Newsletter
Dec 15, 2010
Massachusetts Employment & Labor Report - December 2010
- Court Provides Guidance on Damages for Worker Misclassification as Independent Contractor
- Attorney-Client Privilege Survives Inadvertent Client Disclosure in Reply-All E-Mail
- First Circuit Finds Formal Military Orders Not Required to Trigger USERRA Protections
- First Circuit Takes Expansive View of “Severe and Pervasive” Conduct
- Company President Denied Insurance Coverage for Sexual Harassment Claim
- Employee Credibility Results in Different Conclusions Based on the Same Facts
Court Provides Guidance on Damages for Worker Misclassification as Independent Contractor
In Awuah v. Coverall North America, Inc., the U.S. District Court for the District of Massachusetts analyzed the measure of damages an employer incurred for misclassifying a worker as an independent contractor. The District Court determined that the employer—who withheld several fees from the worker’s pay under the terms of their franchise agreement—was only liable for the fees it was legally required to cover.
The Court previously held that Coverall, which franchises janitorial cleaning businesses, had misclassified Anthony Graffeo and several other franchisees as independent contractors. Coverall and Graffeo then filed motions seeking a ruling on the amount of damages suffered by Graffeo as a result of the misclassification.
The parties’ franchise agreement stated that Coverall would bill Graffeo’s customers and deduct several fees before remitting the remaining amount to Graffeo. Graffeo argued that under Massachusetts General Laws ch. 149, § 150, which stipulates that misclassified workers are entitled to “damages incurred,” he was entitled to recover the following fees that Coverall withheld from his pay: (1) franchise fees; (2) royalty and management fees; (3) supplies and equipment; (4) premiums for a comprehensive insurance policy; and (5) chargebacks (pay deductions for amounts billed to Graffeo’s customers that remained uncollected after ninety days). The Court found that no statute prevents employers from shifting franchise fees, royalty and management fees, or supply and equipment charges to employees, and therefore held that those fees were not recoverable as damages.
The Court concluded that Graffeo was only entitled to recover withholdings that Coverall, as Graffeo’s employer, was required by statute to bear. Thus, it found that Graffeo could recover the fees withheld for insurance. Reasoning that Massachusetts law requires employers to bear the costs of providing employees with workers’ compensation insurance coverage, the Court held that Coverall could not shift those costs to Graffeo. Similarly, it ruled that Graffeo could recover chargebacks. The Court pointed out that Massachusetts employers must pay wages within a week of the weekly or bi-weekly period during which the wages were earned, and observed that Graffeo earned his wages when he performed cleaning services. When Coverall deducted a fee for customers who did not pay within ninety days, it violated its obligation to pay Graffeo in full within a week of the period during which he earned the wages. Accordingly, the chargebacks were damages.
This decision provides guidance to employers on possible exposure for misclassification of workers as independent contractors—an undeveloped area of law. By limiting damages to statutory fees that an employer must cover, it also provides support to employers facing damages claims from misclassified workers.
Attorney-Client Privilege Survives Inadvertent Client Disclosure in Reply-All E-Mail
In Charm v. Kohn, the Massachusetts Superior Court found that a client did not waive the attorney-client privilege when he used the “reply-all” e-mail function to send a responding communication to his attorney.
During representation of his client, Eugene Kohn’s attorney sent an e-mail to opposing counsel, with a blind copy sent to Kohn. Kohn responded using the “reply-all” function, apparently not realizing that he was also copying opposing counsel. Kohn’s attorney noticed what had happened twenty-eight minutes later and sent an e-mail to opposing counsel demanding that he delete Kohn’s message. Opposing counsel refused, and Kohn’s attorney took no further action until he moved to strike the e-mail from the summary judgment record months later.
The Superior Court recognized that inadvertent disclosures have become more common since the advent of e-mail and noted that “a client does not lose the benefit of the attorney-client privilege for an otherwise privileged communication through inadvertent disclosure if the client proves that he or his counsel took reasonable steps to preserve the confidentiality of that particular communication.” The Court identified factors that weighed on each side of the argument. Several supported non-waiver of the privilege: (1) the transmission was unintended; (2) the error is common and easy to make; and (3) Kohn’s counsel noticed the error quickly, immediately alerted opposing counsel, and demanded that he delete the e-mail. Other factors weighed against preserving the privilege: (1) Kohn’s counsel regularly blind copied Kohn on e-mails to opposing counsel, increasing the likelihood that Kohn would respond inadvertently; (2) Kohn knew which parties were copied on the e-mail and should have taken greater care; (3) Kohn had made the same mistake six months earlier; and (4) Kohn’s counsel took no further action after demanding that opposing counsel delete the e-mail.
