Only Weeks to Go Before New Overtime Rules Take Effect- What Does it Mean to You?

The rules are changing, soon, and in a big way.  New Department of Labor overtime regulations take effect on December 1, 2016, which will significantly expand the number of employees who must be paid at an overtime rate for hours worked over 40 per week.  Will these changes affect you?

The answer is almost certainly yes if you are a business owner or if you are an employee making less than $913 per week (approximately $47,000 per year).  Under current overtime laws (Massachusetts and federal), an employee is exempt from overtime only if two things are true: First, he or she is paid on a salary basis and earns at least $455 per week, and second, his or her actual job duties fall into one of the exempt categories (a bona fide executive, administrative, or professional employee- more on these later).

Who falls within the exempt duties has been fertile ground for litigation for years, and the new regulations don't change that reality.  What is so significant about the regulations is that they raise the threshold earnings from $455 per week to $913 per week, almost doubling it.  In plain language, it means that no matter what an employee's duties are, or whether they are currently classified as exempt from overtime, if they make less than $913 per week (approximately $47,000 per year), they must be paid overtime under the federal laws (1.5 times their hourly rate for all hours worked over 40 in any given week).

It is the employer's obligation  to keep a record of hours worked, which very much favors an employee where there are not accurate records and there is a dispute about whether an employee actually worked overtime.

Finally, both employees and employers should be aware that a successful claim for unpaid overtime can result in the employer paying two or three times the amount of unpaid overtime, and the employee's legal fees (in addition to what the employer has to pay its own lawyer).

How might employers respond to this change and would these responses be legal?

Some business might  adjust the base compensation going forward to offset increased overtime expenses- so long as the employee is paid the Massachusetts minimum wage, and so long as the change is not retroactive, this is legally allowed, though as a business matter it could have extremely negative effects on morale and retention, and might cause real hardship for employees.

It is not legal in most circumstances for an employer to try to convert employees to independent contractor status to avoid overtime obligations.  There are very strict rules in Massachusetts about who may and may not be treated as an independent contractor, and the penalties for getting it wrong can be harsh.

An employer may put a policy in place requiring approval for overtime hours, and may withhold that approval. If your employer has such a policy and you are asked verbally to work overtime, you should make sure that is documented somewhere- a confirming email, or even a handwritten note can help clarify whether the overtime was authorized or not.

If you are unsure how to address the new law in your  business, or if you are an employee who may be affected by this change, you should consult with an experienced employment law attorney.


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Massachusetts Earned Sick Time Law: what is it and how does it apply to you?

A new law took effect on July 1, 2015, requiring all employers to provide earned sick time for their employees, including part time and temporary employees.  And unlike many other employment laws, this really means all employers- big or small- and all employees-part time, full time or temporary.

The basics are as follows:

What:  All employees earn an hour of sick time for each 30 hours worked, beginning on the first day of employment, up to 40 hours in a year.

The time begins to accrue immediately, but an employer can limit the use of that time until 90 days (calendar days) after the start of employment.

It’s not just sick time: time off under this law can be for the employee’s own illness, but also for purposes of attending routine medical appointments or taking care of a child or immediate family member, or taking a child or immediate family member to routine medical appointments.

Unlike earned vacation time, unused earned sick time does not have to be paid out to the employee at termination.

Employers must post the notice prepared by the Massachusetts Attorney General in a conspicuous location in the workplace, and provide all employees with a copy.   

Employers of any size may not penalize employees for taking earned time, for complaining that an employer’s practices violate the earned sick time law, or for supporting another employee’s exercise of his or her rights under the earned sick time law.

Who:  Employers with 11 or more employees (note that this means actual people, whether full time, part time, or temporary) must pay the employees for earned sick time that they use, at their regular hourly rate.  Smaller employers still must provide the time, but making it paid time is optional.  The rule against retaliation applies to all employers, whether they are required to provide paid time or not.

Where: Anyone who works in Massachusetts is entitled to the protection of this law, even if the employer is located somewhere outside of Massachusetts (think sales representatives who work from home and on the road, or remote help desk technicians- even though the company may be located elsewhere, the employee providing services in Massachusetts is entitled to the benefits under this law).

