mcle employment contracts

8/8/2019 MCLE Employment Contracts

http://slidepdf.com/reader/full/mcle-employment-contracts 1/34

Chapter 2

EMPLOYMENT CONTRACTS

ELLEN J. MESSING, ESQ.Messing, Rudavsky & Weliky, PC, Boston

ANTHONY D. RIZZOTTI, ESQ.ROBERTA L. RUIZ, ESQ.Littler Mendelson, PC, Boston

Chapter 2, Part IEMPLOYMENT CONTRACTS:AN EMPLOYEE PERSPECTIVE

ELLEN J. MESSING, ESQ. Messing, Rudavsky & Weliky, PC, Boston

§ 2.1 WRITTEN CONTRACTS................................................ 2–1

§ 2.1.1 Covenant of Good Faith and Fair Dealing........ ................. .. 2–2

(a) Generally .................................................................... 2–2

(b) Development of the Law Since Fortune ..................... 2–3

§ 2.1.2 Intentional Deprivation of Benefits Earnedbut Not Received ................................................................. 2–4

§ 2.1.3 Termination Without Good Cause Resulting inDeprivation of Compensation to Employee for PastServices, and Financial Windfall for Employer......... .......... 2–4

(a) Generally .................................................................... 2–4

(b) Stock Options ............................................................. 2–5

§ 2.1.4 Covenants Not to Compete.................... .................. ............ 2–7

(a) Scope of Enforcement Is Limited to What IsReasonably Necessary to Protect an Employer’s“Legitimate Business Interests” ................................. 2–8

3rd Edition 2009 2–i



MASSACHUSETTS EMPLOYMENT LAW

(b) Employers’ Three “Legitimate Business Interests”.....2–8

(c) Reasonableness in Space and Time...........................2–11

(d) Limits of Covenants Not to Competeon Professionals ................. .................. .................. ...2–13

§ 2.1.5 Mandatory Arbitration Clauses ................. .................. .......2–15

(a) Federal Court Decisions............................................2–15

(b) Mandatory Arbitration of Statutory Claimsof Individuals Who Work Under CollectiveBargaining Agreements.............................................2–19

(c) Massachusetts State Court and Agency Decisions....2–20

§ 2.1.6 Settlement Agreements.......................................................2–22

§ 2.1.7 Collective Bargaining Agreements.....................................2–24

§ 2.2 ORAL CONTRACTS.......................................................2–25

§ 2.3 IMPLIED CONTRACTS ................ .................. ..............2–25 § 2.3.1 Employee Handbooks and Personnel Manuals .................. 2–26

§ 2.3.2 Factors Used to Determine Whether a Manual Createsa Binding Contract ................ .................. .................. .........2–27

(a) Conduct of the Employee..........................................2–27

(b) Conduct of the Employer ................ .................. ........2–27

(c) Negotiations ................ ................. .................. ...........2–27

(d) Stated Term of Employment......................................2–28

(e) The Employer’s Right to Unilaterally Modify

the Manual Versus the Employee’s ReasonableBelief that Employment Would ContinueAccording to the Terms Set Forth in the Manual ......2–28

(f) Disclaimers................................................................2–28

(g) The Employee’s “Reasonable Belief” ................... ....2–29

(h) Progressive Discipline Policies ................. ................2–29

2–ii 3rd Edition 2009



EMPLOYMENT CONTRACTS

3rd Edition 2009 2–iii



Chapter 2, Part I

EMPLOYMENT CONTRACTS:AN EMPLOYEE PERSPECTIVE *

ELLEN J. MESSING, ESQ.Messing, Rudavsky & Weliky, PC, Boston

Scope NotePart I provides an employee-side perspective on employmentcontracts. Written contracts and provisions, including cove-nants not to compete and arbitration clauses are covered first.Oral and implied contracts, such as those arising from em-ployee handbooks, are also discussed. Part II focuses on theemployer side, and begins with a discussion of the sources ofan employer’s contract obligations. The types of claims a plain-tiff may bring, the employer’s available defenses, and damagesare discussed. Part II concludes with a strategy options checklistfor defense counsel.

§ 2.1 WRITTEN CONTRACTS

All employment is contractual. Disputes often arise as to the terms of a particu-lar employment contract. In Massachusetts, written employment contracts aregenerally enforceable according to their terms. Ambiguous terms are questionsof fact to be interpreted by the factfinder. Vezina v. Mahoney & Wright Ins.

Agency, Inc. , 40 Mass. App. Ct. 218, 225–26 (1996) (citing Kravetz v. Merchs. Distribs., Inc. , 387 Mass. 457, 460 (1982)); see Mahoney v. Hildreth & RogersCo. , 332 Mass. 496, 498 (1955); see also Maynard v. Royal Worcester Corset Co. , 200 Mass. 1, 4 (1908). The factfinder may consider parol evidence, includ-ing the nature of the employment, prior negotiation, and the situation of the par-ties, when the terms are ambiguous. Vezina v. Mahoney & Wright Ins. Agency,

Inc. , 40 Mass. App. Ct. at 225–26.

* MCLE and the author thank Jeremy P. Cattani, Esq., for his contribution to aprevious version of this chapter, and Kevin C. Merritt, Esq., and third-year lawstudent Elizabeth Porter for their assistance with the 2009 Edition.

3rd Edition 2009 2–1



§ 2.1 MASSACHUSETTS EMPLOYMENT LAW

A significant reduction in rank or a material change in an employee’s dutiesfrom those set forth in a contract may support a claim that the contract has beenbreached, even absent a reduction in pay or benefits. Kravetz v. Merchs. Dis-tribs., Inc. , 387 Mass. at 462; see Steranko v. Inforex, Inc. , 5 Mass. App. Ct. 253,263 (1977); see also Rubin v. Household Commercial Fin. Servs., Inc. , 51 Mass.App. Ct. 432, 446 (2001) (compiling cases where demotions recognized as con-

structive termination, but finding no such discharge occurred where plaintiff retained title, office space, salary, and benefits; and where the plaintiff had already“effectively abdicated his authority”).

§ 2.1.1 Covenant of Good Faith and Fair Dealing

(a) Generally

In Fortune v. National Cash Register , the court held that an implied covenant of good faith and fair dealing, previously recognized to apply to a variety of othertypes of contracts, extends to at-will employment contracts as well. Fortune v.

Nat’l Cash Register , 373 Mass. 96, 101–105 (1977) (breach of contract whereemployer acted in bad faith by terminating at-will employee to avoid payment of sales commissions). This doctrine has been expressly extended to all contractsby the Supreme Judicial Court. See Uno Restaurants, Inc. v. Boston Kenmore

Realty Corp. , 441 Mass. 376 (2004), which has been cited in an employmentcase, Ayash v. Dana-Farber Cancer Institute , 443 Mass. 367, 385 (2005) (everycontract in Massachusetts is subject to an implied covenant of good faith and fairdealing). Terminations made in bad faith constitute a breach of contract. Fortunev. Nat’l Cash Register , 373 Mass. 96 (1997); see also Blank v. Chelmsford Ob/Gyn, P.C. , 420 Mass. 404, 408 (1995) (citing Fortune v. Nat’l Cash Register ,373 Mass. 96 (1997)). Questions of bad faith are properly evaluated by the fact-finder. Fortune v. Nat’l Cash Register , 373 Mass. at 103. However, bad faith isnot established by an unfair or unkind termination alone. Gram v. Liberty Mut.

Ins. Co. , 384 Mass. 659 (1981); York v. Zurich Scudder Invs. , 66 Mass. App. Ct.610 (2006).

Bad faith can be shown in a variety of ways. An employer’s failure to follow itsown procedures, if done to deprive the employee of earned compensation, evi-dences the requisite bad faith. Ayash v. Dana Farber Cancer Inst. , 443 Mass. at386; Eigerman v. Putnam Invs. Inc. , 66 Mass. App. Ct. 222, 226, review granted ,447 Mass. 1110 (2006).

2–2 3rd Edition 2009



EMPLOYMENT CONTRACTS § 2.1

(b) Development of the Law Since Fortune

The holding of Fortune regarding the covenant of good faith and fair dealing hasevolved into three lines of cases and, consequently, three types of claims. Hunt v.Wyle Labs., Inc. , 997 F. Supp. 84 (D. Mass. 1997). An at-will employee can statea claim for breach of the covenant of good faith and fair dealing by

• providing evidence of intent to deprive the employee of benefitsearned but not received, York v. Zurich Scudder Investments , 66Mass. App. Ct. at 616, Hunt v. Wyle Labs., Inc. , 997 F. Supp. at 84;

• showing that the termination decision was made without goodcause (even if without bad faith), resulting in the deprivation of compensation for the employee’s past services and a financialwindfall for the employer, Gram v. Liberty Mutual Insurance Co. ,384 Mass. 659, York v. Zurich Scudder Investments, Inc. , 66 Mass.App. Ct. at 616, and Hunt v. Wyle Labs., Inc. , 997 F. Supp. at 90; or

• showing that the termination was in violation of a clearly established

public policy, Hunt v. Wyle Labs., Inc. , 997 F. Supp. at 91.There has been no definitive indication from the Supreme Judicial Court regard-ing whether the third type of Fortune claim, wrongful termination in violation of public policy, is a contract or tort claim. See Flesner v. Technical Communica-tions Corp. , 410 Mass. 805, 813 & n.8 (1991) (declining to adopt hard-and-fastrule addressing whether tort damages are recoverable in wrongful dischargecases, while stating “majority of other jurisdictions” have ruled that such claimsgive rise to tort damages); King v. Driscoll (King I) , 418 Mass. 576, 583–84 &n.8 (1994) (distinguishing as separate plaintiff’s claims for breach of covenant of good faith and fair dealing, and wrongful termination in violation of public pol-icy); King v. Driscoll (King II) , 424 Mass. 1, 8 (1996) (acknowledging differentmeasures of damages in tort and contract for claims of wrongful termination in

violation of public policy on the one hand, and breach of covenant of good faithand fair dealing on the other, suggesting damages for wrongful termination inviolation of public policy sound in tort); see also Muldoon v. C.J. Muldoon &Sons , 278 F.3d 31 (1st Cir. 2002) (characterizing three-year tort statute of limita-tions as applicable to wrongful termination claim brought under ERISA) (dicta);45 Scott C. Moriearty et al., Employment Law , in Massachusetts Practice Series§ 3.12 (West Group 1995).