After weighing all these factors, the Superior Court concluded that the attorney-client privilege had not been waived, reasoning that the privilege is of paramount importance and its protections should not be eroded lightly. It held that with some indulgence for human fallibility, Kohn met his burden of showing that he took reasonable steps to preserve the confidentiality of his e-mail. The Court, however, emphasized to Kohn that he should not expect to receive similar indulgence again, that “reply-all” e-mail responses are risky, and that further carelessness could compel a finding of waiver.
This case illustrates the importance of using extra caution when replying to e-mails received from counsel. Employers and attorneys alike should take affirmative steps to decrease the risk of inadvertently disclosing an electronic communication to opposing counsel. Reasonable steps to preserve confidentiality will significantly increase the odds that privileged communications will be protected in the event of inadvertent disclosure.
First Circuit Finds Formal Military Orders Not Required to Trigger USERRA Protections
In Vega-Colón v. Wyeth Pharmaceuticals, the U.S. Court of Appeals for the First Circuit held that an employee who informed his employer of his impending activation to active duty triggered the protections of the Uniformed Services Employment and
Reemployment Rights Act of 1994 (USERRA). The First Circuit also found sufficient evidence that Wyeth retaliated against the employee by extending his performance improvement plan (PIP) due in part to his military service.
Angel Vega-Colón, a member of the U.S. Army Reserve, began working for Wyeth in 2002. In February 2006, while on inactive duty and before receiving formal military orders, Vega-Colón informed his supervisor at Wyeth that he was returning to active status and that he might be mobilized. In the months that followed, Vega-Colón unsuccessfully applied for a new position with Wyeth, which led him to file a complaint with the U.S. Department of Labor’s (DOL) Veterans’ Employment and Training Service. Additionally, Vega-Colón received a lower annual performance rating, and Wyeth placed him on a PIP. Even when he successfully met the goals stated in the PIP, Wyeth further extended it until Vega-Colón’s return from military leave.
Vega-Colón filed suit against Wyeth in the United States District Court for the District of Puerto Rico, alleging discrimination and retaliation based on military service in violation of USERRA. Vega-Colón’s retaliation claim included allegations that Wyeth (1) failed to select him for a new position; (2) awarded him a low performance rating; (3) extended his PIP; (4) discharged and then reinstated him; (5) allowed a hostile work environment; and (6) further retaliated against him for filing a DOL complaint. The Court granted Wyeth summary judgment on all counts. While the District Court reasoned that USERRA protections apply as soon as an employee informs his employer that he intends to apply for active duty, it found that Vega-Colón failed to present sufficient evidence that Wyeth took any of the actions listed here due to his military leave.
The First Circuit affirmed the District Court’s holding that even though Vega-Colón had not received formal military orders, his notification to Wyeth regarding his impending activation triggered USERRA protections. Noting that USERRA should be broadly construed in favor of service members, the First Circuit liberally interpreted the statute to find that its protections are triggered once an employer possesses information about an employee that could form the basis of discriminatory treatment, regardless of whether the employee has received formal military orders. The First Circuit then overturned the dismissal of Vega-Colón’s retaliation claim as it pertained to the extension of his PIP, finding sufficient evidence that Wyeth extended the PIP in part due to Vega-Colón’s military leave based on statements in the PIP indicating that Vega-Colón had already met its requirements before the PIP was extended.
Based on the Vega-Colón decision, employers should be aware that USERRA protections may apply once they are notified of an employee’s impending activation to active duty, even without proof of formal military orders.
First Circuit Takes Expansive View of “Severe and Pervasive” Conduct
In Vera v. McHugh, the First Circuit reversed a decision granting summary judgment in favor of the U.S. Army on a sexual harassment claim made by a civilian employee.
Rosa Linda Vera worked as an administrative coordinator at a U.S. Army base. In 2003, Vera complained informally of sexual harassment by co-worker Mario Morales. The internal counselor who took her complaint did not properly document its resolution, but he did inform Vera of the procedure for filing a formal complaint, which she did not do.