Why:  The sponsors of this law successfully made the case to Massachusetts voters in 2014 that the protections of the law were needed to help thousands of working people who faced the choice between going to work sick, sending a sick child to school, or missing an opportunity for routine preventative care for themselves or their child, and losing a day’s pay or perhaps even losing their job.

And here are the implications.

Eleven employees is eleven actual people, not full time equivalents.  This means even fairly small operations must provide paid sick time in accordance with the law.  Unlike laws about employer-sponsored health benefits, you can’t change this count by hiring more people for fewer hours apiece- every person who draws a paycheck counts toward the eleven.

The accrual of earned sick time is proportional to hours worked, but the total amount an employee can accrue is not necessarily.  What does that mean? Over the course of a year, assuming employees work 50 weeks, both a full time employee and an employee who works 25 hours a week can accrue 40 hours of earned sick time.  An employee who works 20 hours a week or less will not accrue the full 40, just because of the rate at which the time accrues, but people should be aware that even someone who might be considered part time at 25 hours a week is entitled to accrue the same total amount of earned sick time for the year.

The earned sick time law is now part of the Massachusetts Wage Act.  Why should you care?  Because it is enforceable by a private lawsuit in the same manner as non-payment of wages, and if a court finds that an employer has violated the sick time law, it is mandatory that the employer be ordered to pay three times the amount of actual damages, and required to pay the employee’s reasonable legal fees and costs.  So if you have an employee who should have been paid for 40 hours of earned sick time at $15 an hour, you won’t just owe him $600, but $1800 plus his attorneys’ fees.

Pay careful attention to the anti-retaliation provision.  This, too carries with it the possibility of triple damages and attorneys’ fees, but it has implications that are even broader than that.  Imagine you are a working parent who has to miss some number of days each year to take your child to routine medical appointments.  Prior to this law, you could be fired for missing too many days of work- being a parent is not a protected class under the anti-discrimination laws, and routine medical appointments do not qualify as a “serious health condition” under the Family and Medical Leave Act (“FMLA”). Now, so long as you are using the time you have accrued under this law, you are protected from being fired, demoted, or disciplined because you used that time.  Or imagine you have a seriously ill child or spouse and need time to take care of them and help get them the care they need, but you work for a company with fewer than 50 employees, or you have worked for your employer for less than a year, meaning the FMLA does not apply to you, even for unpaid, job-protected leave.  The earned sick time law gives you that protection.

Whether you are an employer or an employee, whether you see this law as an important protection for working families or as yet another burden on small businesses, or perhaps a windfall for employment lawyers, it is important to understand your rights and responsibilities under the law, and to realize that it does change the landscape of the employment relationship.

For more information, you can see the Massachusetts Attorney General’s Frequently Asked Questions about the earned sick time law, and download a copy of the required employee notice here.

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The Massachusetts Wage Act: Payment of Commissions and Deductions from Commissions

For many workers, commissions are a significant part of their compensation, and for many employers, paying some or all of an employee’s compensation through commissions is an effective tool for keeping costs tied to revenue and giving employees incentive to grow sales and grow your business.  The most common example are sales representatives, who are frequently paid some combination of base salary or draw and commissions; other service-related employees who are not involved in direct sales often have some portion of their compensation tied to revenue generated by the services they provide.

It is important for both employers and employees to remember that the Massachusetts Wage Act (the statute requiring timely payment of wages) expressly applies to commissions, which must be paid pursuant to the Wage Act requirements once they are earned.   When the commissions are earned and how much is due to the employee are important questions, questions that are not as straightforward to answer as they would be for an hourly or salaried employee.

When are commissions earned:  if there is a written commission plan that spells out when an employee has “earned” a commission, the terms of that plan will generally control.  For example, a plan might specific that a sales representative earns her commission when the customer signs a contract or places an order, when the customer is invoiced, or when the customer actually pays.  If there is no written commission plan, courts will generally assume that a commission is earned when a contract is signed or an order placed.

How much is due to the commissioned employee:  employers often draft commission plans to include offsets for certain expenses in the calculation of the final commission due.   Can they do this?  The answer is not entirely clear, but a recent Massachusetts Superior Court decision suggests that employers should use caution, and employees paid on a commission basis should be watchful and review their commission plans carefully to be sure that there are no inappropriate deductions.

