A Non-Compete Agreement May Not Be Enforceable After A Job Or Employer Change (July 2013)

A case recently decided by the Federal District Court for Massachusetts highlights the danger of relying on non-compete agreements signed prior to changes in an employee’s position or employer.  In Rent-A-PC, Inc., dba Smartsource Computer & Audio Visual Rentals v. March, Schmitz, Ciole and CCR Solutions, Inc. (“Rent-A-PC”), the former employer of three employees sued to enforce non-compete agreements the employees had signed when they were initially hired.

Rent-A-PC asked the court to issue an injunction prohibiting the employees from violating their non-compete agreements by continuing their employment with a competitor.  To be granted an injunction, a party must prove, among other things, that it is likely to be successful in its underlying lawsuit to enforce the non-compete agreement.  The court held that Rent-A-PC had not satisfied that requirement. 

            Relying on a series of Massachusetts court decisions, the District Court held that when an employee’s position or other circumstances change, a non-compete agreement signed before that change may not be enforceable.  Specifically, in Rent-A-PC, one of the employees had received a series of promotions after he signed the non-compete agreement.  The court denied the plaintiff’s request for an injunction, holding that the employer was unlikely to prove that the agreement was enforceable.

            One of the other three employees had signed a non-compete agreement with a company that Rent-A-PC later acquired.  The court again denied Rent-A-PC’s request for an injunction noting that, although his title remained the same, the employee’s duties had changed significantly since his hire.  In addition, however, the court noted that the employee had signed the non-compete agreement with a different company, which was smaller than Rent-A-PC.  The Court opined that the employee may not have intended to be bound to a non-compete agreement with the larger Rent-A-PC. While not clear, it is possible that the second consideration, alone, would have been sufficient to defeat Rent-A-PC’s request for an injunction.

WHAT TO DO

            The above case makes it clear that employers who wish to enforce a non-compete (and presumably also other restrictive covenants such as non-solicitation and confidentiality agreements) should require employees to sign a new agreement each time their duties or position change significantly.  Indeed, since a series of small changes will potentially abrogate restrictive covenants, employers who rely on such agreements may want to review the files of all employees subject to such agreements on a regular basis to ensure that the employee’s position has not materially changed since the agreement was signed.

            Second, employers who acquire other companies should not assume that any restrictive agreements employees signed with the acquired employer will remain in effect.  We recommend that after any acquisition, key employees (including salespeople) be required to sign new confidentiality, non-solicitation and non-compete agreements.

New Hampshire Requires Advance Notice of Restrictive Agreements (July 2012)

            The New Hampshire legislature recently enacted a law designed to protect employees who are required to sign agreements restricting certain competitive activity (the “Notice Law”).  The law, which went into effect on July 14, 2012, is extremely brief:

            Prior to or concurrent with making an offer of change in job classification or

            an offer of employment, every employer shall provide a copy of any non-compete

            or non-piracy agreement that is part of the employment agreement to the

            employee or potential employee.  Any contract that is not in compliance with this

            section shall be void and unenforceable.

            As originally proposed, the Notice Law only applied to newly hired employees.  It was intended to ensure that new employees who would be required to sign a non-compete or “non-piracy” agreement had advance notice of that requirement before they left their current position.  Later amendments expanded that protection to employees who were offered a change in their “job classification”.

Questions Raised by the Law

            In large part because of its brevity, and lack of definitions, the law raises a number of questions.  First, it is not clear what a “non-piracy” agreement is.  Typically, employers require employees to sign one or more so-called “restrictive agreements”, which include confidentiality (or non-disclosure), non-solicitation (of either employees or customers), assignment of invention and non-compete agreements.  The word “piracy” generally refers to theft.  Therefore, it is likely that a court would interpret a “non-piracy” agreement to include any form of non-solicitation agreement.  It is less clear whether a standard confidentiality or assignment of invention agreement would be deemed a “non-piracy” agreement. 

