Massachusetts Employment & Labor Law Report

No-Tipping Policies Permitted Under Massachusetts Tip Statute
Massachusetts Court Enforces Arbitration Provision Despite Onerous Terms
U.S. District Court Rejects Associational Discrimination Claim Under Chapter 151B
Trial Court Not Liable for Age Discrimination After Rescinding Employee's Promotion
Appeals Court Affirms Judge's Chapter 93A Liability Finding Despite Contradictory Jury Verdict
Supreme Judicial Court Holds Forum Selection Clauses May Violate Massachusetts Wage Act
Federal District Court Dismisses Class Action in Favor of Bilateral Arbitration
Arbitration Agreement May Permit Class-Wide Arbitration Despite Lack of Express Language 

 

No-Tipping Policies Permitted Under Massachusetts Tip Statute

In what appears to be a case of first impression, a Massachusetts Superior Court judge held that the Massachusetts Tip Statute, Mass. Gen. Laws ch. 149, § 152A (Tip Statute), does not bar employers from implementing and enforcing "no-tipping" policies for wait staff and service employees, as long as such policies are communicated effectively to customers.

In Meshna v. Scrivanos, the plaintiffs were wait staff employees at various Dunkin Donuts franchises operated by the defendant, Constantine Scrivanos. They alleged that customers routinely left or attempted to leave tips and that under the defendant's no-tipping policy the plaintiffs were required to return the tips to the customers. The plaintiffs further alleged that if they were unable to return the tips to the customers, the money was retained by the defendant. The plaintiffs claimed that this practice violated the Tip Statute and common law because the purpose of the Tip Statute -- ensuring that employees receive tips that customers intend to leave them -- would be frustrated by allowing employers to implement no-tipping policies. According to the plaintiffs, the Tip Statute requires employers to permit customers to offer, and wait staff to accept, tips.
The defendant moved for judgment on the pleadings, arguing that there is nothing in the Tip Statute that prohibits a no-tipping policy, and employers should be permitted to enforce a no-tipping policy by retaining any money left by customers. The defendant also moved to dismiss the common law claims.

The Court held that the Tip Statute does not bar "clearly and conspicuously announced" no-tipping policies and that employers may require employees to return money to customers pursuant to such policies. However, the Court denied the defendant's motion because it determined that the plaintiffs' allegation that customers routinely left or attempted to leave tips "supports an inference that at least a substantial number of defendant's customers do expect that money they leave will go to employees." The Court also ruled that if customers reasonably believe that the money they leave is provided to employees, the defendant's practice of retaining the money when employees are unable to return it to the customers constitutes a clear violation of the Tip Statute. Although the Court recognized the challenge of effectively enforcing a no-tipping policy, it stated that this challenge did not create an exception to the Tip Statute. The Court left open the possibility that where a no-tipping policy is communicated effectively so that customers could not reasonably expect money left behind would be treated as tips, "the conclusion may follow that such money is not received by or given to employees as tips."

Meshna serves as a reminder that the critical factor in most Tip Statute cases is not an employer's intent or an employee's understanding, but rather the "reasonable belief" of a third party, namely, the customer. Employers who have or intend to implement a no-tipping policy should review the manner in which it is communicated to ensure that it is "clear and conspicuous."

Massachusetts Court Enforces Arbitration Provision Despite Onerous Terms

In Joule, Inc. v. Simmons, the Superior Court upheld an arbitration provision that significantly reduced an employee's limitations period for bringing claims and incorporated terms that were subject to the employer's unilateral modification.

Joule, Inc. hired Randi Simmons as a branch manager, and she signed an employment agreement that included an arbitration provision. Joule later terminated her employment. Simmons filed a charge of discrimination with the Massachusetts Commission Against Discrimination (MCAD), accusing Joule and certain individuals of discrimination and retaliation in violation of Massachusetts General Laws ch. 151B. The defendants responded by filing a suit challenging Simmons's right to proceed with her MCAD charge and seeking to compel arbitration.

The Superior Court stayed the plaintiffs' action pending the MCAD's resolution of Simmons's charge. On interlocutory review, the Massachusetts Supreme Judicial Court vacated the stay and allowed the plaintiffs to pursue their action while the MCAD proceeded under its statutory mandate to conduct its own investigation of the plaintiffs' alleged misconduct. The SJC directed the Superior Court to rule on the validity of the arbitration agreement, with an affirmative ruling on that issue compelling arbitration notwithstanding the pendency of the MCAD's own investigation. Joule, Inc. v. Simmons, 459 Mass. 88, 91 (2011).

