employment contract.

Recently, in 2008, the Massachusetts legislature made non-competes unenforceable with respect to social workers under M.G.L. c. 112, s. 135C:

A contract or agreement creating or establishing the terms of a partnership, employment, or any other form of professional relationship with a social worker licensed under this chapter that includes a restriction of the right of the social worker to practice in any geographic area for any period of time after termination of the partnership, employment or professional relationship shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement.

Beyond these exemptions, a court will refuse to enforce a non-compete against any employee where the non-compete is not: (1) necessary to protect a legitimate business interest, (2) reasonably limited in time and geographic scope, (3) consonant with the public interest, and (4) supported by consideration. The burden of proof as to the enforceability of a non-compete agreement lies with the employer. For more information, please visit our previous blog post entitled, Massachusetts Non-Compete Agreements in a Nutshell.

Whistleblowers Under the Sarbanes-Oxley Act: Overcoming the Private Subsidiary Sham

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One of the main purposes of the Sarbanes-Oxley Act (“SOX”) of 2002 is to protect whistleblowers who speak out against a company’s financial improprieties. Section 1107 of SOX states:

Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offence, shall be fined under this title, imprisoned not more than 10 years, or both.

Since its inception, however, whistleblowers have not fared particularly well before the Department of Labor, the agency responsible for interpreting and enforcing SOX claims:

The government has ruled in favor of whistleblowers 17 times out of 1,273 complaints filed since 2002 …. Another 841 cases have been dismissed. Many of the dismissals were made on the grounds that employees worked for a corporate subsidiary ….

Many cases hinge on whether SOX should apply to whistleblowers who work for subsidiaries of public companies. Department of Labor spokesperson, Sharon Worthy, doesn’t think so: “The plain language of the statute only applies to publicly traded corporations.” But Senator Patrick Leahy (D-Vermont), who helped draft SOX’s whistleblower clause, sharply disagrees: “Otherwise, a company that wants to do something shady, could just do it in their subsidiary.”

While Section 806 does not expressly include subsidiaries of publicly traded companies, consistent with its intent, the law has been correctly applied to private subsidiaries of publicly traded companies in a number of cases:

In Klopfenstein v. PCC Flow Technologies Holdings, Inc., the Administrative Review Board ruled that a Section 806 cause of action may proceed directly against a non-publicly traded subsidiary under an agency theory, reasoning that the subsidiary is an “agent” of the parent company.
In Savastano v. WPP Group, PLC, an Administrative Law Judge adopted the reasoning in Klopfenstein, while also clarifying that the agency relationship must pertain to employment matters. In other words, the fact that the companies share an agency relationship for other purposes, such as collecting and reporting financial data, is insufficient to establish subsidiary coverage under SOX.

Other cases applying an “agency” theory to protect whistleblowers working for private subsidiaries of publicly traded companies include: Johnson v. Siemens Building Technologies, Inc.; Lowe v. Terminix International Co.; Gale v. World Financial Group; Mann v. United Space Alliance, LLC.

The Sarbanes-Oxley Act is a complex statute. Where used correctly, SOX can be an effective tool for protecting whistleblowers who are courageous enough to speak out against a company’s illegal conduct. If you are or will soon become a whistleblower, finding an attorney to effectively represent your interests may require that you invest some time. To ensure that your rights are fully protected, choose a law firm that specializes in employment law.

For more information, please visit The Wall Street Journal article entitled, Whistleblowers Are Left Dangling.

Whistleblower Claim by Health Care Worker Dismissed Creating Questionable Public Policy

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Several different whistleblower laws protect Massachusetts employees. In particular, M.G.L. c. 149, §187 protects health care providers from retaliation for disclosing problems within health care facilities. In Romero v. UHS of Westwood Pembroke, Inc.et al., the Massachusetts Court of Appeals recently issued a ruling dismissing a health care provider’s wrongful termination claim after she objected to a proposed policy that she believed was unlawful if implemented.

Unfortunately, the Appeals Court construed the health care whistleblower statute narrowly. Section 187(b)(3) prohibits retaliation against a health care provider who:

[O]bjects to or refuses to participate in any activity, policy or practice of the health care facility or of another health care facility with whom the health care provider’s health care facility has a business relationship which the health care provider reasonably believes is in violation of a law or rule or regulation promulgated pursuant to law or violation of professional standards of practice which the health care provider reasonably believes poses a risk to public health.

In dismissing the employee’s whistleblower claim, the court reasoned that an employee who objects to a proposed unlawful activity, policy, or activity is not protected under Section 187(b)(3).

The ruling creates an obvious disincentive for health care providers to speak out against and oppose proposed policies, which they reasonably believe will pose a risk to public health. Rather, as the court’s decision makes clear, an employee’s conduct is only protected where there is opposition to an existing policy.