            Second, most employers consider a “non-compete” agreement to prohibit competitive activity after the employee’s employment ends.  However, the Notice Law provides no definition of that term.  As a result, the advance notice requirement may also apply to any agreements forbidding employees to compete with their employer during their employment.

            Third, the law requires employers to give a copy of non-compete or non-piracy agreements to employees who are offered a change in their job classification.  However, the Notice Law provides no guidance on what actions would constitute a change in an employee’s job classification.  For example, if an employee is reclassified from non-exempt to exempt, receives a different title or a revised internal classification, but continues to perform the same duties, it is unclear whether the Notice Law would require advance notice of any covered restrictive agreement the employee must sign.

Recommendations

            If an employer does not give an employee the advance notice required by the law, the restrictive agreement will be unenforceable.  Therefore, New Hampshire employers would be well advised to broadly construe the statute.  Employers should give an advance copy of any restrictive agreement to all new employees and all employees who will have any change in their job classification or position which will require the employee to sign such an agreement (including confidentiality, non-solicitation and non-compete agreements).

            It is also wise to receive and retain written confirmation that the employee received the required advance copy of the agreement.  The simplest way to obtain such confirmation is to include a statement in the restrictive agreement specifically acknowledging that the employee received an advance copy of the agreement.  In addition, all offer letters to New Hampshire employees who will be required to sign a restrictive agreement should clearly state that requirement and enclose a copy of the agreement.  The employee should be asked to sign, date and return a copy of the offer letter.

            In addition, if a New Hampshire employee’s job classification will be changed to one in which s/he will be required to sign a restrictive agreement, the employee should be given a copy of the agreement prior to the change in job classification and should sign a form acknowledging the receipt of the agreement on a specific date. 

            The law does not specify any particular advance notice period.  However, employees should have a full and fair opportunity to review and consider the proposed restrictive agreement before accepting a job offer or a change in job classification.

            Finally, although the Notice Law only applies to New Hampshire employees, it is advisable for employers to give all new employees an advance copy of any restrictive agreement s/he will be required to sign.  Such advance notice will both enhance the enforceability of the agreement and avoid unfair surprise.  Employers with employees in multiple states, including New Hampshire, may find it simpler to include a copy of any restrictive agreements employees will be required to sign in all offer letters.

If you have any questions about the Guidance or any other employment matter, please do not hesitate to contact us.

New Federal Guidelines on Using Criminal Records to Make Employment Decisions (June 2012)

On April 25, 2012, the Equal Employment Opportunity Commission (“EEOC”) issued new guidance to employers on the use of an applicant or employee’s criminal history to make employment decisions.  The published guidance is entitled "Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964" (the “Guidance”).  It can be found at www.eeoc.gov/laws/guidance/arrest_conviction.cfm

The Guidance was effective immediately.  The EEOC also issued a related Question and Answer guide to address employers’ anticipated questions.  This document can be found at www.eeoc.gov/laws/guidance/qa_arrest_conviction.cfm.

Reason for the Guidance

The Guidance is designed to “update and consolidate” the EEOC’s prior policy statements about the use of criminal record information.  It was spurred by recent cases alleging that reliance on criminal records to make hiring decisions has a disproportionate impact on African American and Hispanic applicants.  Specifically, the EEOC noted that “African Americans and Hispanics are arrested at a rate that is 2 to 3 times their proportion of the general population.”  If current incarceration rates do not change, about 1 in 17 White males will serve some time in prison while 1 in 6 Hispanic, and 1 in 3 African American, males will serve time in prison.  Thus, a policy of disqualifying applicants solely because of their criminal record will disproportionately impact African Americans and Hispanics.

Use of Criminal Records

The Guidance does not prohibit the use of criminal background information to make employment decisions.  However, the EEOC states that a blanket policy or practice of automatically excluding everyone with a criminal record from employment, unless required by federal law, will, in the agency’s opinion, violate Title VII.  To avoid liability, an employer who rejects a candidate in a protected category based on his/her criminal record must demonstrate that the exclusion was “job related and consistent with business necessity for the position in question”.