On remand, Simmons argued to the Superior Court that the arbitration agreement was unenforceable due to unconscionability. The Court noted that a contract may be voided for unconscionability if it was "such that no man in his senses and not under delusion would make on the one hand, and no honest and fair man would accept on the other" or if "the sum total of its provisions drives too hard a bargain for a court of conscience to assist." The Court focused its analysis on what it perceived as Simmons's "two strongest arguments." First, the Court noted that the arbitration provision set a thirty-day limit for filing claims, drastically reducing the three-year statute of limitations period for filing Chapter 151B claims in the Superior Court. Second, the Court noted that procedural rules governing the arbitration, including the limitations period, were found in a separate document that was incorporated by reference into Simmons's employment agreement and that Joule reserved the right to unilaterally modify that document.

While the Court stated that the issue was "a close one," it enforced the arbitration agreement. The Court found that Simmons failed to cite to any cases finding an arbitration agreement unconscionable due to the shortening of the limitations period. Further, it stated that while Joule's ability to unilaterally modify terms of the agreement somewhat compromised the agreement's "bilateralality," Simmons failed to allege that Joule had amended substantive terms between the time she signed the agreement and the parties' dispute arose.

Joule reaffirms that employers can rely on Massachusetts courts to enforce unambiguous arbitration agreements, even if they contain arguably onerous terms. Yet, because this Superior Court decision "was a close one," employers should be circumspect when drafting arbitration provisions that seek to limit employees' substantive rights or that compromise the bilateral nature of such agreements.

U.S. District Court Rejects Associational Discrimination Claim Under Chapter 151B

The U.S. District Court for the District of Massachusetts held, in Ayanna v. Dechert LLP, that Chapter 151B does not provide a cause of action for associational discrimination.
In 2006, Ariel Ayanna, a male attorney, began working as an associate for the law firm Dechert LLP. After a successful first year, Ayanna took four weeks of paternity leave along with his entitlement under Family and Medical Leave Act (FMLA) in order to care for his mentally-ill wife and their two children. Upon returning to work, Ayanna continued to care for his wife and serve as the primary caretaker of his children. In December 2008, Dechert terminated Ayanna's employment.

In response, Ayanna filed a charge of discrimination with the MCAD and the Equal Employment Opportunity Commission. He later removed the case to the District Court. Ayanna alleged violations of the FMLA and both gender and handicap discrimination under Chapter 151B, premised, in part, on the theory that Dechert terminated his employment for spending too much time away from the office to tend to his mentally-ill wife and his children. Dechert moved to dismiss Ayanna's handicap discrimination claim. The District Court stated, "The dispositive issue for purposes of defendant's motion to dismiss is whether an admittedly non-handicapped employee has standing … to bring an 'associational' claim, that is, a claim alleging that he was subject to adverse employment action because of his association with a handicapped person."

The District Court granted Dechert's motion to dismiss, holding that Chapter 151B does not provide for an associational discrimination cause of action. The Court followed the only Massachusetts decision to address this issue directly, Brelin-Penny v. Encore Images, No. 08-2244-B, 2010 WL 2636822, at *6 (Mass. Super. Ct. June 1, 2010), and held that since the Legislature had not included a protected category for "associated persons" in Chapter 151B, neither the MCAD nor the court could add such a category. The Court also criticized the MCAD, which has allowed associational discrimination claims under Chapter 151B. "The MCAD's construction aggrandizes the statute's plain language and creates a new class of protected persons not contemplated by the statute. If there is to be a cause of action for 'associational' discrimination, it ought to emanate from the Massachusetts legislature."

Although this decision is not binding authority, it will aid employers in arguing that Chapter 151B does not provide standing for employees to bring an associational discrimination claim. Employers, however, must also be aware that they may still be found liable for associational discrimination under the Americans with Disabilities Act, which expressly allows for such claims.

Trial Court Not Liable for Age Discrimination After Rescinding Employee's Promotion

In Zaniboni v. Massachusetts Trial Court, the Massachusetts Appeals Court vacated a jury verdict in favor of an employee of the Plymouth County Division of the Probate and Family Court Department (Trial Court) who claimed that she had been subjected to age discrimination when the Trial Court rescinded her promotion to Head Administrative Assistant (HAA).

