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Posts Tagged ‘Massachusetts’

Massachusetts Superior Court Rules Non-Compete Agreement Fully Enforceable Despite Minor Change in Job Duties Between Signing and Enforcement of Agreement

Posted on: June 22nd, 2020

By: Janet Barringer and Zinnia Khan

The Massachusetts Superior Court’s recent decision in Now Business Intelligence, Inc. v. Sean Donahue, et al., held minor changes in an employee’s job duties will not create a “new employment contract” so as to invalidate or obviate the employee’s existing non-compete agreement with the employer. This decision reveals the best course of action for employers is to require employees to sign new non-competes in connection with substantial job changes. If there is any doubt or ambiguity as to whether a job change is “substantial” or “material,” we recommend consulting with counsel.

The decision in Now Business Intelligence, Inc. v. Sean Donahue, et al., centered on whether the employer, Now Business Intelligence, Inc. (“NBI”), may hold its former employee, Sean Donahue (“Donahue”), liable for breaching a non-compete agreement, thereby interfering with NBI’s business relations or whether the nature of Donahue’s job had transformed since he had first been hired and entered into the non-compete agreement so as to now invalidate the agreement under the “material change” doctrine. NBI maintained its former employee breached the non-compete agreement, thereby violating the Massachusetts Consumer Protection Law (Chapter 93A).

By way of background in a case from more than fifty years ago, F.A. Bartlett Tree Expert Co. v. Barrington, 353 Mass. 585 (1968), Massachusetts law declares the “material change” doctrine may be invoked by a former employee to support that a restrictive covenant in an employment agreement, such as a non-compete clause, is no longer enforceable because substantial changes to the nature of the employee’s job have occurred since the time the employee entered into the employment agreement. 

In the recent NBI case, Donahue was a former Project Manager at NBI, a technology-based consulting company placing information technology specialists inside of client companies to assist with, manage or solve their technology issues. Immediately prior to his first day on the job at NBI, Donahue executed a non-compete and confidentiality agreement. During his first year at NBI, Donahue was assigned to assist NBI client Raytheon with its implementation of SharePoint, a proprietary Microsoft technology requiring specialized knowledge to implement and operate. 

In or about July 2016, approximately eleven months after he signed his non-compete agreement, Raytheon cut short Donahue’s assignment due to its decision to pause SharePoint implementation. At this stage of Donahue’s employment, Donahue and NBI’s respective accounts of his ensuing job duties began to differ. NBI maintained Donahue was experiencing a slow work period while his job title, key job duties and rate of pay did not change. In contrast, Donahue claimed his position with NBI changed entirely from a Project Manager to a Sales Representative and included new duties such as recruiting customers for NBI and attending sales meetings.  In or about August 2017, Donahue voluntarily left NBI to start his own consulting business.  When NBI discovered Donahue, after his departure from NBI, provided SharePoint services to NBI’s former clients, including Raytheon, NBI sued Donahue to enforce the non-compete agreement. As a defense to NBI’s claims, Donahue invoked the “material change” doctrine and claimed the changes to his job beginning in July 2016 were material thereby invalidating his non-compete agreement with NBI. 

The Superior Court agreed with NBI there were no material changes to Donahue’s job while at NBI which would invalidate his non-compete agreement. The Court noted after his Raytheon assignment concluded, Donahue’s job title at NBI did not change, he was not asked to sign a new non-compete agreement, he was nether promoted nor demoted, his rate of pay remained the same and SharePoint-related tasks remained a significant portion of his billable work. Additionally, the NBI court determined certain changes to Donahue’s regular job duties, such as the need for occasional client pitches, were not a basis for finding the non-compete enforceable under Bartlett Tree. Further, NBI emphasized changes to an employee’s job must be material for the “material change” doctrine to apply, and cited Bartlett Tree as an example. In Bartlett Tree, the employee’s job changed significantly over an eighteen year period, including a promotion, different employment titles, different job duties, changes in remuneration and changes in sales area. These changes, taken together, showed a clear new employment contract and that the original employment contract was “abandoned and rescinded by mutual consent.”

The NBI v. Donahue decision is helpful for employers because it reaffirms only “material” job changes invalidate an existing employment agreement. Even so, employers must remain aware of the “material change” doctrine and the potential it holds for invalidating employment agreements. As a practical matter, it can be burdensome to require employees to enter into a new non-compete each time his or her position changes. Yet, if employees do not sign new agreements following a change in job duties or circumstances that is later deemed to be “material,” then a pre-existing non-compete may be deemed unenforceable.  