§ 2.1.2 Intentional Deprivation of Benefits Earnedbut Not Received

To succeed on the first type of Fortune claim, the employee must prove that theemployer intended to deprive the employee of, or keep for itself, benefits theemployee had essentially earned but not yet received. Fortune v. Nat’l Cash Reg-ister , 373 Mass. at 104–05; see Ayash v. Dana-Farber Cancer Inst. , 443 Mass.367, 388 (2005) (no claim based on defendant’s alleged bad-faith breach of covenant where plaintiff received all money due to her for employment); see

Maddaloni v. W. Mass. Bus Lines, Inc. , 386 Mass. 877, 882–84 (1982) (evidencesupported jury finding that employer terminated employee in bad faith to avoidpayment of commissions due); see also Siles v. Travenol Labs., Inc. , 13 Mass.App. Ct. 354 (1982) (no claim for bad faith termination where discharged em-ployee did not prove employer intended to benefit financially at employee’s ex-pense). Upon a showing of the employer’s intent to deprive the employee of, orkeep for itself, benefits the employee had essentially earned but not yet received,the employee may recover the benefits earned. See Devlin v. WSI Corp. , 833F. Supp. 69, 78 (D. Mass. 1993). Where there is no evidence that the terminationwas a pretext designed to deprive the plaintiff of earned compensation, however,the employee has no claim. G.W. Equip. Co. v. Mass. Port Auth. , 63 Mass. App.Ct. 1112 (2005) (unpublished), available at 2005 WL 937052, at *3. Nor is therea claim if the employee does not actually suffer a deprivation, regardless of theemployer’s intent. Ayash v. Dana-Farber Cancer Inst. , 443 Mass. at 338.

§ 2.1.3 Termination Without Good Cause Resultingin Deprivation of Compensation to Employeefor Past Services, and Financial Windfallfor Employer

(a)

GenerallyEven absent evidence of an employer’s intent to deprive an employee of, or keepfor itself, benefits an employee had earned, a discharged at-will employee canstate a claim under the covenant of good faith and fair dealing by showing thatthe termination was made without good cause although not in bad faith, and thatit resulted in the deprivation of compensation to the employee for past servicesand in a windfall for the employer. See Gram v. Liberty Mut. Ins. Co. , 384 Mass.659, 671–72 (1981) (discharged employee stated claim for breach of covenant of good faith and fair dealing, although employer did not intend to deprive him of benefits, where discharged employee had reasonable expectancy of renewal





commissions based on past services that would be kept by the employer); Coll v.PB Diagnostic Sys., Inc. , 50 F.3d 1115, 1125 (1st Cir. 1995).

Courts have repeatedly held that an employee’s claim must be based on loss of future payment for past services; there is no remedy under the covenant of goodfaith and fair dealing for loss of future payment for future services. See Gram v.

Liberty Mut. Ins. Co. , 384 Mass. at 672–73; see also Christensen v. KingstonSchool Comm. , 360 F. Supp. 2d 212, 227 (D. Mass. 2005) (court denied relief where plaintiff sought redress for remainder of contract, not past services). Dis-charged employees must demonstrate that they had actually earned the benefitsthey claim they are entitled to. See Coll v. PB Diagnostic Sys., Inc. , 50 F.3d 1115(1st Cir. 1995) (discharged employee not entitled to bonus under long-term in-centive plan, where company did not meet two of four performance targets).Terms like “vested” and “unvested” do not automatically control disputes overfuture compensation for past service. See Sargent v. Tenaska, Inc. , 108 F.3d 5, 8(1st Cir. 1997). Instead, the analysis must focus on whether the “unvested” inter-ests relate to past or future services. Sargent v. Tenaska, Inc. , 108 F.3d at 8.

In Struck v. Plymouth Mortgage Co. , 414 Mass. 118 (1993), the court enforced a

commission agreement provision that no commissions were payable after termi-nation of employment where the employee went into direct competition with theemployer after resigning. The court noted that it expressed no opinion as towhether that provision would be enforceable if an employee were to resign butnot enter into competition with the employer.

(b) Stock Options

Increasingly, employees are receiving equity compensation in some form of ownership interest in the employer as incentive for performance. It may be basedon the achievement of specific performance goals by the employer or the em-ployee. Equity compensation typically “vests” over time; the employee becomeseligible for this equity as his or her service increases. There are various forms of such equity compensation. For purposes of this chapter, we will simply refer tothem as “stock options.”

Massachusetts courts have acknowledged that the covenant of good faith and fairdealing protects employees from being denied benefits owed via stock options.See Maddaloni v. W. Mass. Bus. Lines , 12 Mass. App. Ct. 236, 243 (1981), aff’d ,386 Mass. 877 (1982) (acknowledging that Fortune analogized to examples of contracts including bonuses and stock options); see also Cataldo v. Zuckerman ,20 Mass. App. Ct. 731 (1985) (discharged construction supervisor entitled tovalue of equity interests in “future projects” whose construction had begun buthad not yet been finished prior to his termination by real estate developer).





As noted above, the terms “vested” and “unvested” do not automatically controldisputes as to whether equity interests are, in fact, future compensation for pastservices. Sargent v. Tenaska, Inc. , 108 F.3d 5, 8–9 (1st Cir. 1997) (upholdingsummary judgment against employee who sought to recover unvested interests,because the employee’s unvested interests “did not specifically and identifiablycorrespond to [his] past services”). Periodic vesting schedules may “crudely”

delineate between past and future services, and termination shortly before vest-ing may trigger a finding of bad faith. Sargent v. Tenaska, Inc. , 108 F.3d at 8–9;see also Thompson v. Sundance Pub. , No. 950274B, 1997 WL 1294367 (Mass.Super. Ct. Dec. 15, 1997) (denying employer’s motion for summary judgment asto employee’s claim of breach of the covenant of good faith and fair dealing;employee who had been terminated one month before his first equity interestvested was entitled to jury determination as to whether employer’s decision wasin bad faith); Goodrich v. CML Fiberoptics, Inc. , No. CV. 981821B, 2000 WL1273342 (Mass. Super. Ct. May 25, 2000) (employer’s summary judgment mo-tion denied, where employee was terminated four months before one-year vest-ing date). But see Olsen v. Siefert , No. 976456, 1998 WL 1181710 (Mass. Super.Ct. Aug. 28, 1998) (summary judgment granted for employer as to employee’sunvested shares of stock, where employer’s stock plan vested monthly and em-

ployee had already received $2,050,000 for his vested shares on an initial$10,000 investment).

Discharged employees must demonstrate that they had actually earned the bene-fits they claim they are entitled to. See Coll v. PB Diagnostic Sys., Inc. , 50 F.3d1115 (1st Cir. 1995) (discharged employee not entitled to bonus under long-termincentive plan, where company did not meet two of four performance targets).

The Supreme Judicial Court’s decision in Harrison v. NetCentric Corp. , 433Mass. 465, 473–76 (2001), upheld summary judgment for the employer on theplaintiff’s claim of breach of the covenant of good faith and fair dealing, holdingthat the employee’s unvested stock options were not earned compensation forpast services but were instead compensation contingent on his continued em-

ployment. See also LaButti v. Intellisense Corp. , 60 Mass. App. Ct. 1101 (2003)(unpublished), available at 2003 WL 22700541, at *3 (no claim for breach of covenant of good faith and fair dealing because future vesting of stock optionswas not compensation for past services). However, Harrison should not be readas a broad declaration that stock options are always treated as future compensa-tion for future services, and thus are not recoverable under the covenant of goodfaith and fair dealing. In Harrison , it was possible to determine what proportionof the plaintiff’s stock options constituted compensable compensation for pastservices: according to the company’s stock option plan, the plaintiff was entitledto 40 percent of the value of his stock options upon completion of his first yearof employment, and 5 percent after each quarter year he worked. Thus, at the





time of his termination, he had been awarded 45 percent of the stock options thathad already vested. Additionally, the plaintiff relied heavily, and to no avail, on aclause in the stock agreement that would have allowed the vesting of all his op-tions upon the sale of the company; since the company was not sold, this clausewas not triggered. Finally, the court did not address the question of whether ornot the employee had been terminated in bad faith, leaving open the argument

that termination prior to vesting of equity interests may constitute bad faith, thusallowing the employee to claim deprivation of future benefits for past servicesunder the covenant of good faith and fair dealing.