Green Factors

To satisfy that burden, employers who use criminal background information to make employment decisions must develop and use a targeted screen enabling them to assess the candidate and the position.  In a 1975 decision, Green v. Missouri Pacific Railroad, the 8^th Circuit Court of Appeals identified three factors that are relevant to determining if a decision to exclude a candidate for consideration based on his/her criminal record is job related for the position in question and consistent with business necessity (the “Green factors”). 

The EEOC adopted the three Green factors, stating that a policy or practice of using the following factors to decide whether to exclude individuals with a criminal record will support an argument that the decision was a permitted targeted, rather than a prohibited automatic, exclusion.

• The nature and gravity of the offense or conduct.
• The time that has passed since the offense or conduct and/or the completion of the sentence.
• The nature of the job held or sought.

Employers must consider and weigh the above factors before deciding whether to exclude an individual with a criminal record for consideration for a particular position.

Individual Assessment

While use of the Green factors may help an employer avoid liability, the Guidance also states that making an individualized assessment provides additional protection against the EEOC finding a violation of Title VII because such an assessment enables employers to consider more complete information about the applicant or employee.  An employer makes an individualized assessment simply by giving the applicant or employee the opportunity to demonstrate that excluding him/her because of a past criminal record is not job related or consistent with business necessity.  The Guidance notes that relevant information an individual might provide includes the following.

• Evidence that the criminal record was inaccurate.
• Mitigating circumstances surrounding the offense.
• The number of the individual’s convictions.
• The applicant’s age at the time of the offense.
• Evidence that the individual performed the same or similar work after his/her conviction without incident.
• The length and consistency of the individual’s employment history before and after the offense.
• Rehabilitation efforts.
• Employment or character references.
• That the individual was bonded under a federal, state or local bonding program.

If an individual does not provide requested additional information, the employer is free to make its employment decision without the information.

Arrests

The Guidance also states that employers should not base employment decisions on arrests.  According to the EEOC, only convictions should be considered since a conviction is evidence that the individual committed the offense while an arrest is not evidence of criminal activity.

Best Practices

Finally, the EEOC recommends (but does not require) that employers adopt several “best practices” to reduce the possibility that they may unlawfully exclude individuals from employment opportunities.  Those “best practices” are summarized below.

• Eliminate policies or practices that automatically exclude people from employment due to a criminal record.
• Train managers and those with hiring authority about Title VII, discrimination and implementing your hiring procedures.
• Adopt a narrowly tailored written policy and procedure for screening applicants for criminal convictions.
• Determine the specific offenses that may demonstrate unfitness for specific positions and record the justification.  This determination may be a component of individual job descriptions.
• If an applicant or employee has a criminal record, conduct an individualized assessment of his/her circumstances.

Massachusetts Employers

Massachusetts imposes additional restrictions on employers’ use of criminal background information to make employment decisions.  As we discussed in prior Legal Alerts, Massachusetts employers may not ask about criminal history in an initial job application.  In addition, employers in Massachusetts must comply with a number of requirements in obtaining and using Criminal Offender Record Information.  Those alerts are available http://marshallhalem.com/articles.php

Employers in Massachusetts also may not ask about the following:

·         an arrest or detention that did not result in a conviction;

·     a first conviction of drunkenness, simple assault, speeding, minor traffic violations, affray, or disturbance of the peace;

·         a conviction of a misdemeanor more than 5 years in the past; or

·         a sealed or juvenile offense.

Effect of Guidance

It is important to note that the Guidance expresses the EEOC’s opinion.  It will guide that agency’s actions; however, if the EEOC files suit against an employer who is not complying with the Guidance, that employer has the right to challenge the Guidance.

If you have any questions about the Guidance or any other employment matter, please do not hesitate to contact us.