The best course of action for employers is to require key employees to sign new non-competes in connection with substantial job changes. If there is any doubt or ambiguity as to whether a job change is “substantial” or “material,” we recommend consulting with counsel.

If you have questions or would like more information, please contact Janet Barringer at [email protected] or Zinnia Khan [email protected].

Massachusetts Highest Court Rules Benefit of the Bargain Damages Can Include Expectancy Loss in Value of Laboratory for Medical Researcher

Posted on: June 16th, 2020

By: Catherine Scott

It is a long-settled principle of contract law that an individual who seeks to recover  damages under a broken contract will only be allowed to recover a figure sufficient to put that person in the place he or she would have been had the contract been performed. Courts have routinely referred to these types of damages as “benefit of the bargain” or “expectancy” damages. These damages often consist of a party’s out-of-pocket damages, as well as any consequential damages flowing from the breach of contract. However, what happens when the expectancy interest under the contract includes items that cannot be easily quantified, such as loss of reputation, future pay, or, in this instance, the cost of re-building a laboratory for medical research?  

In Hlatky v. Steward Health Care System, LLC, the Supreme Judicial Court ruled that a medical researcher whose hospital-employer had pulled its support of her laboratory, ultimately resulting in its demise, could recover $10 million in expectancy damages to “re-build” the laboratory based on the hospital’s breach of contract and breach of the covenant of good faith and fair dealing. The Court allowed the researcher to do so despite her not having provided any expert testimony as to the value of her laboratory at the time of its demise. Moreover, the researcher could not demonstrate any ownership interest in the laboratory as her laboratory had been fully funded by federal research grants. This fact did not stop the Court from holding the researcher had an expectancy interest in the full value of the laboratory given that it represented the culmination of her life’s work. This ruling was in spite of defendant’s and amicus curiae argument that the researcher could only recover the value of the “expected use” of the laboratory — i.e., her own lost future earnings based on the researcher’s use of the laboratory — but not the laboratory’s full value itself. It is worth noting the researcher established only $200,000 in out-of-pocket damages from the loss of her laboratory and did not pursue damages for loss of future earnings, reputational harm, or emotional distress stemming from the breach of contract. 

Though the Court limited its ruling to these specific circumstances, the Court’s decision has longstanding implications for what would constitute benefit of the bargain damages in other breach of contract actions. The ruling demonstrates that plaintiffs can and will be successful on creative theories of damages in these types of actions. Plaintiffs can recover a significant amount of damages without expert testimony as to value or loss of profit so long as their lay testimony has some basis or foundation in the record. Defense counsel should be vigilant about attacking such theories of damages prior to, during, and after trial, and be careful about preserving significant damages issues for appeal.  

If you have any questions about this ruling or other breach of contract matters, please feel free to contact Catherine Scott at [email protected] or any other member of FMG’s Commercial Litigation group.  

Law Firm Falls Victim To E-Mail Scam – Loses Appeal Following Allowance Of Summary Judgment

Posted on: May 28th, 2020

By: Marc Finkel

In 2019, the United States Treasury Department released statistics detailing the number of reported business email compromise incidents over a three- year period.  The number of monthly incidents increased exponentially over those three years from approximately 500 reported incidents per month in 2016 to over 1,100 reported incidents per month in 2018.  Additionally, the total value of such scams increased from approximately $110 million per month in 2016 to $310 million per month in 2018.  Despite the efforts of law enforcement to curtail such scams, the Treasury Department statistics suggest that the problems associated with business email compromise incidents are worsening over time. 

Businesses that routinely conduct large wire transfers in the ordinary course of business, such as law firms, are particularly vulnerable to such scams.  Unfortunately, when a law firm falls victim to such a scam, the consequences can be financially devastating with little-to-no available recourse.  Such a situation recently befell a Boston area law firm that was denied relief from the Massachusetts Appeals Court in a matter arising out of an email scam that cost the firm over $300,000.00. 

In Sarrouf Law LLP v. First Republic Bank & another, a lawyer from the Plaintiff law firm was contacted through the firm’s email system from someone pretending to be the president of a large foreign construction manufacturing company.  The scammer sought to hire the law firm to represent the manufacturing company in the sale of construction equipment to a purported Massachusetts based purchaser.  The scammer went so far as to have a telephone conference with a lawyer from the Plaintiff law firm in order to discuss details concerning what was ultimately a phony business transaction and to execute a fee agreement as required by the Plaintiff. 

