Category Archives: Business

Massachusetts Noncompetition Agreements: Consideration

By on March 1, 2016

We have discussed the basics of non-competition agreements (“non-competes”) in Massachusetts, particularly the need to have reasonable restrictions supporting a “legitimate business interest.” Non-competes often include additional restrictions, such as non-solicitation and nondisclosure clauses. Beyond that, non-competes usually contain several provisions commonly found in legal documents. This post is the first in a series covering terms commonly found in non-competes.

Consideration

Every contract must include “consideration,” and non-competes are no exception. “Consideration” is the benefit that each side receives from a contract. Without valid consideration for each party to a contract, the contract will not be enforceable. In the employment context, it is very common for employers to have employees sign non-competes when they are hired. In Massachusetts, a job offer is valid consideration for an employee entering a non-compete agreement: the employee receives a job offer, while the employer receives the employee’s willingness to agree not to compete with the employer. Thus, employers are wise to have employees sign any restrictive contracts when the employee is hired.

However, sometimes non-competes are not signed when the employee is hired. If employment has already begun, an employer has two options. One option is use “continued employment” as consideration. The Massachusetts Appeals Court has held that continued employment is valid consideration (Wilkinson v. QCC, Inc., 53 Mass. App. Ct. 1109 (2001)), which is consistent with other jurisdictions, but the Supreme Judicial Court has not addressed the issue. For any employers concerned that a future court may find continued employment to be insufficient (and to oppose an employee’s argument that the agreement was only signed under duress), employers should consider offering additional consideration: a raise, a promotion, a bonus, more vacation time, and the like, along with continued employment.   

Although consideration often seems like an obvious part of any contract, it is vitally important. Any effective litigator will pick apart a contract to argue that adequate consideration was not provided, rendering the contract unenforceable. Consideration should be specifically discussed in the contract and actually provided to the employee (in other words, do not promise what you cannot deliver).

Material Change

While a job offer is valid consideration, if the employee’s job substantially changes, the non-compete may not be valid. This is based on a legal concept called “material change.” The argument is that if the employee’s new job is so different from the job that they were hired to do (and the job that served as consideration to sign the non-compete), consideration is no longer present and thus the non-compete is unenforceable. Massachusetts courts are divided on the issue, with some holding that only a reduction in the employee’s pay is a sufficient change to void the non-compete. Other courts have found that if an employee is promoted and given new responsibilities, a non-compete signed when first employed is likely unenforceable. As is often the case, the enforceability of a non-compete can be a fact-intensive endeavor. Both employers and employees should consult with an experienced Massachusetts employment attorney to determine their rights and options.

Protecting Confidential Business Information

By on January 19, 2016

While the Massachusetts legislature continues to debate whether to ban “non-competition agreements,” support for the protection of trade secrets and confidential information remains strong. Although the Commonwealth has not adopted a version of the Uniform Trade Secrets Act, Massachusetts protects trade secrets in several overlapping ways: state law provides that the theft of a trade secret can lead to double damages for the aggrieved party; the Massachusetts Consumer Protection Act allows for the recovery of double or triple damages and attorney’s fees for misappropriating trade secrets; courts will enforce contracts requiring employees to maintain the confidentiality of secret information learned on the job; and courts will grant injunctions barring the improper use of confidential information in certain circumstances. However, just because a business states that information is confidential does not mean that a court will agree. Massachusetts uses a six-factor test to determine whether information is confidential:

(1) the extent to which the information is known outside of the business;

(2) the extent to which it is known by employees and others involved in the business;

(3) the extent of measures taken by the employer to guard the secrecy of the information;

(4) the value of the information to the employer and to his competitors;

(5) the amount of effort or money expended by the employer in developing the information; and

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Examples of trade secrets can include manufacturing processes, price lists, financial information, sales strategies, and product development plans. The six-factor test emphasizes that the information has to be a secret, and the business had to make a genuine effort to maintain its secrecy. The business does not ordinarily need to employ heroic measure to maintain secrecy, using armed guards and bank vaults. While appropriate efforts to maintain secrecy are a fact-based determination, businesses will often use non-disclosure agreements signed by employees, limit the internal disclosure of information to an as-needed basis, and ensure that no information is made publicly available (such as via the business’s website).

Businesses concerned about preserving information secrecy, or aware of a confidentiality breach, should contact a Massachusetts business attorney to ensure their interests are protected.

Non-Competition Agreements for Business Transactions

By on November 18, 2015

We have previously discussed non-competition agreements in the employer/employee context, but non-compete agreements arise in other scenarios. One of the most common events that leads to a non-compete is the sale of a business. The basics are the same as for employers and employees:  the non-compete must be reasonable in duration and geographic scope, and for a legitimate business purpose.  The difference lies in what is deemed reasonable. A recent Superior Court case, Annunciata v. VPS Services, LLC, et al. (Civil Action No. 15-2985 BLS2) addressed some interesting points on this topic.