Recent Changes to Massachusetts Employers' Receipt of Criminal Offender Record Information (May 2012)

On August 6, 2010, Massachusetts Governor Deval Patrick signed into law certain reforms to the Commonwealth’s Criminal Offender Record Information (“CORI”) law.  As we previously notified you, many of those changes went into effect last year.  To read our August 2010 Alert on CORI Reform click http://marshallhalem.blogspot.com/2010/08/massachusetts-cori-reform-august-2010.html

On May 4, 2012, the last portion of that law went into effect.  In this Alert, we describe the new reforms and outline what employers should do to comply with this portion of the CORI reform legislation. 

Review Of Early Changes

Most Massachusetts employers are now well aware that they can no longer ask applicants about their criminal history on an initial employment application.  This portion of the law went into effect in November 2010.   

New Cori Data Base

The law also mandated the creation of a database to collect the criminal history of state residents.  This new internet-based system, known as iCORI, will be far more accessible than the old CORI request method.  Any employer who wants to request a CORI on an employee or applicant must register for an iCORI account.  To register, the employer must designate a responsible individual, pay a fee, and provide information about the purpose for requesting CORIs.  

The data base will only contain felony convictions within the last ten years and misdemeanor convictions within the last five years — provided the individual had no subsequent convictions.  But certain convictions, including those for murder and sex offenses, will stay on the system permanently. 

Required Authorizations

Before an employer may check an applicant’s criminal history, the applicant must sign an authorization permitting the review.  A copy of that authorization can be found on the Department of Criminal Justice Information Services (“DCJIS”) website at http://www.mass.gov/eopss/docs/chsb/cori-acknowlegement-form-employment-housing-20120509.pdf

In addition, the employer must receive and review government-issued identification verifying the applicant’s identity. 

If an employer uses a third party company, known as a Consumer Reporting Agency (“CRA”) to run its criminal record background checks, the employer must still obtain a signed authorization.  A copy of the authorization for use with a CRA can be found at http://www.mass.gov/eopss/docs/chsb/cori-acknowlegement-form-organizations-using-a-cra-20120509.pdf 

Questioning An Applicant/Employee About Cori

If an employer has obtained criminal history information about an applicant or employee, the employer must give that information to the individual before questioning him/her about their criminal history. 

New Policy Requirement

An employer who requests more than five background checks a year must implement a written criminal offender record policy.  The policy must identify the steps the employer will take before choosing not to hire an applicant with a criminal record.

Designing A Cori Representative

Every employer must designate at least one CORI Representative.  The CORI representative is charged with various administrative responsibilities, including ensuring that the organization is in compliance with the CORI regulations and being responsible for overseeing all storage and acquisition of CORI reports.  The CORI representative must also undergo training on the new regulations and use of iCORI.

Rejecting An Applicant Based On A Cori Record

 If an employer rejects an applicant for a position based upon search results from the new iCORI database, the employer must do the following:

1.      Give the applicant a copy of the CORI report.

2.      Give the applicant a copy of the employer’s CORI policy, if applicable.

3.      Identify the information on the CORI that formed the basis for the adverse action.

4.      Allow the applicant to dispute the accuracy of the information contained in the CORI.

5.      Inform the applicant about the process for correcting mistakes in criminal record information.  Specifically, employers must give the applicant a copy of the DCJIS publication “Information Regarding the Process for Correcting CORI.”  A copy of which can be found here http://www.mass.gov/eopss/docs/chsb/cori-process-correcting-criminal-record.pdf

6.      Employers must document all steps taken to comply with the above requirements. 

Massachusetts law does not prohibit employers from basing employment decisions on an applicant’s criminal record.  However, the Equal Employment Opportunity Commission has recently issued guidelines (which a court may or may not accept) warning that using a criminal conviction to make adverse employment/hiring decisions may be discriminatory due to the fact that a disproportionate percentage of convicted felons belong to a protected class.  We will discuss this development in another Legal Alert shortly.   