In 1998, the plaintiff interviewed for one of two open HAA positions and was given the job. An unsuccessful applicant, Laurie Devitt, filed a grievance under a collective bargaining agreement, citing irregularities in the interview process. As a result of the grievance, the Trial Court agreed to re-interview Devitt and the plaintiff. At the conclusion of the interview process nearly two years later, the Trial Court demoted the plaintiff and offered Devitt the job.

The plaintiff sued under Chapter 151B, claiming that the decision had been based on age discrimination. A jury found in the plaintiff's favor, and the trial judge denied the Trial Court's motion for judgment notwithstanding the verdict.

The Appeals Court reversed. Although the Appeals Court found that the plaintiff had produced sufficient evidence to prove her prima facie case, she failed to rebut the defendant's legitimate, non-discriminatory reason for giving the position to Devitt. Specifically, Devitt was better qualified: she had four more years of experience, had supervised more employees, and had experience working in more departments than the plaintiff. Devitt also had seniority over the plaintiff under the terms of the collective bargaining agreement. While the plaintiff had testified that there was "an atmosphere of age discrimination" at the Trial Court and provided unsubstantiated anecdotes about the Trial Court's alleged practice of promoting younger employees, she produced no "concrete statistical data." The Appeals Court held that, without such corroborating evidence, the plaintiff's generalizations were insufficient to show that the rationale cited by the Trial Court for its decision to promote Devitt was pretextual: "In short, the plaintiff was unable to refute the defendant's legitimate, nondiscriminatory claim that Devitt was more qualified for the HAA position."

The Appeals Court's emphasis in Zaniboni on the need for statistical data to corroborate anecdotal evidence of discrimination is likely to serve as helpful authority for employers litigating pretext cases under Chapter 151B. And employers who have litigated such cases in Massachusetts in the past may experience a sense of schadenfreude upon learning that a Massachusetts court, too, has found itself on the defense side of an age discrimination claim.

Appeals Court Affirms Judge's Chapter 93A Liability Finding Despite Contradictory Jury Verdict

In Specialized Tech. Resources, Inc. v. JPS Elastomerics Corp., the Appeals Court upheld a controversial trade secrets decision finding defendants liable for misappropriation of trade secrets despite a jury verdict to the contrary on a parallel common law claim. The Appeals Court also affirmed an award of over $8 million and an injunction that permanently enjoined defendants from using the trade secret and prohibited them from making the product at issue, by any means, for a five-year period.

The plaintiff developed a method to produce a specialized encapsulant used in making solar cells. Galica, the manager who oversaw the team that developed the method, left the plaintiff's employment to join JPS, one of its competitors. Within one year, the plaintiff lost 25 percent of its market share after JPS released a competing product using an identical process. The plaintiff filed suit against JPS and Galica, alleging breach of contract, misappropriation of trade secrets, and unfair and deceptive trade practices in violation of Massachusetts General Laws ch. 93A (Chapter 93A).

At trial, a jury decided the common law contract and misappropriation claims, and the Chapter 93A claim was reserved to the judge. The jury found that the plaintiff's method was a trade secret, but that the defendants had not misappropriated it. The judge disagreed, finding based on the same evidence that the defendants had misappropriated the trade secret, in violation of Chapter 93A. The judge awarded over $8 million, including damages, attorneys' fees, and costs, as well as injunctive relief. The defendants appealed.

On appeal, the plaintiff cited Massachusetts cases holding that a jury's verdict regarding common law claims is not binding on a judge who has reserved determination of a Chapter 93A claim in the same case. The defendants pointed to a lack of appellate authority permitting a trial judge to decide questions of fact in a manner contrary to a jury's findings in cases where statutory and common law claims are tried together.

The Appeals Court affirmed the lower court's decision, noting that the defendants had "waived at trial the argument they now press" and citing a prior Appeals Court decision that was directly on point. The Appeals Court also rejected defendants' argument that Chapter 93A was inapplicable because plaintiff's claims arose from the employer-employee relationship: "[T]hough Galica obtained the trade secret during his employment with STR and was bound by a confidentiality agreement as part of his employment contract, his misappropriation of the trade secret was actionable independent of his contractual obligations and accordingly may support a claim under Ch. 93A." The Appeals Court also held that the injunction was not improper in scope because "the method developed by JPS derived from specialized knowledge brought by Galica from STR to JPS, and particularly because the evidence suggested that JPS would not have been able to develop such a method independently, the judge's order enjoining JPS from production … by any means for a period of five years (a period equivalent to the time STR spent in development of its trade secret method) was justified."

The Appeals Court has provided a powerful weapon to employers pursuing former employees, and the competitors who hire them, for misappropriation of trade secrets and violations of Chapter 93A.