The plaintiff, Annunciata, sold her business in return for cash and an equity stake in a new company formed from the sale, known as “VPS LLC.” As part of the sale, Annunciata entered into several agreements. Two of them, the Asset Purchase Agreement governing the sale, and a Service Agreement by which Annunciata was hired to work for VPS LLC, each contained a restrictive non-compete, barring her from competing for five years (which would be reduced to one year if she was terminated by VPS LLC without cause).

Shortly after the sale was completed, Annunciata had disagreements over the direction of the new company with a manager of the company that held the majority of VPS LLC’s shares. The disagreements rose to a point that the other managers (and co-defendants) voted to terminate Annunciata’s employment with VPS LLC. Annunciata filed suit against VPS LLC and the other managers for wrongful termination, who in turn counterclaimed, seeking an injunction to bar Annunciata from competing with VPS LLC, an intention Annunciata had made clear.

The court ruled in favor of the defendants, granting them an injunction. The court reasoned that when a non-compete is negotiated as part of a business sale, the court is inclined to honor such agreements, provided they are reasonable. Here, the plaintiff intended to compete directly with VPS LLC, which would deprive the defendants of a key portion of what they purchased:  the good will of the recently purchased business. Further, the plaintiff still owned a portion of VPS LLC, and the specific terms of her non-compete allowed her to work, just not to form a competing company.

The takeaway from this case is that Massachusetts courts will honor non-compete agreements of a longer duration, if such non-competes are negotiated as part of a sale of a business. Any person contemplating buying or selling a business should consult with a qualified Massachusetts business attorney to protect their interests.

Obtaining Security and Forcing Collection on a Judgment

By on October 19, 2015

In civil cases when the parties do not settle, the “end” of a case is commonly thought to be when the court enters a judgment. However, entry of judgment is only a step toward obtaining payment of the awarded damages. In collecting, a judgment creditor* may consider several methods available to secure interests and force payment.

Securing a Judgment Before an Execution Issues

Once the court makes a final decision, it enters judgment. However, in many situations, some portion of the case may remain open; for example, when a party appeals or files post-judgment motions. In these situations, a judgment creditor may request that the court attach assets belonging to the debtor and held to satisfy the judgment, once the case is fully closed.

Attached assets permit the creditor to hold the debtor’s available property and, in the event the debtor fails to pay, have that property liquidated. Common examples of asset attachments include the attachment of real estate, personal property (e.g., vehicles, boats, machinery, inventory or office equipment), and bank accounts. These types of attachments eventually permit the creditor to take title of the property and apply it against the judgment. Additionally, the judgment creditor may request to have the debtor’s wages garnished. For wage garnishments, the court may order the debtor’s employer to pay a portion of the debtor’s wages to the creditor, over a set amount of time.  Judgment creditors may also apply for a keeper attachment. Under a keeper attachment, a custodian, such as a sheriff or person appointed by the sheriff, holds property of the debtor (e.g., business receipts paid into the business) to pay off the judgment.  

Collecting on a Judgment After an Execution Issues

After judgment enters and the appeal period passes, the court issues an Execution. An Execution is an order from the court notifying the debtor of the creditor’s intent to collect on the judgment. Because an Execution is served after final judgment enters, the creditor may take direct steps to force payment or seize the debtor’s property. Two different routes are available to force collection. Selecting between these options usually comes down to whether the judgment creditor can locate the debtor’s assets.

When the creditor is unable to locate assets, supplementary process is a useful tool. Supplementary process is a procedure where a creditor seeks to enforce the judgment through court-ordered payment. It is an inexpensive and efficient way of obtaining information regarding what assets the debtor holds and usually ends with an order of payment against the debtor. Supplementary process involves having the debtor served and ordered to appear before the court for an examination of the debtor’s assets, liabilities, and general financial information. The court then has the option of ordering the debtor to produce nonexempt property to be seized, ordering the debtor to convey property to the creditor, or ordering payment in full or partial periodic payments.

When the judgment creditor knows of assets owned by the debtor, the judgment may be satisfied by directly seizing, and possibly selling, that property. A common example of asset seizure occurs where vehicles, machinery, boats, or other tangible goods belonging to the debtor are taken and held for auction. Asset seizure is a process that requires the involvement of the sheriff’s department. The sheriff either serves the debtor with the Execution and demands the production of assets, or has accessible assets directly seized. This method of satisfaction requires additional time and effort in waiting for assets to located and taken, but has the benefit of potentially satisfying a larger portion of the judgment at one time.

Benefits of Utilizing Post-Judgment Collection Options

Judgment creditors must weigh costs and benefits in selecting the best post-judgment collection methods. In some situations, debtors voluntarily provide payment once judgment enters. However, it is not uncommon for a debtor to avoid paying. The post-judgment collection options listed above are helpful tools to secure interests and force collection.  Experience shows that once a person or entity learns that their vehicles or machinery will be sold at auction, that their bank accounts will be frozen, or their wages or credits taken, they are much more likely to try to come up with voluntary payment arrangements. For more details about collecting on a judgment, creditors should seek the advice of a Massachusetts business attorney.

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*Once the judgment enters, the plaintiff becomes the “creditor” and the defendant becomes the “debtor.”