In the aftermath of Harrison , trial courts have continued to recognize that un-vested stock options may constitute compensation for past services. See Aggar-wal v. Nexabit Networks Inc. , No. 99-6174, 2001 WL 34032503 (Mass. Super.Ct. May 30, 2001) (denying summary judgment where defendant terminatedformer employee two weeks prior to vesting of stock options). Aggarwal distin-guished Harrison , recognizing that the plaintiff’s stock shares that were to vestupon one year’s service with the company were compensation for one year of his services, which “may form the basis” of a claim for breach of the covenantof good faith and fair dealing where he was terminated after working eleven and

one-half months of that first year:

This Court does not read Harrison as establishing anall or nothing rule with respect to unvested shares thatwould preclude recovery . . . where the employee hasprovided past services for virtually the entire sched-uled period and is terminated right before the shareswhich he fairly earned and legitimately expected aredue to vest.

Aggarwal v. Nexabit Networks Inc. , 2001 WL 34032503, at *9.

§ 2.1.4

Covenants Not to CompeteIn the absence of any contractual constraints, at-will employees may plan tocompete with their employer and may take active steps to do so while still em-ployed. See Meehan v. Shaughnessy , 404 Mass. 419, 435 (1989); see also Augat,

Inc. v. Aegis, Inc. , 409 Mass. 165, 172 (1991) (citing Meehan v. Shaughnessy ,404 Mass. at 435). An employee has no general duty to disclose such plans tothe employer and may secretly join or enlist other employees in the endeavor.

Augat, Inc. v. Aegis, Inc. , 409 Mass. at 172. An employer may seek to restrictsuch postemployment competition by employees through noncompetitionagreements. Augat, Inc. v. Aegis, Inc. , 409 Mass. at 172. Such agreements arescrutinized carefully, are strictly construed against the employer, and must be





supported by consideration. Sentry Ins. v. Firnstein , 14 Mass. App. Ct. 706(1982). Although the Supreme Judicial Court has yet to rule on the question,some courts have said that where an employer seeks to impose a noncompetition(or nonsolicitation) agreement on a current employee, the employer must offermore consideration than the employee’s continued employment. See IKON Of-

fice Solutions, Inc. v. Belanger , 59 F. Supp. 2d 125, 131 (D. Mass. 1999) (citing

Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706 (1982)). On the other hand, theSuperior Court recently decided that continued employment might constitutesufficient consideration for a noncompetition agreement, depending on the cir-cumstances. See EMC Corp. v. Donatelli , 25 Mass. L. Rptr. 399 (May 5, 2009)( IKON and similar cases “do not abolish the doctrine that continued employmentalone may suffice to support” noncompetition agreements).

(a) Scope of Enforcement Is Limited to What Is Reasonably Necessary to Protect an Employer’s “Legitimate Business Interests”

Massachusetts courts enforce noncompete agreements only to the extent they are

necessary to protect an employer’s legitimate business interests, Marine Con-tractors Co. v. Hurley , 365 Mass. 280, 287 (1974); Wells v. Wells , 9 Mass. App.Ct. 321, 323 (1980); Sherman v. Pfefferkorn , 241 Mass. 468, 474 (1922), andonly to the extent that they are reasonable. All Stainless, Inc. v. Colby , 364 Mass.773, 778 (1974). Reasonableness depends on the facts of each case. Novelty Bias

Binding Co. v. Shevrin , 342 Mass. 714, 716 (1961). Protection from “ordinarycompetition” is not a legitimate business interest. Marine Contractors Co. v.

Hurley , 365 Mass. at 287–88.

When analyzing whether a noncompete covenant is reasonable, the reasonableneeds of the employer for protection against harmful conduct of the employeeare balanced against both the reasonableness of the restraint imposed on the em-ployee and the public interest. All Stainless, Inc. v. Colby , 364 Mass. at 778.

Such covenants are divisible, and will be enforced only so far as they are rea-sonably necessary to protect the employer’s legitimate business interests. New Eng. Tree Expert Co. v. Russell , 306 Mass. 504, 509 (1940).

(b) Employers’ Three “Legitimate Business Interests”

Massachusetts courts identify three “legitimate business interests” that employersmay seek to protect through enforcement of covenants not to compete:

• trade secrets,

• confidential information, and





• good will.

Trade Secrets

An employer’s interest in its trade secrets is reasonable when it involves the em-ployer’s own “detailed confidential processes which [are] kept secret from [its]

customers and competitors.” Novelty Bias Binding Co. v. Shevrin , 342 Mass.714, 715 (1961) (enforcing covenant not to compete against former corporatemanager who disclosed secret formulae and processes to subsequent employer).The test to determine whether the employer’s interest is legitimate and reason-able requires an examination of the employer’s conduct and the extent of meas-ures taken to guard secrecy. E. Marble Prods. Corp. v. Roman Marble, Inc. , 372Mass. 835, 840 (1977).

While indicating that “no general and invariable rule can be laid down,” Massa-chusetts courts examine several factors when determining whether the em-ployer’s interest in its secrets is reasonable:

(1) the extent to which the information is known out-

side of the business; (2) the extent to which it isknown by employees and others involved in the busi-ness; (3) the extent of measures taken by the em-ployer to guard the secrecy of the information; (4) thevalue of the information to the employer and to hiscompetitors; (5) the amount of effort or money ex-pended by the employer in developing the informa-tion; and (6) the ease or difficulty with which the in-formation could be properly acquired or duplicatedby others.

Jet Spray Cooler, Inc. v. Crampton , 361 Mass. 835, 840 (1972) (citing six factorsfrom Restatement of Torts § 757 cmt. b; and Woolley’s Laundry, Inc. v. Silva ,

304 Mass. 383, 389 (1939)). Because the determination is highly fact-specific,counsel should submit detailed, nonconclusory affidavits specifying facts rele-vant to each factor. In some cases confidential customer, vendor, and supplierlists have been rejected as trade secrets. Packaging Indus. Group, Inc. v. Cheney ,380 Mass. 609, 620 (1980). Such items are more typically evaluated as confiden-tial information when evaluating as reasonable an employer’s legitimate businessinterests.





Confidential Information

As with trade secrets, the burden is on the employer to prove that the informa-tion is confidential. Packaging Indus. Group, Inc. v. Cheney , 380 Mass. at 620(evidence insufficient to establish that customer, vendor, or supplier lists wereconfidential).

Courts look to several factors when determining whether an employer’s interestin its confidential information is reasonable. Augat, Inc. v. Aegis, Inc. , 409 Mass.165, 169–70 (1991) (citing Jet Spray Cooler, Inc. v. Crampton , 361 Mass. 835,840 (1972) (generally known sales information, shared regularly with securitiesanalysts, held not to be confidential)). Information that is compiled and culti-vated internally by an employer may be protectible as confidential information.

Blackwell v. E.M. Helides, Jr., Inc. , 368 Mass. 225, 227 (1975) (real estate com-pany’s listing cards with information about various properties is “confidentialinformation”). Sources of supply and product lines have been held to be gener-ally available information not subject to protection in noncompete clauses, butan employer’s expansion plans, merchandising strategies, product mixes, andretail devices have been recognized as “confidential information.” Kroeger v.

Stop & Shop , 13 Mass. App. Ct. 310, 316–18 (1982) (upholding covenant not tocompete against former vice president). In Kroeger , the court noted that the con-fidentiality of consumer trends and marketing strategies is of limited durationand may go stale. Kroeger v. Stop & Shop , 13 Mass. App. Ct. at 318. Courts mayissue injunctions narrowly tailored to protect only the employer’s protectibleinterest in its secrets, while not limiting the employee in other ways. See, e.g. ,

Advanced Cable Ties, Inc. v. Hewes , 21 Mass. L. Rptr. 596 (2006) (injunctionlimited to restricting former employee from working only in the 10 percent of new employer’s business in direct competition with former employer).

Good Will

Generally, an employer acquires good will through its dealings with customers. Marine Contractors Co. v. Hurley , 365 Mass. 280, 288 (1974). Consequently,salespeople or sales managers who deal directly with an employer’s customersoften have the greatest capacity to injure or usurp the good will of the employer.Kroeger v. Stop & Shop , 13 Mass. App. Ct. at 316; All Stainless, Inc. v. Colby ,364 Mass. 773, 777 (1974). In Marine Contractors , where a former longtimeemployee, previously responsible for supervision, estimates, and bids, estab-lished his own business in direct competition with his former employer, the Su-preme Judicial Court upheld a five-year covenant not to compete to protect theemployer’s good will, because the former employee went to perform work forpast and current customers of the former employer. But see New Eng. CanteenServ. v. Ashley , 372 Mass. 671 (1977) (food service company lost no good will





when former employees quit and conducted own business at many sites estab-lished by employer, in violation of noncompete agreement).

Ownership of Good Will

Since “the objective of a reasonable noncompete clause is to protect the em-

ployer’s good will, not to appropriate the good will of the employee,” a formeremployee may assert that the good will was his or her own. Sentry Ins. v. Firn-stein , 14 Mass. App. Ct. 706 (1982) (since noncompete agreement only prohib-ited former employee from actively seeking to conduct business with employer’sclients, former employee could accept business from former clients who soughthis services); First E. Mortgage Corp. v. Gallagher , 2 Mass. L. Rptr. 350, (1994)(good will in question was former employee’s, developed with “his own enthusi-asm, personality and abilities”); see also Richmond Bros. v. Westinghouse Broad.Co. , 357 Mass. 106, 111 (1970) (radio talk show host’s popularity “may well beattributed to his own personality and ability”).