Wage & Hour Class Actions Gain Momentum: Gristedes Violates Fair Labor Standards Act

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The Fair Labor Standards Act (FLSA) requires employers to pay its employees overtime pay for all hours over 40 hours per workweek. Employees who work overtime hours must be paid at a rate not less than time and one-half their regular rates of pay.

Employers can avoid pay overtime pay only in limited circumstances. For example, managers and supervisors may qualify for the executive exemption if they: (1) manage at least two direct reports, (2) possess the authority to hire and fire employees, or whose input into such matters weight, and (3) regularly exercise discretion about how to carry out their job duties.

Unfortunately, to increase profits, some employers may classify an employee as exempt from overtime, even though the worker’s duties and responsibilities do not warrant such an exemption. To illustrate such a scenario, lets look at the TV sitcom, The Office. Specifically, as the the self-proclaimed Assistant Regional Manager, would
Dwight Schrute satisfy the executive exemption? The answer is obvious: Dwight would not meet the executive exemption because, despite his title, he has no direct reports; no authority to hire or employees; and spends the majority of his time selling Dunder Mifflin’s paper products, not managing employees.

On a much larger scale, a similar question recently arose in a lawsuit against the New York grocery store chain, Gristedes. In Torres v. Gristedes, Judge Paul A. Crotty of Federal District Court in Manhattan found that Gristedes violated federal and state laws by misclassifying department heads and so-called co-managers as exempt from overtime

[T]he overwhelming weight of the evidence suggests … that the class members were not salaried executives or administrators within the contemplation of the FLSA. Instead, … Gristede’s co-managers and department managers received a regular paycheck that was tied automatically to the amount of hours they worked during the pay period.

The decision affects approximatelt 400 current and former Gristedes’ managers who, collectively, may be owed as much as $25 million.

In reaching such a successful result, the plaintiff’s relied on well-known economist, Dr. Stephen A. Schneider of Nathan Associates, Inc., who provided statistical analysis regarding the gross underpayments made by Gristedes.

To read more about the settlement, visit the New York Times article entitled, Judge Rules That Gristede’s Broke Law on Overtime Pay.

Sexual Harassment Claims in Federal Court: Overcoming the Farragher/Ellerth Defense

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Employees who are victims of sexual harassment must take great care to protect their rights. The First Circuit’s decision in Chaloult v. Interstate Brands represents a broadening of the Farragher/Ellerth defense, which allows employers to escape liability even when an employee has clearly suffered inappropriate and demeaning conduct over a prolonged period of time.

The Farragher/Ellerth defense is an affirmative defense arising out of two 1998 Supreme Court decisions: Farragher v. City of Boca Raton, and Burlington Industries v. Ellerth. For the Farragher/Ellerth defense to be apply, an employer must satisfy two elements: (1) reasonable care was taken to prevent and promptly correct the harassing or discriminatory behavior, and (2) the employee unreasonably failed to take advantage of the preventive or corrective opportunities provided.

In June 1999, Bonnie Chaloult began working at Interstate Brands in Biddeford, Maine. In August 2005, Chaloult resigned after a enduring a series of debasing remarks from her supervisor, Kevin Francoeur. Such remarks included:

Accusing Chaloult of having sexual relations with her direct supervisor
Complaining about his wife, his lack of sexual relations with her, and voicing his desire murder his wife
Asking about the distance between her nipples and telling her to go home and measure this distance
Asking her if her nipples chafed or stood out like headlights
Stating that her breasts were “melons” and “big hooters”
Asking her to hold her breath and push her chest out
Offering to go to her house and have sex with her
Stating that he wanted to see how far she could stick an eclair down her throat, stating “[i]f there isn’t enough cream in there, . . . I have plenty”
Asking Chalout’s manager, “How long have you [two] been fucking?”

Francoeur made many of these disparaging remarks both in front of Chalout’s co-workers as well as her manager. Ironically, the employer had a policy requiring all managers to all report sexual harassment and inappropriate conduct to Human Resources. Chalout’s manager failed to abide by this policy. Although Chalout’s letter of resignation did not detail specific instances of misconduct, it made clear that she no longer felt comfortable working at Interstate Brands because of statements made by Francoeur.

Approximately one year later, Chaloult filed a lawsuit based on, among other things, the sexual harassment she suffered from Francoeur. Surprisingly, the federal District Court of Maine accepted the Farragher/Ellerth defense on the basis that Chaloult failed to report specific instances of misconduct. The First Circuit affirmed the district court’s decision. In doing so, both courts failed to acknowledge the reality of workplace. If your manager knows that your supervisor is subjecting you to such demeaning conduct, and fails to take remedial measures, how confident would you feel in voicing such concerns. Would you keep quiet to ensure to avoid possible retaliaton?