Once “engaged” the Plaintiff was sent two checks that were purportedly from the equipment buyer’s insurance broker.  The first check was in the amount of $3,000.00 which was meant to cover the Plaintiff’s fee.  The second check was in the amount of $337,044.00 and was purportedly an initial deposit for the purchase of the construction equipment.  Both checks were subsequently deposited in the Plaintiff’s lawyer trust account.  The scammer thereafter provided the Plaintiff with specific wiring instructions as to the second check which the Plaintiff followed—even though the first check for $3,000.00 had been returned as non-payable.

The Plaintiff’s bank, Defendant First Republic Bank, conducted a multi-tiered procedure in order to verify the requested wire transfers.  The Defendant ultimately approved the wire transfers and the recipients received the funds as directed.  It was discovered after the wire transfers were completed that the second check for $337,044.00 was counterfeit and, as a result, the Plaintiff was charged back the amount of the second check.  Accordingly, the Plaintiff’s lawyer trust account became overdrawn and required them to deposit over $300,000.00 of their own money in order to restore the account to its prior balance.  Ultimately, the Plaintiff filed a two- count complaint in the Massachusetts Superior Court against the Defendant alleging, under California law (due to choice of law considerations), negligence and a violation of the California Uniform Commercial Code.  The Superior Court granted summary judgment on behalf of the Defendant and dismissed both counts of the Plaintiff’s complaint.

On appeal, the Massachusetts Appeals Court affirmed the allowance of summary judgment.  Specifically, the Appeals Court found that the Plaintiff could not bring a viable claim for negligence against the Defendant due to (1) the absence of a legal duty based upon the relationship between the parties; (2) the economic loss doctrine’s bar against the recovery of pure economic losses in claims sounding in tort; and (3) that the Plaintiff’s common law negligence claim is preempted by sections of the Uniform Commercial Code that apply to banks and transactions similarly at issue.  Furthermore, the Appeals Court affirmed summary judgment as to the second count of Plaintiff’s complaint alleging a violation of the California Uniform Commercial Code because there was no evidence that the Defendant failed to exercise good faith or ordinary care in the performance of its obligations to follow the wire instructions as directed by the Plaintiff.  Here, the Defendant had no legal obligation to inspect the check to determine whether it was potentially counterfeit.

The Sarrouf Law LLP matter serves as a truly sad and cautionary tale of which practicing lawyers should be aware.  As the Appeals Court stated, “[a] party is in the best position to guard against the risk of a counterfeit check by knowing it’s ‘client,’ it’s client’s purported debtor and the recipient of [a] wire transfer.”  When it comes to business email compromise incidents none of us are immune to such scams and vigilance on our part alone is the only form of true protection.

If you have questions or would like more information, please contact Marc Finkel at [email protected].

Massachusetts Joins Jurisdictions Prohibiting Class-Wide Arbitration of Wage Claims Absent Agreement Expressly Permitting Class Actions

Posted on: May 18th, 2020

By: Kevin Kenneally, Janet Barringer and William Gildea

In a further blow to class action claimants and lawyers, a Massachusetts Superior Court Judge recently ruled a car salesman could not arbitrate Wage Act claims on behalf of coworkers absent an express provision in the employment agreement permitting such a class action.   In Grieco Enterprises, Inc. v. McNamara, the employer sought a declaratory judgment ruling that an employee could not arbitrate wage claims on behalf of a putative class of employees even if his employment contract was silent on the issue and did not expressly prohibit or allow for such a class action. This favorable outcome for employers and insurers follows a similar 2019 ruling by the Supreme Court of the United States holding an ambiguous employment agreement cannot be the basis to compel class-wide arbitration.

In the Massachusetts state court arbitration matter, the employee claimed his employer failed to pay him—and others—required overtime and Sunday-hours premium in violation of state wage laws.  He demanded arbitration on behalf of himself and other similarly-situated commission-only salespeople.  In response, the employer filed the declaratory judgment action in Massachusetts state court seeking determination whether a class action in this instance is permissible.  The Massachusetts Superior Court held class action arbitration is not permissible because the parties’ employment agreement did not expressly permit employees to arbitrate class actions.  The Court held the employee may proceed to arbitration solely on an individual basis. 

