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Jun 15, 2011

Massachusetts Employment & Labor Report - June 2011

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SJC Expands Definition of Retaliation to Include Actions Taken Against Former Employees

In a case of first impression, the Massachusetts Supreme Judicial Court (SJC) held that the anti-retaliation provision of Massachusetts General Laws ch. 151B (Chapter 151B) encompasses adverse actions taken against former employees. Psy-Ed Corporation v. Klein, a procedurally complex case litigated over the course of a decade, involved two former employees, Stanley Klein and Kimberly Schive, sued by their former employer for defamation, civil conspiracy, and tortious interference with contractual relations. The SJC held that Psy-Ed’s suit against Klein and Schive, which it filed several years after their employment relationship ended, can constitute an adverse action under Chapter 151B.

Schive, who is deaf, filed a Massachusetts Commission Against Discrimination (MCAD) charge against Psy-Ed in 1997, alleging disability discrimination. Klein, who was a founder of Psy-Ed, signed an affidavit supporting the Company’s position against Schive. After his employment contract was not renewed, Klein signed a second affidavit in support of Schive. He did not inform Psy-Ed of this second affidavit, and he collected a severance payment after entering into a separation agreement shortly thereafter. When Psy-Ed learned of Klein’s second affidavit in 1999, it terminated mediation proceedings with Schive before the MCAD and filed suit in Massachusetts Superior Court against Schive and Klein, who in turn brought several counterclaims against the Company, including retaliation.

The Superior Court dismissed Klein’s retaliation counterclaim at summary judgment on the grounds that employers cannot take “adverse employment actions” constituting retaliation against non-employees. The SJC reversed, holding that because the plain language of Chapter 151B does not limit retaliation protections to current employees, former employees threatened with litigation or other adverse actions can bring retaliation claims under the statute.

The SJC further held that the large time gap between Schive’s MCAD filing in 1997 and the commencement of Psy-Ed’s lawsuit in 1999 did not defeat the retaliation claims. Instead, the Court considered the timing of the MCAD’s probable cause finding, which was issued two weeks before Psy-Ed filed suit, as “sufficient to raise an inference of causation.” The SJC emphasized that the event giving rise to retaliatory intent may not be the initial discrimination complaint, but that subsequent events—in this case an adverse MCAD decision—can motivate retaliation.

In light of this decision, employers considering litigation or other adverse actions against former employees should exercise caution where those former employees complained of discrimination or supported such complaints of others.

Appeals Court Allows Employee to Bring Hostile Environment and Retaliation Claims Despite Executed General Release

In Green v. Harvard Vanguard Medical Associates, Inc., an employee who resigned signed a severance agreement that contained a general release of claims against his employer and an integration clause that specified the agreement provided the only benefits the employee would receive in connection with his resignation. The employee brought claims against his employer, arguing that he was excused from the release because his employer had broken an oral promise to find him other employment as part of his resignation. Despite the integration clause, the Massachusetts Appeals Court denied the employer’s motion for summary judgment and held that there was a factual dispute as to whether the employee was excused from the general release.

Darrell Green, a medical secretary, complained to Harvard Vanguard’s human resources department that his supervisor directed a demeaning racial epithet at him. Thereafter, Michelle Guarnieri, who worked in Harvard Vanguard’s human resources department, asked Green to resign, purportedly for performance reasons. Green signed a severance agreement providing four weeks of salary continuation. The agreement contained a general release of claims against Harvard Vanguard and an integration clause stating: “This . . . constitutes the entire agreement” and “provides the only benefits that Mr. Green shall receive in connection with his resignation.” According to Green, Guarnieri also orally promised that she would find Green other suitable employment at Harvard Vanguard.

After Green’s resignation, Harvard Vanguard offered him a position as a medical assistant in its cardiology department, which he accepted. Two weeks later, Green received a performance warning. He resigned the same day.

Green brought suit, alleging retaliation and a hostile work environment due to the racial epithet. Green further argued that he was excused from complying with his general release because Harvard Vanguard had breached its oral promise to find him suitable employment and, instead, had placed him in the cardiology position for which he was unqualified. The Massachusetts Superior Court granted summary judgment to Harvard Vanguard. The Appeals Court reversed, finding that even a single use of a racial epithet could create a hostile work environment. The Appeals Court also found that Green would be excused from complying with his general release if he could establish that as part of his initial resignation, Harvard Vanguard made the oral promise to find him suitable employment and breached that promise by offering him a position that was not suitable. Thus, the Appeals Court found that despite the integration clause, an oral promise of separation benefits could be enforceable, and a breach of that promise could negate the general release.