Sale of Good Will

Where an individual sells a business and becomes an employee of the buyer, anoncompete agreement may not be enforceable where the employee-seller didnot agree to convey the good will. Packaging Indus. Group, Inc. v. Cheney , 380Mass. 609, 619–20 (1980). On the other hand, such a noncompete agreement hasbeen enforced where the employee-seller agreed to convey good will as part of the sale of the business. Alexander & Alexander, Inc. v. Danahy , 21 Mass. App.Ct. 488 (1986). See Boulanger v. Dunkin’ Donuts Inc. , 442 Mass. 635, 639–41(2004) (likening franchisee noncompete covenant to noncompete covenants aris-ing in sale of a business, and enforcing covenant according to its terms; non-compete covenants arising in employment context expressly distinguished).

(c) Reasonableness in Space and Time

Reasonable in Space (Geographical Area)

Determination of the reasonableness of a covenant’s restrictions on competitionin a particular region is based on the area in which the former employee con-ducted business on behalf of the former employer. “[I]f the geographical scopeof the agreement has exceeded the territory in which the employer did business,the noncompetition clause has been held to be unenforceable. . . . [W]here therehas been no business, there cannot have been much good will.” Wells v. Wells , 9Mass. App. Ct. 321, 324 (1980) (citing All Stainless, Inc. v. Colby , 364 Mass.773, 780 (1974)).





Where a covenant attempts to protect an employer’s interests beyond the area inwhich a former employee conducted business, enforcement may be restricted tothe area in which the employee conducted business. Kroeger v. Stop & Shop , 13Mass. App. Ct. 310, 316 (1982) (covenant reduced from “anywhere east of theMississippi River” to New England states, New York, and New Jersey); AllStainless, Inc. v. Colby , 364 Mass. at 780 (covenant reduced from New England

states and part of New York to portions of Maine, Massachusetts, and NewHampshire that encompassed former employee’s former sales territory); Novelty Bias Binding Co. v. Shevrin , 342 Mass. 714, 715 (1961) (covenant reduced fromtwenty-eight to twenty-six states); New Eng. Tree Expert Co. v. Russell , 306Mass. 504, 509 (1940) (covenant prohibiting competition in all six New Englandstates enforced only as to region encompassing Rhode Island and parts of Mas-sachusetts and Connecticut covered by former employee).

Courts have upheld as reasonable limitations varying from two towns to nation-wide. Marcam Corp. v. Orchard , 885 F. Supp. 294, 300 (D. Mass. 1995) (up-holding covenant prohibiting the employee from working for a competitor“within the United States, its territories or possessions”); Marine ContractorsCo. v. Hurley , 365 Mass. 280, 288 (1974) (upholding covenant prohibiting com-

petition within 100 miles of Boston); Novelty Bias Binding Co. v. Shevrin , 342Mass. 714, 715 (1961) (upholding covenant prohibiting sale of plastic goods intwenty-six states); Becker Coll. of Bus. Admin. & Secretarial Sci. v. Gross , 281Mass. 355 (1933) (upholding covenant prohibiting solicitation of students in twocounties); Boston & Suburban Laundry Co. v. O’Reilly , 253 Mass. 94 (1925)(laundry driver enjoined from soliciting laundry business in the two towns inwhich former employer conducted business). A Massachusetts Superior Court

justice has upheld an unlimited geographical reach where the business involvedwas the chartering and flying of private jet aircraft around the country and theworld. See Sentient Jet, Inc. v. Lambert , No. 025071BLS, 2002 WL 31957009, at*5 (Mass. Super. Ct. Nov. 18, 2002).

Reasonable in Time

The time period governing the restriction on activity must be reasonable. Again,this is a question of fact to be determined based on all of the evidence presented.

Blackwell v. E.M. Helides, Jr., Inc. , 368 Mass. 225, 227 (1975) (three-year cove-nant upheld); Marine Contractors Co. v. Hurley , 365 Mass. at 288 (upholdingfive-year noncompete clause, but indicating the length was “somewhat trouble-some”); All Stainless, Inc. v. Colby , 364 Mass. 773, 780 (1974) (upholding two-year covenant not to compete); Novelty Bias Binding Co. v. Shevrin , 342 Mass.at 715 (same); Walker Coal & Ice Co. v. Love , 273 Mass. 564 (1931) (same);Walker Coal & Ice Co. v. Westerman , 263 Mass. 235 (1928) (five-year noncompeteclause upheld).





Where the period is determined to be excessive, Massachusetts courts will re-duce to a reasonable period the time in which the covenant is to be enforced.Kroeger v. Stop & Shop , 13 Mass. App. Ct. 310, 316 (1982) (term of contractreduced from “so long as he lives” to one year); Slade Gorton & Co. v. O’Neil ,355 Mass. 4 (1968) (term reduced from five years to two).

(d) Limits of Covenants Not to Compete on Professionals

Physicians

Massachusetts bars by statute the imposition of “any restriction” on the right of aphysician to practice medicine in a particular geographic area. G.L. c. 112,§ 12X. Such barred restrictions include “compensation for competition” clausesin partnership agreements requiring the payment of money to compete with thepartnership in a particular area. Falmouth Ob-Gyn Assocs. v. Abisla , 417 Mass.176 (1994). The strong public interest in allowing patients to consult the physi-cian of their choice outweighs any benefits to the medical profession or individualphysicians in permitting noncompetition covenants, or “compensation for com-

petition” clauses against physicians. Falmouth Ob-Gyn Assocs. v. Abisla , 417Mass. at 182.

Attorneys

Although Massachusetts has no statutory bar prohibiting restrictions in competi-tion among attorneys, Massachusetts Rule of Professional Conduct 5.6 prohibitsrestraints against competition upon attorneys who withdraw from a partnership.

Eisenstein v. David G. Conlin, PC , 444 Mass. 258 (2005) (even financial disin-centives in partnership agreement that do not rise to the level of a full forfeitureviolate Rule 5.6 in limiting the market of available lawyers); Pettingell v. Morri-son, Mahoney & Miller , 426 Mass. 253, 255–57 (1997) (forfeiture clause in lawpartnership agreement prohibiting departing attorneys from competing with firm

held to be unenforceable because against public policy under predecessor disci-plinary rule, D.R. 2-108(A) (citing Meehan v. Shaughnessy , 404 Mass. 419, 431(1989)). The court reasoned that forfeiture or financial disincentive provisionsdiscourage a potential client’s free choice of counsel, which is inappropriatewith respect to both lawyers and doctors. Eisenstein v. David G. Conlin, PC , 444Mass. at 265; Pettingell v. Morrison, Mahoney & Miller , 426 Mass. at 257 (cit-ing Meehan v. Shaughnessy , 404 Mass. at 431, and Falmouth Ob-Gyn Assocs. v.

Abisla , 417 Mass. at 180).

Nevertheless, in Pettingell , the court explicitly rejected the adoption of a per serule against forfeiture provisions, acknowledging that situations may arise wherea firm’s losses should be recognized and compensated, including concern for a





law firm’s “legitimate interest in its survival and well-being” or “when a depart-ing partner leaves surviving partners with onerous partnership debts, threateningthe financial integrity of the firm.” Pettingell v. Morrison, Mahoney & Miller ,426 Mass. at 258. In a subsequent, related decision, the court was asked to en-force the same firm’s amended partnership agreement which imposed the samefinancial consequences on all partners who voluntarily withdrew from the firm,

regardless of whether they competed with the firm. The court held that theamended agreement no longer violated Rule 5.6, and was enforceable. SeePierce v. Morrison Mahoney LLP , 452 Mass. 718 (2008).

Where the terms of a law firm partnership contract included provisions for han-dling removal of cases upon departure, departing attorneys may violate theirfiduciary duty of utmost good faith and loyalty by removing cases, and the bur-den of persuasion may be shifted onto the departing partners to prove that clientswould have consented to removal in the absence of the attorneys’ breach.

Meehan v. Shaughnessy , 404 Mass. at 441 (case remanded to trial court for de-termination of which clients would have followed departing attorneys absentunfair solicitation). But see Lampert, Hausler & Rodman, PC v. Gallant , No.031977BLS, 2005 WL 1009522, at *7 (Mass. Super. Ct. Apr. 4, 2005), aff’d in

part, vacated in part , 67 Mass. App. Ct. 1103 (2006), available at 2006 WL2336920 (no breach of fiduciary duty where the attorneys resigned before givingnotice to clients, notice was not made on joint letterhead, and announcement wasnot one-sided).