The Wage Act has been interpreted to prohibit deductions from the wages of hourly or salaried employees unless they are a valid set-off under Massachusetts law.  This means an employer may deduct from an hourly or salaried employee things like medical and dental insurance premiums, taxes, and court approved garnishments, but cannot deduct expenses associated with your work.

It has been less clear how the prohibition against deductions applies to deductions from commissions.  It is not an uncommon practice for employers to include certain costs in the calculation of commissions, many of which are really a way of transferring the employer’s overhead expenses.
For example, a commission formula for a salesperson may include deductions for expenses associated with the sale.

The Wage Act explicitly includes commissions within its scope, and states that it is applicable: “…when the amount of such commissions, less allowable or authorized deductions, has been definitely determined and has become due…”  M.G.L. ch. 149, § 148.  Until recently, there has been no guidance in the Massachusetts case law about the meaning of “allowable or authorized deductions" as it relates to employees compensated on a commission basis.

We represented a hair stylist whose compensation was based on a percentage of the revenue from the clients she serviced.  The salon applied a “product deduction” of $2.00 for each client serviced, purportedly to cover the cost of the shampoo, conditioner, or other product used, which was deducted after the calculation of the commission.  The crux of our argument was that an employer should not be able to do to a commissioned employee what it cannot do to an hourly or salaried employee- namely, to transfer a portion of the employer’s overhead expense to the employee.

The salon moved for summary judgment, arguing that the deduction was an integral part of the commission calculation, and that it was therefore an “allowable or authorized deduction.”  In an opinion dated July 7, 2014, the Massachusetts Superior Court denied the salon’s motion.  The court noted a prior decision of the Massachusetts Supreme Judicial Court, which “emphasized that deductions which further an employer’s interests, including the transfer of overhead costs to employees, are impermissible, as running strongly against the legislative policy which underlies the Massachusetts Wage Act." 

That case settled before trial, therefore the decision has not been reviewed by an appeals court and is not binding on other courts in other cases.  If followed by other courts in Massachusetts, however, the implications of this decision could be significant, and affect the rights not only of hair stylists whose pay is affected by “product deductions”(a common practice in that industry), but also other employees paid pursuant to complex commissions formulas that may similarly involve an impermissible transfer of the employer’s costs.  If a deduction is not permitted, the deduction is likely a violation of the Wage Act, which requires that the employee be awarded three times the amount of the wages withheld, along with reimbursement for reasonable attorneys' fees incurred in enforcing the Wage Act.

For employees paid on a commission basis, this means you should review your commission formula carefully so you understand if your employer is incorporating any deductions that might be suspect under the law.

Employers, too, should carefully review their commission policies.  It is risky, at best, to include offsets in the commission formula for direct costs of sales.  A safer practice is to incorporate those costs as you would any other overhead expense in the amount you offer to pay your commission-based employees. For example, if you have direct costs associated with sales that are on average 1% of the sale, and you pay your employees 10% of the sales revenue, it is a better practice to set their commission percentage at 9%, rather than offer 10% and deduct the 1% cost from their commission calculation.

If you are uncertain whether your commission plan includes potentially unlawful deductions, or if your plan is unclear about when a commission is “earned,” it is worth your while to consult with an experienced Massachusetts employment lawyer.

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The Price of a Job: Non-Compete Agreements in Massachusetts

On your first day at a new job, or if you are lucky maybe a day or two before, you are handed a stack of papers to sign. Many of these documents are standard forms; one of them, however, could significantly limit your opportunities if this job does not work out: the non-compete.

It is not exactly optional, or negotiable.  Sure, you can say no to the job, but chances are you have invested a lot of time and energy into getting the job offer, and that you have accepted it because it is a job you really want and/or need.

So, is your non-compete enforceable?  The answer is a resounding "maybe."  A non-compete agreement is enforceable in Massachusetts if it is: (i) supported by consideration; (ii) reasonable in time and geographic scope; and (iii) necessary to protect a legitimate interest of the employer.