Proposed Bill Targets “Wage Theft” in Massachusetts

By on May 26, 2015

Strang Scott has previously written about both the Wage Act, the Massachusetts law protecting the earnings of workers, as well as the independent contractor statute, which governs the classification of workers as either employees or independent contractors. Violating the Wage Act and independent contractor statute can have significant real-world consequences. One consequence is a state investigation of wage theft. “Wage theft” is a broad term signifying an employer’s illegal retention of earned wages. The Boston Globe recently reported that “wage theft” is rampant throughout the construction industry. Wage theft often incurs in conjunction with the misclassification of workers as independent contractors, particularly at the subcontractor level where many workers are paid in cash. According to the Globe, the Massachusetts attorney general’s office has issued 253 wage-related citations to the construction industry alone over the last eighteen months, totaling more than $1.6 million in penalties and unpaid wages. The Attorney General’s office views investigating and prosecuting wage theft as a priority.

Employers who commit wage theft or misclassify their workers do so at substantial risk. Any worker is free to file a complaint with the Attorney General’s office, which will conduct a preliminary investigation or allow the worker to file a private law suit. Should the Attorney General ultimately find that a violation occurred, penalties start at $10,000 for non-willful violations, and $25,000 for willful violations. Repeat violations incur higher penalties, and willful violations may be further punished by debarment, preventing offending companies from seeking public contracts.

Current Massachusetts law holds the employer and the employer’s owners and/or managers liable for wage-related violations, but the legislature is considering expanding on current law. State Senator Sal DiDomenico has filed a bill to address the wage theft problem. Among other provisions, the bill (currently known as S.966) will hold “lead companies” responsible for wage violations. “Lead companies” are defined as any business entity that obtains or is provided workers directly from a labor contractor or indirectly from a subcontractor. In other words, should this bill become law, first tier subcontractors and general contractors would share liability for wage issues, include wage theft and independent contractor misclassification. Opponents of the bill have highlighted the potentially unfair burden the legislation would place on honest general contractors, and it is unknown if the bill will ultimately become law. However, all employers (particularly subcontractors, general contractors, and other entities operating in the construction industry) should properly classify all of their existing workers and be advised that the legislature may increase their direct liability for unpaid wages and misclassified workers. Employers should consult with their counsel to ensure that all workers are properly paid and classified.

 

Online Business Defamation: A New Frontier

By on May 5, 2015

The explosion of business review websites and social media applications brings not only opportunities for businesses to get exposure, but also risks of very public negative commentary.  While everyone is entitled to express opinions, that entitlement does not extend to protection for posting demonstratively false statements of fact about businesses online. It is imperative for business owners to monitor online rating websites and relevant social media forums, in order to quickly spot reputation-harming online business defamation. The longer the posts remain up, the greater the potential harm to the business.   

You’ve Spotted a Defamatory Post- Now What?  

When confronted with online defamation businesses have few options.   First, a business may contact the host website to request removal of the defamatory post.  Websites have a wide range of policies regarding online business defamation. Some will directly review and remove clearly defamatory comments, some will do nothing whatsoever, and some fall on the spectrum in between. Second, the business owner may try contacting the author, to reconcile differences and have them voluntarily remove the post. Finally, if the first two options fail or are seemingly unavailable, the next step may be to consider consulting an attorney and pursuing a legal remedy.

Legal Framework of an Online Business Defamation Claim

In Massachusetts, there are five elements that comprise an online business defamation claim. A business must prove, “(1) that the defendant published a written statement; (2) of and concerning the plaintiff; that was both (3) defamatory, and (4) false; and (5) either caused economic loss, or is actionable without proof of economic loss.” Noonan v. Staples, 556 F.3d 20 (1st Cir. 2009). Further, a statement is considered defamatory when it, “may reasonably be read as discrediting [the business] in the minds of any considerable and respectable class of the community.” Clay Corp. v. Colter, 2012 Mass. Super. LEXIS 357 (Mass. Super. Ct. 2012). It is also worth noting that, in the context of online business defamation, federal law limits who businesses can hold legally responsible for defamatory postings. Businesses can generally bring a claim only against the actual author of the defamatory comments and not the hosting website where the comments are posted. 

A recent Massachusetts case, Clay Corp. v. Colter (Mass. Super. Ct. 2012), signaled that it is possible for a business to make a viable case against the author of online defamatory comments. In that case the court entered judgment in favor of the defamed business, finding the authors liable for $750,000, to compensate for the defamatory impact to the business. The court, however, stopped short of ordering that the authors remove the offending posts, citing First Amendment free speech as a limiting factor. Thus, while courts are seemingly willing to rule in favor of defamed businesses the First Amendment may impede full relief.    

Takeaway

The Internet can be a business’s best friend just as easily as it can be a business’s worst enemy. Online posts are immediate and far-reaching, so reaction must be swift. Thus, it is vitally important to police what is said online and understand what options and legal remedies are available to protect your business and your livelihood from online business defamation.

For more information contact Chris Strang. Partner at Strang, Scott, Giroux, & Young, LLP.