Financial Services

Although there is no Massachusetts statute prohibiting noncompetition agree-ments for investment advisors, such agreements nevertheless may need to belimited in time and scope in order to be enforceable. Interpreting principles of Minnesota law held to be substantively identical to Massachusetts law, formerSuperior Court Justice Ralph Gants (now of the Supreme Judicial Court) heldthat a one-year restriction on all business interactions between investment advi-sors formerly employed by the employer and the employer’s clients or formerclients was unenforceable. The court reasoned that the relationship between in-vestment advisor and client, though less intimate, is analogous to that of attorneyand client, or doctor and patient, and therefore is one “whose significance . . .the common law should not categorically ignore.” American Express. Fin. Advi-sors, Inc. v. Walker , 9 Mass. L. Rptr. 242, *7 (1998). The court found that a one-year restriction would be reasonable if limited only to the advisor’s solicitationof the employer’s clients, but that a restriction on all business could span nomore than four months. American Express. Fin. Advisors, Inc. v. Walker , 9 Mass.L. Rptr. 242, *7 (1998) ; see also Bear, Stearns Co. v. Sharon , 550 F. Supp. 2d174 (D. Mass. 2008) (requirement that brokers give employer ninety days notice





before resigning held unenforceable where American jurisprudence disfavoredforced employment relationships, and where injunction enforcing requirementwould effectively bar broker from resigning from any employer during the noticeperiod).

§ 2.1.5 Mandatory Arbitration Clauses

(a) Federal Court Decisions

In 1974, the Supreme Court unanimously held that bargaining unit employeeswho were victims of workplace discrimination were entitled to litigate theirclaims before a court, regardless of predispute agreements to arbitrate containedin the applicable collective bargaining agreement:

[T]here can be no prospective waiver of an em-ployee’s rights under Title VII. . . . Title VII’s stric-tures are absolute and represent a congressionalcommand that each employee be free from discrimi-

natory practices. . . . [A]n employee’s rights under Ti-tle VII are not susceptible of prospective waiver.

Alexander v. Gardner-Denver Co. , 415 U.S. 36, 51–52 (1974) (union membercould bring Title VII suit even though discharge already arbitrated under collectivebargaining agreement).

In 1991, however, the Supreme Court held that a claim brought under the AgeDiscrimination in Employment Act of 1967 (ADEA) could be subjected to man-datory arbitration pursuant to a predispute, noncollective bargaining arbitrationagreement. Gilmer v. Interstate/Johnson Lane , 500 U.S. 20 (1991) (employeewho signed registration application with stock exchange prior to employmentcompelled under terms of application to arbitrate ADEA claims under New York

Stock Exchange arbitration rules). The Court expressly declined to reach theissue of whether the Federal Arbitration Act extends to arbitration of employ-ment contracts, since the document that contained the agreement to arbitrate wasbetween the employee and a third party (the stock exchange), rather than be-tween the employee and his employer. Gilmer v. Interstate/Johnson Lane , 500U.S. at 25 n.2.

Ten federal courts of appeal, with only the Ninth Circuit dissenting, subse-quently held that the Supreme Court’s reasoning in Gilmer applies to Title VIIclaims and that predispute agreements to arbitrate Title VII claims are permissible.See Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 170 F.3d 1, 10 (1stCir. 1999) (listing cases). Note that arbitration is mandatory for the employer at





the employee’s instance, where appropriate. Corion Corp. v. Chen , No. CIV. A.91-11792-Y, 1991 WL 280288 (D. Mass. Dec. 27, 1991); see also Boateng v.General Dynamics Corporation , 473 F. Supp. 2d 241, 247–48 (D. Mass. 2007).

More recently, the U.S. Supreme Court addressed one issue left unanswered inGilmer , overruling a Ninth Circuit decision that had held that employment contracts

containing arbitration agreements were beyond the scope of the Federal Arbitra-tion Act (FAA), pursuant to the exemption set forth in Section 1 of the FAA thatexcluded from the FAA’s coverage “contracts of employment of seamen, railroademployees, or any other class of workers engaged in foreign or interstate com-merce.” See 9 U.S.C. § 1. A five-to-four majority of the U.S. Supreme Court heldthat the exemption in Section 1 applied only to the employment contracts of transportation workers, Circuit City Stores v. Adams , 532 U.S. 105 (2001), andtherefore the FAA does apply to mandatory arbitration clauses in employmentcontracts.

However, the U.S. Supreme Court has even more recently held that the U.S.Equal Employment Opportunity Commission (EEOC) may file and pursue en-forcement actions against defendants on behalf of individual plaintiffs, even

where the plaintiff has signed a predispute mandatory arbitration agreement. In EEOC v. Waffle House, Inc. , 534 U.S. 279 (2002), the Supreme Court recognizedthat

• the EEOC has a statutory mandate to exercise its enforcementpowers, remedies, and procedures as set forth in Title VII and theAmericans With Disabilities Act;

• the EEOC was not a party to the arbitration agreement in question;and

• the FAA neither authorizes arbitration of issues or parties not cov-ered in an arbitration agreement, nor does it mention enforcementof antidiscrimination statutes by public agencies.

Therefore, the FAA did not preempt the EEOC from pursuing victim-specific judicial relief for plaintiffs, including reinstatement, other injunctive relief, back pay, and compensatory and punitive damages. See also Addanki v. Cyberbills,

Inc. , MCAD Docket No. 01130386 (Apr. 29, 2005) (private arbitration agree-ments are unenforceable at MCAD due to MCAD’s statutory authority to eradicatediscrimination practices).

The EEOC had adopted the position that mandatory predispute arbitration agree-ments and other waivers of employee rights “are null and void as a matter of public policy.” See EEOC Guidance on Waivers Under Civil Rights Laws, Apr.





10, 1997 , 8 Emp. Discrimination Rpt. (BNA) 533. Furthermore, the EEOC hastaken the position that such agreements may also give rise to separate and dis-crete violations of the antiretaliation provisions contained within civil rightsstatutes. See EEOC Guidance on Waivers Under Civil Rights Laws, Apr. 10,1997 , 8 Emp. Discrimination Rpt (BNA) 533; see also EEOC Policy Statement on Mandatory Arbitration, July 10, 1997 , 9 Emp. Discrimination Rpt. (BNA) 87.

These positions were not addressed by the majority in Waffle House , and theEEOC has not repudiated its 1997 Policy Statement. However, in EEOC v. Luce,Forward, Hamilton & Scripps , 303 F.3d 994, 1005 (9th Cir. 2002), the NinthCircuit expressed its disagreement, holding that an employer may require em-ployees to arbitrate Title VII claims as a condition of employment and that anapplicant’s refusal to sign a compulsory arbitration agreement did not constituteillegal opposition to an unlawful employment practice.

In 1999, NASD (formerly the National Association of Securities Dealers) elimi-nated the provision in its registration forms requiring securities dealers to agreeto arbitrate certain disputes if requested by an NASD member (or a person asso-ciated with a member). See NASD Notice to Members 99–96, at 1 , http://finra.complinet.com/file_store/pdf/rulebooks/nasd_99096.pdf. NASD rules no longer

require employees of securities firms to arbitrate statutory decision claims.

Further, an employer seeking to enforce a predispute arbitration agreement muststill show that the agreement to arbitrate

• reaches the claim in question,

• is mandatory,

• was knowingly and voluntarily entered into, and

• meets minimal standards of notice and due process standards of impartiality.

See Campbell v. Gen. Dynamics Gov’t Sys. Corp. , 407 F.3d 546, 557–59 (1st Cir.2005) (company’s e-mail announcement about arbitration policy was insufficientto put plaintiff on notice and to extinguish right to judicial forum regarding dis-crimination claims; e-mail did not require response and did not state directly thatpolicy contained an arbitration agreement meant to waive employee’s right to

judicial forum and to contractually bind employee); Rosenberg v. Merrill Lynch,Pierce, Fenner & Smith, Inc. , 170 F.3d 1, 21 (1st Cir. 1999) (notice); Brennan v.King , 139 F.3d 258, 265–67 (1st Cir. 1998) (arbitration agreement not enforce-able against employee where its use was optional under grievance procedure andarbitrator was not authorized to resolve claim on the merits); Ramirez-De Ar-rellano v. Am. Airlines, Inc. , 133 F.3d 89, 90–91 (1st Cir. 1997) (minimal due





process standard) (dicta). But see Paul Revere Variable Annuity Ins. Co. v. Zang ,248 F.3d 1, 10 (1st Cir. 2001) (distinguishing Rosenberg , where plaintiffs seek-ing to bring breach of contract claims in court, rather than arbitrate pursuant tomandatory arbitration provision in securities license application, did not raisepublic-policy concerns addressed by statutory bars to employment discrimina-tion; and where defendant company had made no express commitment to notify

its employees of rule changes); DeLuca v. Bear Stearns & Co. , 175 F. Supp. 2d102 (D. Mass. 2001) (upholding arbitration agreement in employee handbook signed by employee, and rejecting claim, citing Rosenberg v. Merrill Lynch,Pierce, Fenner & Smith, Inc. , 170 F.3d at 21, that contract violated public policysince mandatory arbitration agreements are not per se unconscionable); Gon-

zalez v. GE Group Admrs., Inc. , 321 F. Supp. 2d 165 (D. Mass. 2004) (upholdingarbitration agreement in statutory case that permitted employee all remedies avail-able under law; consideration supplied by mutuality of agreement to arbitrate).