This decision highlights the risk of drafting a weak integration clause in an employment agreement. Although uncertain, it is possible that a stronger clause that explicitly excluded oral promises would have precluded Green’s claims.

Coffee Shop Shift Supervisors Ineligible to Share in Tip Pools

The U.S. District Court for the District of Massachusetts recently adopted a pair of reports by a federal magistrate judge, finding that Starbucks violated Massachusetts law by allowing shift supervisors to share in the proceeds of “tip jars” and recommending certification of a class of Massachusetts baristas affected by the practice.

The plaintiffs in Matamoros v. Starbucks Corporation alleged that the coffee shop chain violated Massachusetts General Laws ch. 149, § 152A (Tip Statute) by allowing shift supervisors to receive a share of the money deposited by customers in countertop jars located at the chain’s cash registers. Under the Tip Statute, only wait staff and other employees who have “no managerial responsibility” are permitted to share in tip pools. In early February, Magistrate Judge Leo Sorokin determined that although Starbucks shift supervisors spend a majority of their time serving customers, they possess managerial responsibility for purposes of the statute because they also perform duties such as directing employees to workstations, opening and closing the store, opening the store’s safe, and handling and accounting for cash.

Magistrate Sorokin also rejected Starbucks’s argument that cash deposited in the jars is not a “tip” for purposes of the Tip Statute because it is intended to reward service performed by the shift supervisors, and thus is not “given as an acknowledgment of service performed” by non-managerial employees, as required by the statute. The magistrate determined that money placed in the jars is meant to reward service by the entire Starbucks team, including non-managerial employees, and therefore meets the statutory definition.

In a separate report issued the same day, the magistrate also recommended that the District Court certify a class of current and former Massachusetts baristas, finding that common issues predominated in the case because the plaintiffs challenged “a uniform policy of the Defendant under a specific state statute.” In addition, the magistrate found that no conflict existed between baristas who had been promoted to shift supervisor positions and the rest of the class. The magistrate reasoned that although some current shift supervisors wanted the established tip sharing practices to remain in place, their preference was moot if the practice was not permissible under the Tip Statute. The magistrate also noted that a relatively small number of employees opposed the lawsuit, and those individuals maintained the ability to opt out of the class.

Under federal procedural rules, the magistrate’s recommendations did not become final until adopted by the District Court. In adopting the magistrate’s recommendations in their entirety, District Court Judge Nathaniel Gorton called them “thorough and well-reasoned.”

This decision is one of only a handful that attempt to construe the Tip Statute, nearly all of which have interpreted it in a restrictive manner. To avoid liability under the statute, employers must be careful not to permit employees with even minor supervisory duties to participate in a tip pool.

Valid Arbitration Agreements Cannot Prohibit MCAD Actions But Can Prohibit Employees from Being Parties to Them

In Joulé, Inc. v. Simmons, the SJC held that a valid arbitration agreement between an employer and employee cannot prohibit the MCAD from investigating or adjudicating discrimination claims, but it can prohibit the employee from being a party to the MCAD proceeding.

Randi Simmons began working for Joulé Technical Staffing, Inc. as a “selling branch manager” in February 2008. After Simmons’s employment commenced, Joulé presented her with a contract requiring arbitration of any employment discrimination claims, which she signed. Joulé later terminated Simmons’s employment. Simmons filed a charge of discrimination with the MCAD, asserting that Joulé subjected her to a hostile work environment and denied her a promotion and salary increases because of its bias against pregnant women and women with children.

Joulé filed a Superior Court action, seeking to compel arbitration and prohibit Simmons from acting as a party to the MCAD proceeding. After the MCAD intervened, the Superior Court held that the parties’ arbitration agreement did not limit the MCAD’s authority to investigate or adjudicate Simmons’s claim, nor did it prohibit Simmons from participating as a party. The Superior Court also stayed the action before it pending resolution of the MCAD proceeding. Joulé appealed the decision directly to the SJC.

