Non-Compete Agreements in Massachusetts May Soon Be Guided by New Legislation

Non-competes in Massachusetts have been a hot topic in 2009. On October 7, 2009, the Joint Committee on Labor and Workforce Development held a public hearing on proposed non-compete legislation, entitled An Act Relative to NonCompete Agreements, sponsored by Representatives William Brownsberger (D-Belmont) and Lori Ehrlich (D-Marblehead). The experience of Caroline Huang, whose career was negatively affected by a broad restrictive covenant that kept her out of her field, encouraged Representative Brownsberger to focus on non-compete legislation. Ms. Huang’s website, Prohibit Restrictive Employment Covenants, provides many resources and updates regarding the proposed bill.

I was fortunate to be in the position to provide commentary on the drafts that led to the final proposed bill. I also testified at the public hearing with a client, who years prior found her livelihood in jeopardy when her former employer tried to enforce an overly broad non-compete agreement. Although we were successful in opposing the employer’s Motion for Preliminary Injunction, the cost in doing so sometimes prevents employees from properly asserting their rights. Employers know this and, unfortunately, often attempt to leverage the disparity in spending power. This creates a perverse outcome in which an employee is forced to abide by an otherwise unenforceable non-compete in order to avoid legal fees.

One of the highlights of the proposed legislation is a clause that entitles employees to attorneys’ fees “if the court declines to enforce a material restriction or reforms a restriction in material respect.” This will discourage employers from pursuing tenuous claims and help to preserve scarce judicial resources. Notably, the bill also limits non-competes to employees earning an annual salary of more than $75,000. Finally, the proposed legislation creates a presumption of enforceability for non-compete agreements that span up to 6 months.

Workplace Discrimination Laws Broadened By The Genetic Information Nondiscrimination Act (GINA)

Employees will soon gain protection against employers that utilize genetic testing or consider genetic background in making hiring, firing, promotion decisions. The Genetic Information Nondiscrimination Act (“GINA”) passed by Congress in March 2008 becomes effective law in the next coming weeks as this New York Times story details:
Law Seeks to Ban Misuse of Genetic Testing. On November 21, 2009, the Genetic Information Nondiscrimination Act takes effect for all employers with 15 or more employees and on December 7, 2009, the Act takes effect for insurers.

GINA forbids certain discrimination on the basis of genetic information and the collecting and sharing of certain genetic information. GINA only allows the collection of genetic information in a few limited circumstances:

(1) If the information is necessary for a certification requirement under the Family and Medical Leave Act or a state leave statute.
(2) If the information is used to monitor the effects of hazardous workplace exposure; or
(3) If the employer conducts DNA analysis as a forensic laboratory.

As science uncovers more and more genetic predispositions for disease, the importance of protecting employees from discrimination on the basis of their genes increases. Without GINA, employers would have a strong incentive to discriminate against talented employees whose genetic background threaten to drive up their health insurance premiums. Senator Ted Kennedy heralded the Genetic Information Nondiscrimination Act as “the first major civil rights bill of the new century.” Without GINA, as genetic screening became more common place, employees with “bad genes” might have found themselves unemployable.

GINA forbids discrimination not only on the basis of an employee or prospective employee’s genetic information, but also discrimination based upon genetic information of family members. A “family member” includes an individual’s spouse, dependent child and certain other relatives.

Employees should know that, unlike HIPAA and some other health laws that do not allow an employee to sue for violations, the Genetic Information Nondiscrimination Act confers a private cause of action on certain victims of genetic discrimination. Section 207 of the Genetic Information Nondiscrimination Act gives a cause of action to employees and prospective employees who are discriminated against on the basis of their genetic information or whose genetic information is improperly collected or shared.

GINA enables employees to recover lost wages, costs, attorney’s fees and, in some instances, punitive damages. The punitive damages provisions have ceilings. For example, if the employer has more than 500 employees, an employee may recover up to $300,000 in punitive damages. There is also a retaliation provision to GINA that gives a cause of action to any employee who opposes a policy or procedure that violates GINA.

Employeees Who Suffer Workplace Discrimination Gain Clarification On Obtaining Punitive Damages

Employees who suffer workplace discrimination in violation of the Massachusetts Fair Employment Practices Act are entitled to recover four types of damages: front pay (the amount by which someone’s future earnings are reduced by discrimination), back pay (the plaintiff’s lost income from the time of the discrimination up to a jury verdict), emotional distress damages, and attorney’s fees. These damages are compensatory damages, designed to compensate the victim of discrimination for the actual harm s/he suffered and no more.