Even in the aftermath of the Supreme Court’s decision in Circuit City , someemployees have been able to avoid enforcement of mandatory arbitration claus-es. See, e.g. , Perez v. Globe Airport Sec. Servs., Inc. , 253 F.3d 1280 (11th Cir.2001) (mandatory arbitration clause unenforceable because it arguably prevented

prevailing plaintiff from recovering attorney fees due to limits on substantiverights), reh’g en banc denied , 273 F.3d 1118 (11th Cir. 2001); Stirlen v. Super-cuts, Inc. , 60 Cal. Rptr. 2d 138 (Cal. Ct. App. 1997) (mandatory arbitrationclause unconscionable where employee, but not company, required to arbitrateall claims and employee remedies limited to contract damages); Morgan v. Sci-ence Applications International Corporation , 612 F. Supp. 2d 81, 83 (D.D.C.2009) (mandatory arbitration agreements must provide for neutral arbitrator,more than minimal discovery, a written award, full statutory remedies, no arbi-trators’ fees or expenses or unreasonable costs) (quoting Cole v. Burns Int’l Sec.Servs., 105 F.3d 1465 (D.C. Cir. 1997)); Armendariz v. Found. Health PsychcareServs. , 24 Cal. 4th 83 (Cal. 2000) (mandatory arbitration agreement unconscion-able and thus unenforceable, where contract limited damages otherwise availableand employee but not employer limited to arbitration forum); Popovich v.

McDonald’s Corp. , 189 F. Supp. 2d 772 (N.D. Ill. 2002) (arbitration clause un-enforceable due to anticipated “staggering” costs). But see Green Tree Fin.Corp. v. Randolph , 531 U.S. 79 (2000) (consumer compelled to arbitrate herfederal consumer loan fraud claims despite contention that fees would deterplaintiff from vindicating statutory rights, finding “speculative” plaintiff’s argu-ments that costs and fees would be prohibitive). Some of these factors were citedby the Ninth Circuit when it considered Circuit City on remand. See Circuit CityStores, Inc., v. Adams , 279 F.3d 889 (9th Cir. 2002) (arbitration clause uncon-scionable where not mutual, available relief limited, statute of limitations shorterthan that in court, and contribution to arbitrator’s fees required).





Notwithstanding these exceptions, however, the Supreme Court recently heldthat when parties to a contract agree to arbitrate all questions arising under acontract, the FAA supersedes state laws lodging primary jurisdiction in anotherforum, whether judicial or administrative. Preston v. Ferrer , 128 S. Ct. 978(2008); see also Buckeye Check Cashing Inc. v. Cardegna , 546 U.S. 440 (2006)(challenges to validity of a contract providing for arbitration should be considered

by an arbitrator and not a court).

(b) Mandatory Arbitration of Statutory Claims of IndividualsWho Work Under Collective Bargaining Agreements

The U.S. Supreme Court has unanimously held that collective bargainingagreements containing waivers requiring arbitration of an individual employee’srights to a federal judicial forum must be “clear and unmistakable.” Wright v.Universal Mar. Serv. Corp. , 525 U.S. 70 (1998) (collective bargaining agreementcontaining general arbitration clause did not effect waiver of longshoreman’sclaims under the Americans with Disabilities Act). However, the Court pointedlydid not address the question of whether, in fact, such waivers would be enforce-

able. Wright v. Universal Mar. Serv. Corp. , 525 U.S. 70 (1998). But see La-Chance v. Northeast Publ’g, Inc. , 965 F. Supp. 177 (D. Mass. 1997) (since col-lective bargaining agreement did not protect individual rights, plaintiff not pre-cluded by mandatory arbitration clause from maintaining lawsuit under ADA).See also Doyle v. Raley’s Inc. , 158 F.3d 1012 (9th Cir. 1998) (employee maybring discrimination claims under the ADEA, the ADA, and the California FairEmployment and Housing Act, despite mandatory arbitration clause in collectivebargaining agreement).

However, if a collective bargaining agreement “clearly and unmistakably” re-quires union members to arbitrate their ADEA claims, that waiver is enforceableas a matter of law. 14 Penn Plaza v. Pyett , 129 S. Ct. 1456 (2009). While theCourt did not overrule Gardner-Denver in making this ruling, it effectively nar-

rowed the scope of Gardner-Denver ’s holding to cases where mandatory arbitra-tion of contract claims would preclude subsequent judicial resolution of statu-tory claims, declining to extend it to agreements to arbitrate statutory claims. 14Penn Plaza v. Pyett , 129 S. Ct. at 1466. The Court reasoned that the decision torequire arbitration of ADEA claims does not waive the substantive rights createdby the ADEA, “only the right to seek relief from a court for those claims” in thefirst instance. 14 Penn Plaza v. Pyett , 129 S. Ct. at 1466–69.





(c) Massachusetts State Court and Agency Decisions

In Massachusetts state court, one appellate court panel has upheld mandatoryarbitration of a complainant’s discrimination claims, where arbitration was to beconducted by one of three securities exchanges identified in the contract. Mugnano-

Bornstein v. Crowell , 42 Mass. App. Ct. 347 (1997) (Table). However, the plain-

tiff in that case did not advance some of the arguments ordinarily made againstmandatory arbitration agreements, e.g.,

• that mandatory arbitration of employment matters does not ade-quately protect the employee’s statutory rights against discrimination;

• that such clauses are unconscionable, and thus unenforceable, be-cause they are not mutual, they limit relief available to employees,they may impose shorter statutes of limitations than those availableunder law, or they require employees to pay substantial fees;

• they may be unsupported by consideration; and

• the waiver may have been unknowing or involuntary.

Instead, the plaintiff’s appeal argued only that the language of the arbitrationclause lacked specificity, an argument that the court rejected. The court alsonoted that the plaintiff had conceded that Gilmer was “generally applicable” toher claims. Mugnano-Bornstein v. Crowell , 42 Mass. App. Ct. at 351. More re-cently, the Supreme Judicial Court held that employment agreements providingfor mandatory arbitration of statutory discrimination claims under G.L. c. 151Bwill be enforceable only if the agreement is stated in clear and unmistakableterms. The court explained that, while the FAA’s and Commonwealth’s presump-tions of arbitrability remain in effect, the parties to such an agreement must, atminimum, clearly and specifically state that Section 151B claims are covered bythe contract’s arbitration clause. Warfield v. Beth Israel Deaconess Med. Ctr. ,454 Mass. 390 (2009).

The Supreme Judicial Court, in dicta, cited Mugnano-Bornstein for the proposi-tion that a plaintiff “may [be] able explicitly and voluntarily to waive” statutorycivil rights claims. Blanchette v. Sch. Comm. of Westwood , 427 Mass. 176, 184(1998) (plaintiff’s successful arbitration under collective bargaining agreementdid not bar her from bringing discrimination claims in court). However, address-ing under Massachusetts law the issue the U.S. Supreme Court left open in Wright ,the Blanchette court held that while unions frequently have authority to waivestatutory rights related to collective activity, an individual’s rights under antidis-crimination statutes “are of a personal, and not merely economic, nature [and]are beyond the union’s ability to bargain away.” Blanchette v. Sch. Comm. of





Westwood , 427 Mass. at 183. The court noted that it did not reach the question of “under what circumstances (if any) an individual” could waive statutory civilrights claims through a collective bargaining agreement. Blanchette v. Sch.Comm. of Westwood , 427 Mass. at 184 n.10.

The Massachusetts Commission Against Discrimination, anticipating the U.S.

Supreme Court’s reasoning in Waffle House , and specifically distinguishing Mugnano-Bornstein , has indicated that it will not honor predispute mandatoryarbitration agreements, because such mandatory and prospective waivers of statutory rights run directly counter to the statute it is charged with enforcing.

Zabrowski v. Jahn Foundry , MCAD Docket No. 96-SEM-0750, slip op. (June19, 1997) (order of investigating commissioner) (refusing to dismiss a claimunder G.L. c. 151B, even where an employee signed an agreement to arbitrateprospective disputes). The Commission reasoned that the holding of Mugnano-

Bornstein should be limited only to proceedings brought in court pursuant toG.L. c. 151B, § 9, rather than to proceedings pending before [the] Commission,which are authorized by G.L. c. 151B, § 5. Zabrowski v. Jahn Foundry , MCADDocket No. 96-SEM-0750, slip op. at 2. Because G.L. c. 151B created a “com-prehensive statutory scheme for the enforcement of civil rights in the public in-

terest,” and because the Commission itself had been created and charged witheffectuating the purposes of Chapter 151B, dismissal of complainant’s claimsbefore the Commission would “be [an] abdicat[ion] [of the Commission’s] fun-damental responsibility to enforce Chapter 151B to the benefit of the people of the Commonwealth.” Zabrowski v. Jahn Foundry , MCAD Docket No. 96-SEM-0750, slip op. at 2–3. The MCAD has also stated in its procedural regulationsthat mandatory arbitration agreements will not deter the agency from enforcingthe state’s antidiscrimination statutes, or investigating complaints filed with theagency. See 804 C.M.R. § 1.13(4).

More recently, an MCAD investigating commissioner recognized that forcing anemployee to sign a contract waiving his or her statutory rights underG.L. c. 151B could be coercive and discriminatory. See Antrim v. Labor Ready ,

MCAD Docket No. 99-130336, slip op. (Aug. 7, 2001) (probable cause findingin sex discrimination, hostile environment sexual harassment, and retaliationcase). Upon hire, and again upon rehire, the complainant had been required tosign an employment contract requiring her to arbitrate all disputes regarding heremployment. Investigating Commissioner Sullivan ruled that imposing such anobligation on an employee may itself be a form of discrimination. See Antrim v.

Labor Ready , MCAD Docket No. 99-130336, slip op. at 4.