In October 2004, Raul Rodriguez became Vera’s supervisor. Because Vera’s small office was the only one in the building with Internet access, Rodriguez shared it with her even though other offices were vacant. There, Rodriguez allegedly “invaded [Vera’s] space” on a regular basis, sitting so close to her that their legs touched or she could feel his breath. Vera also claimed that Rodriguez persistently stared at her, “smirked and laughed” at her, blocked the door when she tried to leave, and on one occasion called her “Baby.” In May 2005, Vera made an informal sexual harassment complaint against Rodriguez.
Between December 2004 and August 2005, Vera was absent from work for extended periods of time without providing full documentation for the purported medical reasons for her absences. Vera then suffered a “breakdown” at work and was terminated for insubordination and excessive absences. She subsequently filed a second complaint against Rodriguez and sued the Army, alleging retaliation and sexual harassment by both Rodriguez and Morales. The District Court granted summary judgment for the Army on all counts, and Vera appealed.
The First Circuit affirmed the dismissal of Vera’s retaliation claim, holding that she could not establish a causal connection between her complaints and termination in light of her failure to follow leave policies. The Court also affirmed the dismissal of the harassment claim concerning Morales because Vera failed to exhaust her administrative remedies for that claim.
The Court, however, reversed the dismissal of Vera’s claim against Rodriguez, stating that a reasonable jury could find that Rodriguez’s behavior constituted harassment because of its frequency and impact on Vera’s work performance and because it caused her emotional distress.
Senior Judge Bruce M. Selya stated in dissent that holding Rodriguez’s alleged behavior to constitute harassment “goes well beyond the outermost frontier adumbrated in any of [the First Circuit’s] earlier sexual harassment precedents.” Judge Selya also criticized the majority’s focus on Vega’s subjective feelings rather than the objective reasonableness of her claims. The dissent further noted that due to its incongruence with earlier cases, Vera may have limited precedential value. Nothwithstanding the dissenting opinion, this decision suggests that conduct that is not overtly sexual may nonetheless constitute harassment where it is constant and causes the employee emotional distress. It highlights the challenges employers face in defending harassment claims which often include similar factual allegations.
Company President Denied Insurance Coverage for Sexual Harassment Claim
In Manganella v. Evanston Insurance Company, the District Court ruled that employment practices liability insurance (EPLI) precluded coverage of a sexual harassment claim against a company president where the policy contained an exclusion for intentional acts and an arbitration decision found that the president had willfully violated the Company’s harassment policy.
Luciano Manganella founded women’s clothing store JasmineSola in 1970, rebranded it as Jasmine, and later sold it to Lerner New York in 2005. Under the terms of the stock purchase agreement that accompanied the sale, Manganella agreed to continue to serve as Jasmine’s president. After the sale, Jasmine purchased an EPLI policy that included a provision that excluded coverage for any claim arising from conduct committed with a willful disregard towards applicable law.
In 2006, Jasmine’s human resources manager filed an internal complaint, alleging that Manganella had sexually harassed her and coerced her into engaging in sexual acts on Jasmine’s premises. Lerner investigated and concluded that Manganella had harassed four female employees at Jasmine, including the human resources manager. Based on the results of its investigation, Lerner terminated Manganella and demanded that he forfeit $7 million in funds due to him under the stock purchase agreement. Manganella refused to forfeit the funds, and the dispute went to arbitration.
A panel of arbitrators concluded that Manganella had willfully engaged in sexual harassment, thereby breaching the terms of the stock purchase agreement and the Company’s harassment policy. The arbitration decision specifically observed that Manganella “sexually propositioned several women employees,” “inappropriately touched and propositioned one of these employees,” and that he “knew better” than to engage in such conduct.
After the arbitration decision, Manganella filed a claim under the EPLI policy to cover his defense costs in a proceeding before the Massachusetts Commission Against Discrimination (MCAD). The insurance company denied Manganella’s request on the grounds that the harassment claims pending before the MCAD were barred from coverage by the term of the insurance policy barring coverage for intentional acts. In support of its denial, the insurer relied upon the arbitrators’ ruling that Manganella’s harassment had been intentional.