Supreme Judicial Court Holds Forum Selection Clauses May Violate Massachusetts Wage Act

The SJC recently held that an out-of-state forum selection clause in an employment contract may, in certain situations, be unenforceable under the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, §§ 148, 150 .

In Melia v. Zenhire, Inc., Zenhire, Inc. entered into an employment contract with Melia. A forum selection clause in the agreement dictated that all disputes arising out of the contract or the employment relationship were to be resolved in New York. The agreement also contained a provision stating that it would be governed and construed in accordance with the laws of New York. After five months, Zenhire allegedly began to experience financial difficulties and failed to pay Melia compensation due under the contract.
Melia brought suit in Superior Court alleging that Zenhire violated the Wage Act. Melia argued that the forum selection and choice-of-law provisions in his employment contract were unenforceable "special contracts" that attempted to avoid application of the Massachusetts Wage Act.

The SJC rejected Melia's arguments and held that the forum selection clause was enforceable. The court held that "a forum selection clause operates as a special contract only when three conditions are met: the employee's claim is covered by the Wage Act; the court of the forum State, applying its choice-of-law principles, would choose a law other than that of Massachusetts to govern the dispute; and application of the foreign law will deprive the employee of a substantive right guaranteed by the Wage Act." Here, the Court found, a New York court applying New York's choice-of-law rules would apply Massachusetts law because Melia lived and worked in Massachusetts and, therefore, Melia could not satisfy the second of these three conditions. As a result, the Court concluded, the forum selection clause was not an unlawful "special contract," and Melia must bring his claims in New York.

Although the employer prevailed in this case, the SJC's decision is a cautionary tale that forum selection clauses cannot be used to evade the Wage Act's requirements.

Federal District Court Dismisses Class Action in Favor of Bilateral Arbitration

In Karp v. Cigna Healthcare Inc., a U.S. District Court for the District of Massachusetts judge granted a defense motion to compel bilateral arbitration of a plaintiff's claims in a proposed $100 million gender discrimination class action.

Bretta Karp brought suit on behalf of herself and other similarly situated employees contending that her employer, Cigna Healthcare, Inc., engaged in systematic gender discrimination in violation of Title VII and Chapter 151B. In November 2005, Cigna updated its employee handbook. Karp checked "yes" on an electronic receipt for the handbook, which provided that Plaintiff "agreed" to resolve any dispute with Cigna under Cigna's Employment Dispute Arbitration Program. The receipt also stated that "I understand that any such Arbitration will be conducted pursuant to the CIGNA Employee Dispute Arbitration Rules and Procedures in effect at the time such arbitration is commenced." Neither the Handbook nor the receipt mentioned class claims. However, Cigna set forth additional detail as to the scope of arbitration – that it did not include in the Handbook – in its Arbitration Policy and Arbitration Rules and Procedures. In the Arbitration Policy, Cigna provided that no class-wide arbitrations were allowed, and in the Arbitration Rules and Procedures, Cigna provided that each party seeking resolution of its claims "must proceed individually" and "[t]here shall be no class or representative actions permitted."

Cigna moved to compel arbitration and dismiss or, in the alternative, stay the litigation. Karp agreed that she waived her right to litigate in a judicial forum her individual claims, so the only issues before the Court were whether (1) Cigna could be compelled to submit to class arbitration, and (2) Karp waived her ability to serve as a class representative by agreeing to arbitrate her individual claim.

The Court first held that Cigna could not be compelled to submit to class arbitration because it never agreed to allow class arbitration. Relying on U.S. Supreme Court precedent, the Court found that, because "the 'changes brought about by the shift from bilateral arbitration to class-action arbitration' are 'fundamental,'" a party cannot be compelled to arbitrate class claims unless something in the contract indicates, at least implicitly, that it agreed to permit class arbitration. The Court reasoned that although there was "certainly some question" about whether Cigna's policies and procedures could be enforced against plaintiff, "there is no doubt that defendant did not agree to permit class arbitration." Accordingly, the Court concluded that it could not compel Cigna to submit to class arbitration.

The Court next held that Karp was not entitled to litigate her claims on a class basis in a judicial forum. The Court found that, in order to maintain a class action, a plaintiff must have an individual claim, and by agreeing to arbitrate her individual claim, Karp waived her ability to serve as a class representative in a litigated action. In reaching this holding, the Court rejected Karp's argument that arbitration would preclude her from vindicating her statutory rights. Karp contended that she would not be able to assert her pattern or practice discrimination claim in a bilateral proceeding because it is unavailable outside of the class action context. The Court disagreed, ruling that a pattern or practice claim is "merely a method of proof" and not "a separate cause of action."