The SJC agreed with the Superior Court that the MCAD does not give up its statutory authority to investigate and resolve discrimination complaints because an employer and employee have entered into an arbitration agreement. The SJC reasoned that the MCAD was not a party to the arbitration agreement, and therefore could not be bound by it. The SJC further concluded that the MCAD can resolve the complaint by “granting relief specific to Simmons.”

On the other hand, the SJC concluded that beyond filing an MCAD complaint and cooperating with the MCAD’s proceeding, a party to a valid arbitration agreement cannot participate as a party to an MCAD action. To do so would violate the arbitration agreement. The SJC also held that the Superior Court erred in staying the arbitration, reasoning that a stay would in effect give precedence to the MCAD proceeding over arbitration. Parties to an enforceable arbitration agreement should be able to enforce it, and “[t]here is no legal bar to having an arbitration and the MCAD proceeding continue concurrently, on parallel tracks.” The SJC thus vacated the Superior Court’s order.

This decision affirms the MCAD’s authority to investigate and resolve claims. It also clarifies that where there is an enforceable arbitration agreement, an employer can compel arbitration and prohibit an employee from participating as a party in an MCAD proceeding. Unfortunately, it is unclear from the decision what, if any, impact a determination in one forum will have on a parallel proceeding in the other forum.

Employer Prevents Coworker Harassment Liability Through Progressive Discipline and Clearly Defined Anti-Harassment Reporting Policy

In Wilson v. Moulison North Corporation, an employee sought to hold his employer liable for a racially hostile work environment created by coworkers. The U.S. Court of Appeals for the First Circuit affirmed an award of summary judgment for the employer on two grounds: the employer took prompt and appropriate remedial action upon first report of the harassment, and the employee failed to properly notify his employer of further harassment.

Moulison North Corporation hired Arthur Wilson, who is African-American, in May 2006. He worked alongside three Caucasian employees, William Stineford, Dale Small, and Ryan Polley. Though Polley served as the lead worker of the group, he did not have authority to supervise the group. Moulison North had an anti-harassment policy that directed employees to report harassment specifically to either their “supervisor or to Ken Moulison,” the owner.

Almost immediately after being hired, Wilson encountered several racial epithets from Stineford and Small. Polley, aware of these remarks, told Stineford and Small that their comments were inappropriate and temporarily separated them from Wilson. However, the harassment continued, and Wilson informed Moulison of the harassment. The next day, Moulison warned Stineford and Small that their misconduct was unacceptable and if continued would result in termination. However, the use of racial epithets persisted. Wilson complained to Polley about the continued harassment, but he did not inform his direct supervisor or Moulison.

In September 2006, Wilson asserted hostile work environment claims in the U.S. District Court for the District of Maine against Moulison North. The District Court granted the Company’s motion for summary judgment, concluding that Wilson had failed to make out a trialworthy issue as to employer liability. In affirming the District Court, the First Circuit held that since the harassers were coworkers rather than supervisors, Wilson must demonstrate “that the employer knew or should have known about the harassment yet failed to take prompt and appropriate remedial action.” The Court found that when notified of the initial harassment, Moulison took appropriate corrective action by verbally reprimanding the harassers and making it clear that any further misconduct would result in termination of their employment.

As for the subsequent harassment, the First Circuit found that Wilson had only reported it to his coworker Polley, rather than his supervisor or Moulison, as required by the policy. Although Wilson held a subjective belief that Polley’s lead role equated to a supervisor, there was insufficient evidence of any apparent authority for Polley to accept notice of harassment on behalf of the employer. Wilson also admitted in his testimony that Moulison specifically told Wilson to report any future harassment directly to him. Wilson’s failure to put the Company on notice of the renewed harassment was fatal to his claim of employer liability.

This decision emphasizes the importance of having an anti-harassment policy that clearly identifies the proper management contacts for employee complaints of harassment or discrimination. It also underscores the importance of adequately addressing employee complaints of coworker harassment and taking prompt and appropriate corrective action.

District Court Holds Immigration Status Irrelevant to Plaintiffs’ Ability to Assert FLSA Claims

The District Court recently held that immigration status is irrelevant to an employee’s ability to assert a putative collective action under the Fair Labor Standards Act (FLSA), rejecting the defendants’ argument that a 2002 U.S. Supreme Court decision precludes undocumented workers from receiving awards of back pay.