Record Retention/Dissemination

Employers must keep the authorization signed by the applicant for at least one year.  In addition, employers may not retain a copy of a former employee’s CORI record for more than seven years from the employee’s last day of employment.  Similarly, an employer may not retain the CORI record of an unsuccessful applicant for more than seven years.

CORIs that are retained in paper form must be kept in a secure, locked location.  CORIs that are stored electronically must be password protected and encrypted.  Access to an individual’s CORI is limited to individuals in the organization with a need to evaluate the information in making an employment decision.

All CORI responses are confidential.  Therefore, any dissemination of CORI reports outside a requestor’s organization must be logged in a secondary dissemination log.  This log must contain:

1.      applicant/employee’s name;

2.      applicant/employee’s date of birth;

3.      date and time of dissemination;

4.      it was disseminated to; and

5.      the specific reason for dissemination.

To Do

To comply with the law, Massachusetts employers who wish to obtain a CORI report for an applicant or employee must take the following steps.

·         Establish a procedure to ensure that you both obtain a signed authorization from applicants and verify their identity.

·         If you may conduct more than five CORI searches per year, develop the written criminal offender policy described above.  We are happy to help you draft such a policy.

·         Institute a procedure to ensure that all applicants rejected due to their criminal history receive a copy of your policy as well as their CORI record. 

·         Review your record retention and disposal practices to ensure that you retain the authorization for one year and that you dispose of the CORI information at least seven years after an employee’s separation or after receiving an unsuccessful application.

If you have any questions about the new CORI law or any other employment issues, please do not hesitate to contact us.

New National Labor Relations Board Poster Requirement (April 2012)

            As of April 30, 2012, all private sector employers that are covered by the National Labor Relations Act,[1] regardless of whether they are unionized, will be required to post a notice advising employees of their rights under the National Labor Relations Act. (The original effective date was postponed.)  

The notice should be posted in a conspicuous place, where other notifications of workplace rights and employer rules and policies are posted. Employers also should publish a link to the notice on an internal or external website if other personnel policies or workplace notices are posted there.

The poster requirement was delayed while a federal trial court in the District of Columbia considered the National Labor Relations Board’s (“NLRB’s”) right to require employers to post the notice.  In March, the Court upheld the Board's right to issue the rule, but struck the enforcement provisions.  This meant that the NLRB was permitted to require employers to post the notice.  However, the Court held that the NLRB exceeded its authority by including a provision in its rule that an employer’s failure to post the notice would automatically be considered an actionable unfair labor practice. The Court’s ruling is currently on appeal to the D.C. Circuit Court of Appeals.  However, the lower court refused to stay the implementation of the notice requirement during the pending appeal.  Therefore, that requirement remains in effect.

Action Employers Should Take Now

Barring any intervening action by the Court of Appeals, employers must post the

11-by-17-inch notice by April 30, 2012.  Copies of the required notices can be found at these links:

Two pages:

http://www.nlrb.gov/sites/default/files/documents/1562/employeerightsposter-8-5x11.pdf

 One page:

 http://www.nlrb.gov/sites/default/files/documents/1562/employee_rights_fnl.pdf

Going Forward

Although the penalty provisions of the NLRB rule were invalidated by the trial court, unions may argue that an employer's failure to post the notice is evidence of bias against unions. 

Therefore, we are advising all covered employers to post the required notice.  Prior to doing so, employers should consider educating supervisors and managers about why the company is posting this notice, what it means, how it affects the company's culture and views about its employees and unions, and how to respond to questions from employees regarding the notice. 

If you have any questions about this or any other employment issues, or are unsure if you are covered by the posting requirement, please do not hesitate to contact us.

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[1] Almost all private sector companies are covered by the NLRA.  The most notable exceptions are retailers with less than $500,000 in gross annual receipts, non-retailers with less than $50,000 worth of goods or services purchased or sold in interstate commerce, religious organizations, employers subject to the Railway Labor Act and employers with only agricultural laborers.