"Consideration" means you have to get something of value in exchange for your promise not to compete.  A job offer counts, if you sign the non-compete at the time you accept employment. it is less clear whether there is adequate consideration if you are asked to sign the agreement after you are already working, and your employer does not offer you anything new (i.e., more compensation or a promotion)in exchange.

"Reasonable" is highly dependent on the facts and circumstances.  A restriction of as few as 10 miles could be considered unreasonable if the reach of the business is only 3-5 miles, while nationwide or even global restrictions might be upheld if the employee's territory was national or global in scope. Similarly, a two year restriction might be found acceptable in certain industries, while one year might be excessive in an industry with high employee turnover and mobility.

A "legitimate interest of the employer" does not include an interest in suppressing competition: your employer must be seeking to protect either trade secrets/confidential information or goodwill belonging to the employer. Typically, non-competes for employees in a technical environment are primarily concerned with confidential information, while non-competes for employees in a sales or marketing area are primarily concerned with the company's goodwill (its relationships with and reputation among customers and potential customers).

What does this mean for you? If you have the luxury of time, a relatively brief consultation with an experienced employment lawyer should provide you with some guidance as to what is and is not restricted and the likelihood that it will be enforced.  If you don't, here are some simple pointers:

First, because there are no bright lines in Massachusetts law regarding non-compete agreements, as a practical matter you should understand the very real risk that it will be enforceable before you sign it. Though it is hard to do when you are anxious to start a new job, if you really don't believe you can live with the restrictions if the job does not work out, or if you think you may only be there a short time, you might decide than another several months of job hunting is preferable to a two year restriction on your ability to work in your field.

Second, if that is not a practical option, either because you really need the job or because you work in a field where you will find non-compete agreements pretty much anywhere you go, pay careful attention not only to the length and scope of the agreement, but also to exactly what it says you can and cannot do.  Some agreements define "competition" very broadly; others are more careful to define what they consider competition.  Your employer may not be interested in negotiating the terms of the non-compete with you, but may be able to explain to you what they are really concerned about so you can evaluate your risk accordingly.  For example, a software company may have a broadly worded non-compete, but in actuality only be concerned about competition in the narrow space in which they operate.

Third, the way you handle your departure from the company has probably more impact on whether you will find yourself in a lawsuit than the document itself.   Most employers (of course, not all) are reasonable, and will only seek to interfere with what you do after leaving a job if they are concerned about some risk that they see as important.  The non-compete cases we have seen fall into three major buckets: (i) concern about confidential information; (ii) concern about customer relationships; and (iii) bad blood, justified or not, between the employer and the employee.

You can't control whether your employer is reasonable or not, but you can protect yourself by understanding that confidential information and customer relationships are very important to most employers, for lots of good reasons, and very innocent actions can raise their suspicions in that regard.  For example:

• You may work remotely, and need to email yourself documents and materials from time to time- if you make sure you discuss this with someone at your company, and ask for and follow any protocols or procedures the employer has for that kind of information transfer, you are far less likely to raise "red flags" on your departure if the employer searches your company email (yes, always know they can do this) and finds you have been sending arguably confidential information to yourself.

• When you are ready to resign, or if you are fired, resist the temptation to do a "data dump" of your contacts and other information.  It may feel like your own work product and/or your own digital rolodex- it may in fact be.  It will, however, immediately cause your employer to assume you are planning to use that information inappropriately.  If there is information you need, and believe is appropriate to take or copy, ask permission. The downside is the answer may be "no," but generally that is preferable to the expense, inconvenience, and risk of being sued.

Finally, relationships matter. This has been true in my experience with almost every sort of employment dispute.  Generally, people don't like lawsuits.  For everyone except the lawyers, they are time-consuming, distracting, and expensive.  For this reason, there are lots of things people could sue over and don't, usually because the parties have a relationship of respect, even when the employment ends.

The lack of clarity in the law of non-compete agreements in Massachusetts has been frustrating to both businesses and employees, and every so often legislation is proposed to define more clearly what is and is not a legitimate post-employment restriction.  To date, none of these bills have passed, however, leaving all parties with little guidance about how to proceed.  In the meantime, we hope the above information is helpful to you in charting a reasonable course through these waters.

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