In Lin v. Chinatown Restaurant Corporation, two employees of a restaurant alleged minimum wage and overtime claims against their employer on behalf of a putative class of similarly situated employees. The defendants sought to compel discovery concerning the named plaintiffs’ immigration status, arguing that the information was relevant because Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137 (2002), barred back pay awards to undocumented immigrants.

In Hoffman, the Supreme Court held that the National Labor Relations Board (NLRB) could not award back pay to undocumented immigrants who had been terminated in violation of the National Labor Relations Act (NLRA). The Supreme Court’s decision was premised on the conflict between federal immigration policy, as expressed in the Immigration Reform and Control Act of 1986 (IRCA), and permitting illegal aliens to recover back pay wages. The Court explained that to “award backpay to an illegal alien for years of work not performed, for wages that could not lawfully have been earned, and for a job obtained in the first instance by criminal fraud” would run counter to the policies underlying the IRCA.

The District Court examined and rejected many of the arguments accepted by other courts in declining to extend Hoffman to the FLSA context. For example, the Court found that FLSA cases could not be distinguished based on the fact that Hoffman concerned back pay for time that would have been worked had the employees not been terminated, as opposed to time actually worked, because the employees’ wages were not lawfully earned under federal immigration policy in either case.

The Court nonetheless found Hoffman inapplicable because back pay damages under the NLRA are discretionary, whereas they are mandatory under the FLSA. Administrative law principles preclude the NLRB and other agencies from using their discretion in a manner contrary to congressional policy. In contrast, the FLSA provides that an employer who violates its minimum wage provisions “shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation.” Therefore, to the extent a plaintiff is able to successfully present an FLSA case, a court must award an FLSA remedy, “any obstruction or interference with immigration policy notwithstanding.” Finding that the plaintiffs’ immigration status was therefore “irrelevant” to their claims, the Court blocked the defendants’ efforts to obtain that information.

The District Court’s decision clarifies that the FLSA protects illegal immigrants, but it could have the unintended consequence of making legitimate efforts to defend against class certification more difficult, as the broad language used by the Court would seem to prohibit discovery concerning immigration status for all purposes, including the purpose of showing differences among putative class members.

First Circuit Rules Airline Deregulation Act Preempts Tip Statute Claims

On May 20, 2011, the First Circuit overturned a jury verdict against American Airlines and held that the Airline Deregulation Act of 1978 (ADA), 49 U.S.C. § 41713(b)(1), preempts claims brought under the Massachusetts Tip Statute.

In 2005, American, along with many other airlines, began charging a $2.00 per-bag fee to passengers who checked their luggage with skycaps at curbside stations. The plaintiffs in DiFiore v. American Airlines, Inc. were skycaps who challenged American’s retention of the curbside fee, alleging that the $2.00 fee was a “service charge” under the Tips Statute—and thus had to be distributed to them—because customers “reasonably expect[ed]” it to be given to the skycaps.

Early in the litigation, American moved to dismiss the complaint, principally on the ground that the claims were barred by the ADA, which vests exclusive jurisdiction in the federal government to regulate most aspects of air travel and expressly preempts any state law that “relate[s] to a price, route, or service of an air carrier.” American argued that the Tip Statute impacted both its prices and services. The District Court denied American’s motion, and after an eleven-day trial, a jury returned a verdict of more than $325,000 in favor of the skycaps.

Relying on a trio of U.S. Supreme Court cases that interpreted broadly the phrase “related to a price, route, or service,” the First Circuit found that the Tip Statute “has a direct connection to air carrier prices and services and can fairly be said to regulate both” because arranging for transportation of luggage from the curbside into the airline terminal is a part of the “service” referred to in the ADA, and an airline’s “price” includes charges for ancillary services as well as for the flight itself. In reaching this conclusion, the First Circuit found that “price” must be read broadly to include more than simply the ticket price and “service” to include actions “that occur before and after the airplane is actually taxiing or in flight.”

The First Circuit rejected the plaintiffs’ argument that the Tip Statute’s effect on prices and services was tenuous because the airline could have complied with the state law without great expense by adopting various measures, including using larger fonts on the signs describing the fee or allowing credit card payments. According to the Court, regardless of the cost, such regulation by the states of advertising and service arrangements is exactly what Congress sought to avoid in enacting the ADA. The Court also rejected the plaintiffs’ argument that there is a strong presumption against preemption in areas of “traditional state regulation,” such as employment law, finding that none of the Supreme Court cases on point support placing such limitations on the ADA’s preemptive powers.