Finally, following the First Circuit in Paul Revere Variable Annuity InsuranceCo. v. Kirschhofer , 226 F.3d 15 (1st Cir. 2000), the Supreme Judicial Court simi-larly held that where an employer itself is not a member of NASD, it cannotcompel arbitration pursuant to the NASD’s rules that mandate arbitration among





members or persons associated with members. Ladd v. Scudder Kemper Invs. , Inc. , 433 Mass. 240 (2001). In Ladd , the plaintiff’s NASD registration was ef-fected through a subsidiary of the employer which held NASD membership.However, since the parent company was not a NASD member, it could not compelarbitration of the plaintiff’s claims.

§ 2.1.6 Settlement Agreements

Federal and state age discrimination claims can only be waived if the waiverconforms to the requirements of the Older Workers Benefits Protection Act, 29U.S.C. § 626(f). These requirements include

• that the waiver must be written in plain language;

• that the employee must be given twenty-one days to consider thewaiver (forty-five days in the case of a group layoff or group exitincentive plan), with a seven-day revocation period; and

• that the waiver must specifically refer to the statutes under whichthe discrimination claims are being waived, and the waiver muststate that it is an important legal document and that the employeemay wish to consult with counsel of his or her own choice beforedeciding whether to sign it.

Oubre v. Energy Operations , 522 U.S. 422 (1998); see also EEOC Regulationson Waiver of Rights and Claims under the ADEA, 29 C.F.R. § 1625.22. Wherean agreement does not contain all of these specific requirements, it may bestruck down as unenforceable. See Commonwealth of Massachusetts v. Bull HN

Info. Sys., Inc. , 143 F. Supp. 2d 134 (D. Mass. 2001) (releases of age discrimina-tion claims invalid, where employees terminated pursuant to a reduction in forcewere not provided with adequate statistical and other information about the re-duction in force). Note that the strict requirements of the OWBPA do not applyto waivers of discrimination claims other than those for age discrimination. See

Melanson v. Browning-Ferris Indus., Inc. , 281 F.3d 272, 274 n.2 (1st Cir. 2002)(release of Title VII claims must be “knowing and voluntary”; OWBPA criterianot applicable); Duval v. Callaway Golf Ball Operations, Inc. , 501 F. Supp. 2d254, 263 (D. Mass. 2007) (“the OWBPA’s special release provisions do not applyto chapter 151B age discrimination claims”).

The MCAD applies its own set of criteria, many of which parallel those inOWBPA, and are more stringent in some ways, to determine the validity of arelease of all types of discrimination claims, not only age discrimination claims.These criteria include:





(1) clarity and comprehensibility to a lay person;

(2) whether the release references the statutes waived;

(3) whether the employee was aware of any discrimination claims at thetime the release was executed;

(4) the “nature of the discussion” between employee and employer at thetime of execution;

(5) whether the employee had an opportunity to negotiate;

(6) whether the employee was encouraged to, or did, consult a lawyer;

(7) whether the employee had a “reasonable” time to consider the release;

(8) the employee’s sophistication; and

(9) whether the release purports to waive future claims.

McCabe v. Tetley, Inc. , 22 Mass. Discrim. L. Rptr. 31 (2000), 2000 WL 33665341(MCAD). In McCabe , a release was not deemed to bar an employee’s age dis-crimination claims because it failed to meet criteria 2, 3, and 9.

Some claims cannot be waived in settlement agreements. These include

• workers’ compensation claims, see G.L. c. 152, § 75B(3);

• some claims under the federal Fair Labor Standards Act, see 29U.S.C. § 201 et seq.;

• some claims under the state unemployment benefits statute, see G.L. c. 151A, § 35; and

• some claims under the state payment of wages statute, G.L. c. 149,§ 148.

Additionally, an employee cannot waive the right to cooperate in investigationsof unfair or illegal employment practices by the EEOC or other federal or stateagencies. EEOC v. Astra USA, Inc. , 94 F.3d 738 (1st Cir. 1996); see also 29C.F.R. § 1625.22(i).

Where the material terms of a settlement agreement have been agreed uponorally, such agreements have been held enforceable even where no writtenagreement has been exchanged. See Quint v. A.E. Staley Mfg. Co. , 246 F.3d 11 (1stCir. 2001); Kinan v. Cohen , 268 F.3d 27 (1st Cir. 2001) (agreement enforceable





where employee’s attorney indicated that employee’s proposed edits to settlementagreement were “final changes”).

Emotional distress damages may be available when an employer breaches a set-tlement agreement, even when the settlement contract has not been finalized.Occean v. Marriott Corp. , 2 Mass. L. Rptr. No. 31, 628 (Dec. 24, 1994).

§ 2.1.7 Collective Bargaining Agreements

A collective bargaining agreement (CBA) is an agreement between an employerand a union that structures the terms and conditions of employment for a speci-fied group of workers or “bargaining unit” represented by the union. Amongother features, a CBA will typically impose a progressive discipline policy, re-quire that covered employees be terminated only for just cause, and will create agrievance mechanism that allows employees to appeal personnel actions thatthey contend violate the provisions of the CBA, and allow the union (and some-times, the employer) to require arbitration of alleged violations of the CBA.While these and other characteristics afford the individual bargaining unit em-ployee protections that unrepresented employees may not possess, the CBA doesnot necessarily create an employment “contract” between the individual unionmember and the employer that an individual employee can seek to enforce incourt on his or her own behalf. Rather, any rights that the individual employeemay have under the CBA are subordinate to the union’s rights to administer theCBA. See Vaca v. Sipes , 386 U.S. 171 (1967).

An employee can bring a legal action asserting rights contained in the CBA un-der federal or state law only if his or her employer has repudiated or otherwisenullified the grievance process, Drake Bakeries, Inc. v. Local 50 , 370 U.S. 254(1962), or if the union fails to pursue the grievance or resolves the grievance inbreach of its duty of fair representation, Vaca v. Sipes , 386 U.S. at 185–86; Azziv. Western Elec. Co. , 19 Mass. App. Ct. 406, 409 (1985). The union’s “duty of

fair representation” requires it to process the employee’s grievance without dis-crimination, arbitrariness, gross negligence, or bad faith. See Vaca v. Sipes , 386U.S. at 185–86; Humphrey v. Moore , 375 U.S. 335 (1964); Ford Motor Co. v.

Huffman , 345 U.S. 330 (1953); Steele v. Louisville & Nashville Ry. Co. , 323 U.S.192 (1944); Graham v. Quincy Food Serv. Employees Ass’n , 407 Mass. 601, 606(1990); Goncalves v. Labor Relations Comm’n , 43 Mass. App. Ct. 289, 293–94(1997); Nat’l Ass’n of Gov’t Employees v. Labor Relations Comm’n , 38 Mass.App. Ct. 611, 613 (1995); Cappellano v. Mass. Bay Transp. Auth. , 38 Mass.App. Ct. 231, 234 (1995).

Under federal law, a union member may bring an individual claim in court toenforce the CBA pursuant to the National Labor Relations Act (NLRA), 29





U.S.C. § 185. The NLRA applies to employees in interstate commerce, but doesnot include employees of states and municipalities. Parallel provisions of theMassachusetts Labor Relations Act (MLRA), G.L. c. 150E, apply and track fed-eral law. Leahy v. Local 1526, Am. Fed’n of State, County, & Mun. Employees ,399 Mass. 341, 346 (1987).

Remedies for the individual employee can include compelling arbitration orback pay damages for those discharged in violation of the CBA. Vaca v. Sipes ,386 U.S. at 197. However, if the employer has not repudiated the grievancemechanism, or if the union has resolved the grievance, even contrary to thegrievant’s wishes, but has not done so arbitrarily, discriminatorily, or in badfaith, then the employee’s cause of action will fail. Azzi v. W. Elec. Co. , 19 Mass.App. Ct. at 409; Cappellano v. Mass. Bay Transp. Auth. , 38 Mass. App. Ct. at235–36.

§ 2.2 ORAL CONTRACTS

Oral employment contracts are enforceable. Boothby v. Texon, Inc ., 414 Mass.

468 (1993) (oral contract “for life”). They may arise “from various representa-tions and negotiations between the parties.” Frederick v. ConAgra, Inc. , 713F. Supp. 41, 44 (D. Mass. 1989) (citing Kravetz v. Merchs. Distribs., Inc. , 387Mass. 457, 460 (1982)); Tennaro v. Ryder Sys., Inc. , 832 F. Supp. 494, 501(D. Mass. 1993). As noted above, oral settlement agreements have been heldenforceable. See Quint v. A.E. Staley Mfg. Co. , 246 F.3d 11 (1st Cir. 2001).

§ 2.3 IMPLIED CONTRACTS

Employment contracts may be inferred from the conduct of the parties and fromthe attendant circumstances. Jackson v. Action for Boston Cmty. Dev., Inc. , 403Mass. 8, 13 (1988); Monaco v. Lombard Bros., 24 Mass. App. Ct. 941, 942–43(1987).. Performance of work by the employee has been held to be considerationoffered in exchange for employment with the employer. O’Brien v. New Eng.Tel. & Tel. Co. , 422 Mass. 686, 691 (1996) (employee who remains with em-ployer after receiving employment manual may furnish adequate considerationto imply contract); Jackson v. Action for Boston Cmty. Dev., Inc. , 403 Mass. at14 (same); Corion Corp. v. Chen , No. CIV.A. 91-11792-Y, 1991 WL 280288, at*7 (D. Mass. Dec. 27, 1991) (same). Many recent decisions have focused on thecircumstances under which employment handbooks create implied contracts of employment.