Massachusetts Transgender Equal Rights Bill (January 2012)

Massachusetts has now joined a number of other states in banning discrimination based on gender identity.[1]

On November 23, 2011, Governor Deval Patrick signed a new law that prohibits, among other things, workplace discrimination on the basis of gender identity.  Effective July 1, 2012, Massachusetts employees and job applicants will have legal recourse against employers who discriminate against them on the basis of their gender identity. The new law also bans discrimination against transgender people in housing, mortgage loans, and credit and creates a new type of protection under existing hate crime laws. 

            The statute defines “gender identity” broadly as:

a person’s gender-related identity, appearance or behavior, whether or not that gender-related identity, appearance or behavior is different from that traditionally associated with the person’s physiology or assigned sex at birth. 

The law not only protects individuals who have undergone, or are seeking, sex reassignment surgery, but also protects all individuals who can establish that they consider their gender identity to be different from that received at birth.  

The statute broadly states that gender identity:

may be shown by providing evidence including, but not limited to, medical history, care or treatment of the gender-related identity, consistent and uniform assertion  of the gender-related identity or any other evidence that the gender-related identity is sincerely held as part of the person’s core identity.  

The law does not explain what aspects of one's identity, appearance, or behavior are "gender-related" and which are not. Employers will have to determine, often on a case-by-case basis, who is, and who is not, protected by the new law.

Action Employers Should Take Now

Massachusetts employers should immediately update their handbooks and their harassment and equal employment opportunity (“EEO”) policies to include “gender identity” as a protected class.  Massachusetts employers are required to distribute their harassment and EEO policies annually to all employees.  Accordingly, employers should ensure that gender identity is included in the policies distributed this year.

In addition, all anti-harassment training should include gender identity as a protected class.

 

Finally, employers in Massachusetts should train managers about gender identity discrimination and about what to do if they become aware of harassment or discrimination based on this or any other protected class.  Such training should include sensitivity to all types of gender identity or expression.

Going Forward

Employers should tread carefully when confronted with a complicated gender-identity issue, such as requests to use a different name, bathrooms, or to alter a dress code.  We recognize that these issues can be complex and that other employees may complain about legally required accommodations.  If you have any questions about these or any other employment issues, or need up-to-date EEO and/or harassment policies, please do not hesitate to contact us.

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[1] The other states are: California, Colorado, Connecticut, the District of Columbia, Hawaii, Iowa, Illinois, Maine, Minnesota, Oregon, Nevada, New Jersey, New Mexico, Rhode Island, and Vermont.

Christmas 2011 (November 2011)

This year Christmas falls on a Sunday.  We have received a number of inquiries from clients about whether the holiday is to be observed on Sunday or on Monday and how they should pay employees. 

The following advice applies only to non-exempt employees. Exempt employees do not receive extra pay for working on designated holidays unless your policies promise them additional pay.

Retail Employees

Under Massachusetts law, if a holiday falls on Sunday, it is to be observed the following Monday.  In addition, in Massachusetts, retailers must close on Christmas.  Therefore, retail stores must close on Sunday, December 25, 2011.  Retailers may be open on Monday, December 26, 2011, the “observed holiday”, but must pay employees time and one half for that day.

Non-Retail Employees

For non-retail employers, your established holiday policy will govern whether you will be open on Monday and how your employees will be paid. 

For example, if your handbook or policy states that employees who work on a holiday will be paid time and one-half, any employee who works on Christmas Sunday will be entitled to time and one-half.  However, you will not be required to pay employees who work on Monday time and one-half.  On the other hand, if you designated December 26 as the Christmas holiday for 2011, you should pay employees who work on Monday the amount you pay employees who work on a holiday. 

This advice is based on Massachusetts law, if you have employees in other states, please feel free to contact us for advice based on your state’s laws.