Punitive damages are another category of damages provided by the Fair Employment Practices Act for the victims of unlawful discrimination on the basis of race, color, religious creed, national origin, sex, sexual orientation, or handicap. However, not all victims of unlawful workplace discrimination are entitled to punitive damages. Recently, in the case of Haddad v. Walmart Stores, Inc. , the Massachusetts Supreme Judicial Court clarified the standard for the award of punitive damages.

In Haddad, a jury awarded punitive damages to the plaintiff for the gender discrimination that she had suffered. The trial judge, however, took away the punitive damages. The parties then filed cross-appeals, raising numerous questions of law.

On appeal, the plaintiff argued that the trial judge’s decision to take away the punitive damages was error. Simplifying a bit here, the plaintiff went on to argue that Massachusetts law permits punitive damages for intentional acts and, since discrimination is the result of intentional acts, any finding of discrimination is sufficient to support an award of punitive damages.

The Supreme Judicial Court (“SJC”) agreed with the plaintiff that the trial court’s decision to take away the jury’s award of punitive damages was a mistake. The SJC found that the the trial court judge may have based his decision on a belief that, in order to recover punitive damages, an employee must show that his/her employer acted with the knowledge that its actions violated applicable civil rights laws. The SJC said that, to the extent the judge’s order relied upon that reasoning, it was in error.

The Supreme Judicial Court went on to clarify the circumstances under which a victim of unlawful discrimination may recover punitive damages. The SJC held that punitive damages in a discrimination case may be awarded only where the defendant’s conduct is outrageous or egregious. In determining whether the defendant’s conduct is outrageous or egregious, a judge or jury should consider several factors, including but not limited to:

(1) whether there was a conscious or purposeful effort to demean or diminish a class of which the plaintiff is a member (or the plaintiff because he or she is a member of a class);
(2) whether the defendant was aware that the discriminatory conduct would likely cause serious harm or recklessly disregarded the likelihood that serious harm would arise;
(3) the actual harm to the plaintiff;
(4) the defendant’s conduct after learning that the initial conduct would likely cause harm; and
(5) the duration of the wrongful conduct and any concealment of that conduct by the defendant.

The Supreme Judicial Court suggested these five factors do not exhaust the list of considerations that may be relevant to an award of punitive damages in a discrimination case, but they do help clarify what an employee who is the victim of workplace discrimination should show if she hopes to recover punitive damages against her employer.
You can watch a video of the oral arguments in the Haddad case on Suffolk Law’s website.

Employees Beware: Computer Fraud & Abuse Act May Restrict Ability To Retain Documents

Employees need to be especially cautious in retaining documents that may be considered the property of the employer. A law Congress passed to deter computer hackers is now being wielded by corporations in litigation against their former employees. The broad scope of this law is now on display in federal court here in Massachusetts.

The Computer Fraud and Abuse Act (“CFAA”) is a federal law that establishes civil liability for anyone who:

“[k]nowingly and with the intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud or obtains anything of value.

18 USC Section 1030 (a)(4).

Sounds like a law designed to punish computer hackers, right? Well, like the civil RICO act, it’s another broad federal statute that is being put to use in different contexts by clever lawyers. In CFAA’s broad contours, some employment defense lawyers see a weapon for use against former employees who wish to sue their former employer for civil rights violations or other workplace torts.

As the Third Circuit Court of Appeals has noted: “Employers…are increasingly taking advantage of the CFAA’s civil remedies to sue former employees and their new companies who seek a competitive edge through wrongful use of information from the former employer’s computer system.” P.C. Yonkers, Inc. v. Celebrations the Party and Seasonal Superstore, LLC, 428 F.3d 504, 510 (3rd Cir. 2005).

Now a CFAA claim against a former employee is being litigated in New England’s own First Circuit. In a recent opinion in federal district court in Massachusetts, Judge Nathaniel M. Gorton denied a Motion to Dismiss filed by Thomas Pullen after his former employer, Guest-Tek Interactive Entertainment, Inc., sued Pullen for (among other things) allegedly downloading corporate files to a personal USB device. Pullen, as Guest-Tek’s former North American Vice President of Sales, had virtually unrestricted access to data on Guest-Tek’s computers. However, Judge Gorton found that, at least at this early stage, the lawsuit against Pullen should not be dismissed because Pullen’s use of Guest-Tek’s computers might have been “without authorization” or in excess of his “authorized access,” notwithstanding the fact that, as a high-ranking executive, Pullen was permitted access to all of the files at issue in the case.

Although the allegations in the Pullen case are egregious — Guest-Tek alleges that Pullen took the files in order to share them with his new employer and help the new employer gain a competitive advantage over Guest-Tek — employees should take heed. If you are a victim of workplace discrimination or sexual harassment and you wish to take home with you computer files that support your claims, you may expose yourself to a counterclaim by your employer under CFAA for doing so.