The decision in McNamara is garnering attention due to the state’s decision last year concerning commission-based salespeople, Sullivan v. Sleepy’s LLC.  In Sleepy’s, the Massachusetts Supreme Judicial Court held commission-paid retail salespeople are entitled to “time-and-a-half” overtime compensation based on the statutory minimum wage — even when their commissions always met or exceeded the state minimum.  Sleepy’s specifically held the overtime and Sunday premium wage statutes applied to commission-paid sales staff.  The McNamara claimant sought to apply this ruling to an entire class of workers rather than having each worker bring an individual claim.  The employment agreement at issue contained a general statement in the agreement it was “in conformity with” Massachusetts Rules of Civil Procedure—which claimant contended includes procedural rules for class actions, thus tacitly subjecting the employer to class arbitration.  The Superior Court rejected the argument and held the parties to the contract did not expressly agree to engage in class action arbitration.  The judge in McNamara held that if she were to permit the application of an unclear provision to authorize class actions, “unrepresented employees could be bound by an arbitration that he or she did not individually consent to participate in.  Such a result is contrary to the legal underpinnings for arbitration, specifically that it is a consensual contractual matter.”

In 2019, the U.S. Supreme Court decided Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 587 US __, 203 L. Ed. 2d 636  (2019), which was seen as a setback to workers’ ability to join or aggregate the individual claims of other workers who had agreed in their employment contracts to an arbitration forum.  Lamps Plus held in claims subject to the Federal Arbitration Act (“FAA”) an ambiguous agreement cannot be the necessary contractually-agreed basis to force an employer to submit to class-wide arbitration.  The high court agreed with the employer there simply was no foundational agreement to arbitrate the class action and the lower court acted contrary to the primary purpose of the FAA.  Lamps Plus held a lower court may not compel arbitration on a class-wide basis when an agreement is “silent” on the availability of such arbitration and “that private agreements to arbitrate are enforced according to their terms.”  

Employers who incorporate arbitration provisions in their employment agreements for individual basis only will benefit by the uniform application of law in both state and federal courts.  Employers in Massachusetts have certainty absent a specific provision – or even in the face of a vague arbitration provision – class-wide arbitration will not be available to employees whether the claims are based on federal or state law.

If you have questions or would like more information, please contact Kevin Kenneally at [email protected], Janet Barringer at [email protected] or William Gildea at [email protected].

Boston Implements New COVID-19 Safety Procedures for Construction Sites

Posted on: May 13th, 2020

By: Catherine Bednar

On May 5, 2020, the City of Boston activated new COVID-19 safety procedures for active construction sites, which are currently limited to projects meeting the City’s definition of emergency or essential work. The City also targeted dates for expanding the categories of permitted construction activity in the City to more closely match the State’s definition of essential construction services; currently, the City has imposed significantly greater restrictions on construction activity.[1]

The City’s Order sets forth the following timetable:

• May 5, 2020 – Essential construction projects with approved COVID-19 Safety Affidavits and COVID-19 Safety Plans will be authorized to prepare the site with project-specific COVID-19 safety measures.

• May 18, 2020 – The City will allow essential construction work on sites that meet the following criteria: (1) Projects are permitted, in compliance and have filed a COVID-19 Safety plan and a signed affidavit; (2) Project sites are sufficiently prepared to adhere to all criteria of their safety plan; and (3) the work is for hospitals, public schools, residential buildings [1-3 units], road and utility work, or other outdoor/open air-work such as steel erection, roofing and constructing foundations.

• May 26, 2020 – All essential construction projects may re-commence construction activities in adherence to their safety plans.

The City has adopted this incremental approach in order to provide additional time “necessary to allow complex, large-scale development an opportunity to educate their workforce, safely remobilize and implement their site-specific Safety Plan.” All Projects must comply with the City’s COVID-19 Safety Policy for Construction, issued on April 27, 2020, which requires the implementation of best practices, including pre-shift safety measures (e.g. employees travel to work separately), job site hygiene practices (e.g. hand sanitization stations), social distancing techniques (e.g. holding safety meetings outdoors); and appropriate use of Personal Protective Equipment (PPE).

[1] Massachusetts Sees Tensions Between Municipal Construction Bans and Governor’s “Essential Services” Order (April 1, 2020).

[2] https://www.boston.gov/news/temporary-guidance-construction-city-boston

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include liability considerations for jails and prisons, tort claims in a post COVID-19 world, real estate issues amid the pandemic and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**