The Court's opinion in Karp is a useful precedent for employers seeking to assert an arbitration defense in an employment discrimination class action. The Court rejected Karp's attempt to end-run an arbitration agreement by asserting a claim that, according to Karp, could be litigated only on a class-wide basis. In so doing, the Court confirmed that a class action or pattern or practice claim are procedural devices – or "method of proof" – that do not allow plaintiffs to avoid bilateral arbitration.

Arbitration Agreement May Permit Class-Wide Arbitration Despite Lack of Express Language

In Fantastic Sams Franchise Corp. v. FSRO Association Ltd., the U.S. Court of Appeals for the First Circuit held that an arbitrator, rather than a judge, must decide if an arbitration agreement that is silent on class arbitration allows for a dispute to be arbitrated on an individual or class-wide basis.

Fantastic Sams Franchise Corp. involved an association that represented a group of thirty-five Fantastic Sams franchisees, each with a separate franchise agreement, that filed a demand for arbitration against the franchise corporation alleging that the franchise corporation had breached their franchise agreements. All of the agreements called for arbitration. Twenty-five of the agreements expressly barred class arbitration, but the remaining ten did not. Instead, those ten agreements simply provided for arbitration of "[a]ny controversy or claim arising out of or relating in any way to this Agreement or with regard to its formation, interpretation or breach." In response, the franchise corporation filed suit in federal District Court, seeking to stay the arbitration and compel the association's members to arbitrate their claims individually. The District Court agreed with the franchise corporation as to the twenty-five franchisees whose arbitration agreements expressly prohibited class arbitration and compelled them to arbitrate their claims individually but not as to the other ten franchisees, reasoning that whether those agreements required individual arbitration "is a matter of contract interpretation which the parties have agreed to submit to arbitration."

The franchise corporation appealed the District Court's ruling as to the ten franchisees whose agreements were silent as to class arbitration, arguing that the Supreme Court's opinion in Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), required the express consent of the parties before arbitration can proceed on a class basis and, since none of these ten agreements contained such language, they must arbitrate their claims individually.

The First Circuit affirmed the District Court's decision. First, the Court found that while Stolt-Nielsen held that "class arbitration may not be imposed on a party to an arbitration agreement unless there is a contractual basis for concluding that the party agreed to submit to class arbitration," Stolt-Nielsen did not consider what constituted a "contractual basis" for class arbitration. Second, the First Circuit found that the franchise agreements' "silence" on the issue of whether class arbitration was permissible to be different than the "silence" in Stolt-Nielsen, where the parties had expressly agreed that there was no agreement on the issue of class arbitration. Third, the Court ruled that an arbitrator "could find more than silence … on whether the parties agreed to authorize the type of association action brought by" the association. Finally, the First Circuit noted that Stolt-Nielsen was inapplicable because the association's action was not really a "class action" and, therefore, did not implicate the same concerns with respect to absent parties. Accordingly, the Court concluded, whether the association's claims must be arbitrated on an individual basis should be decided by an arbitrator rather than a court.

Although Fantastic Sams Franchise Corp. did not strictly involve a "class action" since the association did not seek to represent absent parties, employers in the First Circuit whose arbitration agreements do not explicitly address the permissibility of class arbitration should be aware that an arbitrator, rather than a court, may decide the permissibility of class arbitration under those agreements. 

Table of Cases

Ayanna v. Dechert LLP, Civ. Action No. 10-12155-NMG (D. Mass. Jan. 6, 2012).
Joule, Inc. v. Simmons, No. SUCV 2009-04929-A (Mass. Super. Dec. 5, 2011).
Karp v. Cigna Healthcare Inc., Civ. Action No. 11-10361-FDS (D. Mass Apr. 18, 2012).
Melia v. Zenhire, Inc., 462 Mass. 164 (2012).
Meshna v. Scrivanos, No. 2011-01849-BLS1 (Mass. Super. Dec. 21, 2011).
Specialized Tech. Resources, Inc. v. JPS Elastomerics Corp., 80 Mass. App. Ct. 841 (2011).
Zaniboni v. Massachusetts Trial Court, 81 Mass. App. Ct. 216 (2012).
Fantastic Sams Franchise Corp. V. FSRO Association Ltd.,683 F .3d 18 (1st Cir. 2012)