As noted by the First Circuit, by the time American filed its appeal, three additional decisions on this issue had been rendered by two other judges in District Court, and those decisions conflicted with one another and with Judge Young’s decision in DiFiore. This decision resolves the split in the lower courts and affirms that the ADA must be read broadly to preempt any claims brought under a state law that have a direct impact on an airline’s prices and services, even if the state law does not expressly purport to have such an effect.

District Court Applies Dodd-Frank Amendment Retroactively to SOX Whistleblower Claims

Section 922 of the Dodd-Frank Act, enacted on July 21, 2010, amended the whistleblower provisions in the Sarbanes-Oxley Act of 2002 (SOX) by invalidating predispute arbitration agreements covering SOX whistleblower retaliation claims. In Pezza v. Investors Capital Corporation, a case of first impression, the District Court applied this amendment retroactively.

The plaintiff in this action alleged that he suffered SOX retaliation after he voiced concerns regarding the defendants’ alleged misconduct in connection with securities transactions. The defendants raised as an affirmative defense the plaintiff’s contractual obligation to submit his claim to arbitration, and then moved to compel arbitration. Congress enacted the Dodd-Frank Act while the defendants’ motion was pending, and the plaintiff submitted a letter to the Court arguing that Section 922 foreclosed the defendants’ arbitration demand. The defendants responded that Section 922 does not apply retroactively.

The Court turned to Landgraf v. USI Film Products, 511 U.S. 244 (1994), in which the U.S. Supreme Court laid out factors for determining whether to apply an amendment retroactively: (i) whether Congress expressly set forth the statute’s temporal reach; (ii) if no such express language exists, whether the principles of statutory construction lead to the conclusion that Congress intended retroactive application; and (iii) whether retroactive application would affect a party’s substantive rights.

Applying this framework to Section 922, the Court first noted that nothing in that section illustrates a clear congressional intent regarding retroactivity. The Court then found that the Dodd-Frank Act contains some provisions that expressly apply to future disputes only, some provisions that expressly apply only after a certain prescribed time period, and some provisions for which Congress expressed no intent as to retroactivity. The District Court determined that Section 922 fell into this last category.

The Court then considered whether Section 922 would have a prohibited “retroactive effect.” It acknowledged that Section 922 impacts contractual rights by voiding agreed-upon arbitration provisions and that statutes affecting contractual rights comprise the largest category of cases applying the presumption against retroactivity. Nevertheless, the Court found that Section 922 merely confers jurisdiction on the courts rather than on arbitration panels, and that jurisdictional statutes may apply retroactively because they simply change the forum in which a case is heard. The Court thus gave Section 922 retroactive application and denied the defendants’ motion to compel arbitration.

It is difficult to reconcile the District Court’s conclusion that the issue before it was principally jurisdictional with the ruling’s impact on the substantial rights an employer obtains through an arbitration agreement. Certain benefits of arbitration on which the decision does not specifically focus—e.g., cost-efficiency, privacy, and finality—may lead other courts to a different outcome. However, employers should operate under the assumption that courts will not enforce predispute arbitration agreements executed before enactment of Dodd-Frank that require arbitration of SOX whistleblower retaliation claims.

Table of Cases

DiFiore v. Am. Airlines, Inc., No. 10-1108 (1st Cir. May 20, 2011).
Green v. Harvard Vanguard Med. Assocs., Inc., 79 Mass. App. Ct. 1 (2011).
Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137 (2002).
Joulé, Inc. v. Simmons, No. SJC-10712 (Mass. Mar. 10, 2011).
Landgraf v. USI Film Prods., 511 U.S. 244 (1994).
Lin v. Chinatown Rest. Corp., No. 09-11510-GAO (D. Mass Mar. 23, 2011) (O’Toole, J.).
Matamoros v. Starbucks Corp., No. 08-10772-NMG (D. Mass. Mar. 18, 2011) (Gorton, J.).
Pezza v. Investors Capital Corp., No. 10-10113-DPW (D. Mass. Mar. 1, 2011).
Psy-Ed Corp. v. Klein, No. SJC-10722 (Mass. May 12, 2011).
Wilson v. Moulison North Corp., No. 10-1387 (1st Cir. Mar. 21, 2011).

Next Massachusetts Employment & Labor Law Report: September 15, 2011.