§ 2.3.1 Employee Handbooks and Personnel Manuals

A personnel manual may form the basis for an implied contract of employment. Jackson v. Action for Boston Cmty. Dev., Inc. , 403 Mass. at 13 (upholding gen-eral principle that employment manuals may create implied contracts of em-ployment, while denying employee’s claim). As noted above, an employee who

continues to work after, or who commences employment upon, receiving anemployment manual “can, in appropriate circumstances, supply the necessaryconsideration to incorporate the manual’s terms into an employment contract.”

Jackson v. Action for Boston Cmty. Dev., Inc. , 403 Mass. at 14. Jackson sets fortha list of factors that may be considered when determining whether an employ-ment manual is part of the employment contract. Jackson v. Action for BostonCmty. Dev., Inc. , 403 Mass. at 14.

While some employers have claimed that the employee must prove the existenceof all of the Jackson factors in order to prevail, this “checklist” approach wasfirst rejected in Corion Corp. v. Chen , 1991 WL 280288, at *6–7, where an em-ployer’s reliance upon provisions in its manual was held to evidence its intent tomake the manual binding, despite the facts that the employer retained the right

to unilaterally modify the manual, the employee did not negotiate the terms of the manual, and the manual provided no specific term of employment. CorionCorp. v. Chen , 1991 WL 280288, at *6–7 (holding terms of employment hand-book incorporated into employment agreement, even absent explicit languageincorporating terms of handbook into agreement, where management regularlyrelied on and referred to manual in response to employee’s grievances). Thisapproach was adopted by the Supreme Judicial Court in O’Brien v. New England Tel. & Tel. Co. , 422 Mass. 686 (1996), which held that the factors cited in Jack-son are “not a rigid list of prerequisites, but rather . . . factors that would . . . ormight make a difference in deciding whether the terms of a personnel manualwere at least impliedly part of an employment contract.” The key question iswhether it is objectively reasonable for employees to view the manual as a le-gally enforceable commitment; even express disclaimers, although relevant, arenot dispositive. O’Brien v. New Eng. Tel. & Tel. Co. , 422 Mass. at 692–94. Be-cause management offers and defines the terms of benefits, employees may havea reasonable expectation that management will adhere to the terms of the man-ual; “[t]he idea that an employer may ignore promises made in a personnel man-ual is in increasing disfavor in this country.” O’Brien v. New Eng. Tel. & Tel. Co. ,422 Mass. at 691, 694. Deceptively written manuals, which appear to promisevarious benefits and advantages to employees, are not saved from enforceabilityby disclaimers that purport to negate the effect of those promises. Ortega v.Wakefield Therman Solutions, Inc. , 20 Mass. L. Rptr. 337 (2006).





If the manual contains a grievance procedure, the employee must pursue his orher grievance internally or risk losing his or her breach of contract claim. See O’Brien v. New Eng. Tel. & Tel. Co. , 422 Mass. at 695 (plaintiff’s failure to fol-low employer’s internal grievance procedure “fatal to her claim,” where plaintiff knew of grievance procedures, having previously used them successfully). Cf.

Brennan v. King , 139 F.3d 258 (1st Cir. 1998) (employee not obligated to use

optional grievance procedure as precondition to suit).

§ 2.3.2 Factors Used to Determine Whether a ManualCreates a Binding Contract

(a) Conduct of the Employee

An employee who remains employed after receiving a manual may supply thenecessary consideration to incorporate the manual’s terms into an employmentcontract. Corion Corp. v. Chen , No. CIV.A. 91-11792-Y, 1991 WL 280288, at*6–7 (D. Mass. Dec. 27, 1991). Additionally, where an employee has signed amanual, manifested assent to it, or acknowledged understanding of its terms, itsupports the employee’s claims that the manual was an employment contract.O’Brien v. New Eng. Tel. & Tel. Co. , 422 Mass. at 693. Conversely, an em-ployee’s failure to establish that he or she assented to or relied upon the terms of the manual may be fatal to her breach of contract claim. See Weber v. Cmty.Teamwork, Inc. , 434 Mass. 761, 780–81 (2001).

(b) Conduct of the Employer

An employer’s reliance upon its employment manual in reviewing employeegrievances and personnel matters may outweigh other factors, including the em-ployer’s retention of unilateral authority to modify its manual, and statements inthe manual disclaiming the establishment of contractual relationships. Corion

Corp. v. Chen , 1991 WL 280288, at *6–7. Additionally, where the employercalls special attention to the manual or distributes it annually, this may supportan employee’s claim that the manual creates an employment contract. O’Brien v.

New Eng. Tel. & Tel. Co. , 422 Mass. at 693.

(c) Negotiations

Where there had been negotiations over the terms of the manual leading to anagreement, “that fact alone would justify the conclusion that more than an at-will employment contract existed,” although “negotiation is not an essential pre-condition of the enforceability of the employer’s obligations stated in the manual.”





O’Brien v. New Eng. Tel. & Tel. Co. , 422 Mass. at 692; cf. Day v. Staples, Inc. ,555 F.3d 42, 58–59 (1st Cir. 2009) (employer not bound by manual where, interalia, parties did not negotiate over terms of manual).

(d) Stated Term of Employment

Where a manual states a time period for the duration of employment, the em-ployee is not an at-will employee. O’Brien v. New Eng. Tel. & Tel. Co. , 422Mass. at 692.

(e) The Employer’s Right to Unilaterally Modify the Manual Versus the Employee’s Reasonable Belief that

Employment Would Continue According to the TermsSet Forth in the Manual

Where the employer retains the right to unilaterally modify the terms of themanual, then any offer in the manual is regarded as illusory. However, if the em-ployee reasonably believes that the employer offers to continue the employee’semployment on the terms of the manual, the employee’s continuing to work forthe employer after receipt of the manual effects an acceptance of an offer of aunilateral contract, and the promise is not illusory, regardless of whether theemployer intended to make such an offer. O’Brien v. New Eng. Tel. & Tel. Co. ,422 Mass. at 692–93.

(f) Disclaimers

“[E]ven an employer’s express disclaimer may not be sufficient to erase contrac-tual obligations stemming from an employment manual.” Derrig v. Wal-Mart Stores, Inc. , 942 F. Supp. 49, 54 (D. Mass. 1996); Corion Corp. v. Chen , 1991WL 280288, at *6–7 (provisions of manual held to establish employment con-

tract despite disclaimer). A reservation of rights, a disclaimer of obligations, orother indicators that the manual only provides “general guidance” are factors tobe considered in deciding whether a manual creates an employment contract.O’Brien v. New Eng. Tel. & Tel. Co. , 422 Mass. at 693.

Elaborating on O’Brien , the Massachusetts Appeals Court held in Ferguson v. Host International, Inc. , 53 Mass. App. Ct. 96 (2001), that disclaimers in manu-als must be included in a “very prominent position,” Ferguson v. Host Int’l, Inc. ,53 Mass. App. Ct. at 103, since manuals “instill a reasonable belief in the em-ployees that management will adhere to the policies therein expressed.” Fergu-son v. Host Int’l, Inc. , 53 Mass. App. Ct. at 101–02. The court held that two dis-claimers appearing in the manual’s introduction were the “functional equivalent





of fine print,” Ferguson v. Host Int’l, Inc. , 53 Mass. App. Ct. at 103, and thus noteffective.

(g) The Employee’s “Reasonable Belief”

The Massachusetts Appeals Court has underscored that the employee must showthat he or she had a “reasonable belief” that the employer would adhere to theterms of the manual. See Ferguson v. Host Int’l, Inc. , 53 Mass. App. Ct. 96(2001). An express disclaimer placed in a prominent position, however, maynegate an employee’s “reasonable belief.” See Hillstrom v. Best Western TLC

Hotel , 265 F. Supp. 2d 117, 129 (D. Mass. 2003) (citing Wooley v. Hoffmann-La Roche, Inc. , 491 A.2d 1257 (N.J. 1985)).

(h) Progressive Discipline Policies

In Ferguson , the court further held that where an employer’s manual contains aprogressive discipline policy, excepting only major infractions, the employer’sfailure to use progressive discipline for a lesser offense could constitute a breach

of the employment contract. Ferguson v. Host Int’l, Inc. , 53 Mass. App. Ct. 96(2001).

Recent federal court decisions have followed O’Brien in holding that whilemany factors may be relevant, none is dispositive, instead establishing a two-stepinquiry:

• “did the employee believe that the employment manual[ ] . . .constituted the terms or conditions of employment, equally bind-ing on employee and employer”; and

• “was this belief reasonable under the circumstances?”

Derrig v. Wal-Mart Stores, Inc. , 942 F. Supp. 49, 55 (D. Mass. 1996) (employeeterminated for violating company policy regarding purchase of returned mer-chandise established employment contract through employee handbooks); see also Hinchey v. NYNEX Corp. , 979 F. Supp. 40, 43 (D. Mass. 1997) (citing Der-rig v. Wal-Mart Stores, Inc. , 942 F. Supp. 49, 55 (D. Mass. 1996)) (no reasonablebelief that terms of employment manual were mutually binding where employeeadded statement to signed manual withholding assent from full terms of manual).




MASSACHUSETTS EMPLOYMENT LAW


mcle employment contracts

Documents