Manganella attempted to distinguish the arbitrators’ finding of willfulness from the standard for exclusion under the EPLI policy. The Court determined this distinction—between conduct that was “intentional” and conduct undertaken in intentional “disregard of the law”—required a tortured reading of the term “willful.” The Court noted that even under criminal statutes, “willful” means that the person charged knows what he or she is doing, not necessarily that the individual knows that he or she is breaking the law. Accordingly, the Court ruled that Manganella was not entitled to coverage under the EPLI policy.
This decision serves as a reminder for employers to review their EPLI policies and to understand what, if any, exclusions may apply. Such review is particularly important where the conduct at issue may be considered willful and deliberate.
Employee Credibility Results in Different Conclusions Based on the Same Facts
In an unusual decision, the MCAD in Nagle v. Fairfield Financial Mortgage Group, Inc. held an employer and two management employees liable for sexual harassment and retaliation against only one of two employees who filed almost identical discrimination charges
Sarah Nagle was a loan processor at Fairfield Financial Mortgage Group, reporting directly to Vice President of Operations Luis Marcano. Nagle claimed that Marcano repeatedly engaged in inappropriate conduct towards her—brushing his body against her, grabbing his genitals, touching her breasts, putting her feet in his crotch, and attempting to kiss her. Nagle also alleged that Marcano showed Fairfield staff pornographic DVDs and masturbated in front of her.
Nagle repeatedly informed Marcano that his behavior was unwelcome, and she complained to human resources in September 2006. Nagle also complained about Marcano’s behavior to his supervisor, Charles Levesque. Levesque agreed to investigate Nagle’s allegations, but he never followed up with her. In December 2006, Fairfield terminated Nagle’s employment, and Nagle filed a charge of discrimination with the MCAD.
Maureen Seastrand, Fairfield’s office manager, also reported directly to Marcano and experienced similar inappropriate behavior from him. She alleged that Marcano referred to women as “vaginas,” sat in her lap, put her feet in his crotch, and put his hands down her pants. Though Seastrand claimed that she asked Marcano to stop his behavior, she also admitted that during the same time period, she loaned Marcano large sums of money to help him finance a business deal, accompanied him on business trips, and followed him to another company. After learning that Marcano had lied about the nature of the business deal, Seastrand complained to Fairfield about his behavior for the first time and filed a charge of discrimination with the MCAD.
The MCAD found that Nagle’s testimony and the record established that Marcano sexually harassed her, that Nagle made Fairfield and Levesque aware of the offensive and unwelcome sexual conduct, and that the Company and Levesque failed to take any remedial action. The MCAD held Fairfield, Marcano, and Levesque liable for sexual harassment and retaliatory discharge, and awarded Nagle $11,000 in lost wages and $25,000 in emotional distress damages.
In contrast, the MCAD determined that Seastrand failed to prove that she considered Marcano’s conduct objectionable or offensive, based on several factors: (1) her willingness to loan Marcano a large sum of money and follow him to another company; (2) her long delay in complaining to Fairfield about Marcano’s conduct; and (3) her testimony that she filed her charge because she did not see any other way to recoup her investment in Marcano’s business venture. The MCAD therefore dismissed Seastrand’s sexual harassment charge.
Here, the MCAD’s strikingly different conclusions reached on very similar facts underscore the importance of an employee’s credibility. The decision also illustrates that sexually charged workplace conduct does not rise to the level of harassment unless the employee can demonstrate that it was unwelcome. In addition, this decision serves as a reminder to employers of the importance of taking prompt and appropriate remedial action in response to any complaint of sexual harassment.
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Table of Cases
Awuah v. Coverall N. Am., Inc., No. 07-10287-WGY, 2010 U.S. Dist. LEXIS 101876 (D. Mass. Sept. 28, 2010).
Charm v. Kohn, 27 Mass. L. Rptr. 421 (Mass. Super. Ct. Sept. 30, 2010).
Manganella v. Evanston Ins. Co., No. 09-11624-RGS, 2010 U.S. Dist. LEXIS 113608 (D. Mass. Oct. 26, 2010).
Nagle v. Fairfield Fin. Mortg. Group, Inc., MCAD Nos. 07-BEM-00930, 07-BEM-01316 (Oct. 7, 2010).
Vega-Colón v. Wyeth Pharm., No. 09-1861, 2010 U.S. App. LEXIS 22277 (1st Cir. Oct. 28, 2010).
Vera v. McHugh, 622 F.3d 17 (1st Cir. 2010).