How to Hire a Domestic Worker and Stay Out of Trouble
Posted: August 15, 2018 Filed under: Practice Tips, Summer 2018 Vol. 62 #3 | Tags: dbwr, domestic worker, Employment Law Leave a comment
by Andrea Peraner-Sweet
Practice Tips
The Massachusetts Domestic Workers’ Bill of Rights (“DWBR”), G.L. c. 149, §§ 190–191, enacted in 2015, provided expansive new protections to domestic workers and imposed new obligations on their employers. Violation of the DWBR can result in substantial penalties, including mandatory treble damages, attorneys’ fees and costs. Employers who fail to comply with the DWBR can face enforcement actions by the Attorney General (“AG”), the aggrieved worker, or the Massachusetts Commission Against Discrimination (“MCAD”). Yet, many remain unfamiliar with the DWBR and its implementing regulations. 940 CMR 32.00. This article reviews key provisions of the DWBR.
Who Is Covered?
The DWBR protects workers employed within a household, regardless of their immigration status, who perform domestic services, including housekeeping, house cleaning, nanny or home companion services, and in-home caretaking of sick or elderly individuals for “wage, remuneration or other compensation.” G.L. c. 149, § 190(a); 940 CMR 32.02. The DWBR does not alter who is deemed an independent contractor (rather than domestic employee) under G.L. c. 149, § 148B.
The DWBR does not cover: (i) babysitters who work less than sixteen hours per week providing “casual, intermittent and “irregular” childcare, and whose primary job is not childcare; (ii) personal care attendants (“PCAs”) who provide services under the MassHealth PCA program; and (iii) employees of a licensed or registered staffing, employment or placement agency. G.L. c. 149, § 190(a); 940 CMR 32.02.
Employment Agreement
The DBWR requires employers to provide domestic workers with “notice of all applicable state and federal laws.” G.L. c. 149, § 190(m); 940 CMR 32.04(6). “Notice of Rights” and “Record of Information for Domestic Workers” forms can be found on the AG’s website. Additionally, before work commences, employers must provide domestic workers who work sixteen or more hours a week a written employment agreement in a language the worker understands. The agreement should contain the terms and conditions of employment and specify any deductible fees or costs and worker’s rights to grievance, privacy, and notice of termination. G.L. c. 149, § 190(l); 940 CMR 32.04(3).
Both employer and worker must sign the agreement, which must be kept on file for at least three years. A “Model Domestic Worker Employment Agreement” can be found on the AG’s website.
Working Hours, Rest Periods
Domestic workers must be paid for all time they are required to be on the employer’s premises, on duty, or any time worked before or beyond normally scheduled shifts to complete the work. G.L. c. 149, § 190(a); 940 CMR 32.02.
Workers on duty for less than twenty-four consecutive hours who do not reside on the employer’s premises must be paid for all working time, including meal, rest or sleep periods, unless the worker is free to leave the premises and completely relieved of all work-related duties during that period. G.L. c. 149, § 190(a) and (c).
For workers on duty for twenty-four hours or more, all meal, rest and sleep periods constitute working time. However, the worker and employer can agree to exclude from working time a regularly scheduled sleeping period of not more than eight hours if there is advance written agreement in a language understood by the worker, signed by both the worker and employer. G.L. c. 149, § 190(d) and (e); 940 CMR 32.03(2).
Workers working forty or more hours per week must have at least twenty-four consecutive hours off each week and at least forty-eight hours off each month. A worker may volunteer to work on a day of rest but only if there is a written agreement made in advance, signed or acknowledged by both the worker and employer. The worker must be paid time and a half for all hours worked in excess of forty hours. G.L. c. 149, § 190(b); 940 CMR 32.03(3).
Wage Deductions
Under certain circumstances, an employer may deduct food, beverages and lodging costs from a worker’s wages. G.L. c. 149, § 190(f) and (g); 940 CMR 32.03(5)(b) and (c). Such deductions are subject to the statutory maximums found in 454 CMR 27.05(3) pursuant to G.L. c. 151.
Food and beverage costs can be deducted only if they are voluntarily and freely chosen by the worker. If the worker cannot easily bring, prepare or consume meals on the premises, the employer cannot make such deductions. G.L. c. 149, § 190(f); 940 CMR 32.03(5)(b).
Lodging costs can be deducted only if the worker voluntarily and freely accepts and actually uses the lodging. An employer cannot deduct lodging costs if the employer requires the worker live in the employer’s home or in a particular location. G.L. c. 149, § 190(g); 940 CMR 32.03(5)(c).
There must be a written agreement specifying the deductions, made in advance, in a language understood by the worker, signed or acknowledged by both the worker and employer. 940 CMR 32.03(5)(a).
Record Keeping, Times Sheets, Written Evaluations
Employers must keep records of domestic workers’ wages and hours for three years. G.L. c. 149, § 190(l); 940 CMR 32.04(2). Employers must provide workers who work more than sixteen hours per week with a time sheet at least once every two weeks. 940 CMR 32.04(4). Both the worker and employer must sign or acknowledge the time sheet. Signing or acknowledging a time sheet does not preclude a worker from claiming that additional wages are owed. Id. Likewise, a worker’s refusal to sign or acknowledge a time sheet does not relieve the employer from paying wages owed. Id. A sample time sheet can be found on the AG’s website.
After three months, a worker may request a written performance evaluation and, thereafter, annually. G.L. c. 149, § 190(j). The worker can inspect and dispute the evaluation under G.L. c. 149, § 52C, the Massachusetts Personnel Records law. Id.
Right to Privacy
The DWBR prohibits employers from restricting, interfering with or monitoring a worker’s private communications and from taking a worker’s documents or other personal effects. G.L. c. 149, § 190(i); 940 CMR 32.03(6). Additionally, employers are barred from monitoring a worker’s use of bathrooms and sleeping and dressing quarters. Id.
A worker who resides in the employer’s home must be given access to telephone and internet services, including text messaging, social media and e-mail, without the employer’s interference. 940 CMR 32.03(8).
Prohibition Against Trafficking, Harassment and Retaliation
It is a violation of the DWBR (and a crime) for employers to engage in any conduct that constitutes forced services or trafficking of a person for sexual servitude or forced services under G.L. c. 265, §§ 49-51. G.L. c. 149, § 190(i); 940 CMR 32.03(7).
The DWBR protects both domestic workers, as well as PCAs, from discrimination and harassment based on sex, sexual orientation, gender identity, race, color, age, religion, national origin or disability and from retaliation for exercising their rights. G.L. c. 191; 940 CMR 35.05(2).
Domestic workers are entitled to job-protected leave for the birth or adoption of a child under the Massachusetts Parental Leave Act, G.L. c. 149, § 105D. Id.
Termination
Employers who terminate live-in workers “for cause” must provide the worker with advance written notice and at least 48 hours to leave. G.L. c. 149, § 190(k); 940 CMR 32.03(9)(c).
Employers who terminate live-in workers “without cause” must provide the worker with written notice and at least thirty days of lodging or two weeks severance pay. G.L. c. 149, § 190(k); 940 CMR 32.03(9)(a).
Neither notice nor severance is required where good faith allegations are made in writing that the worker abused, neglected or caused any other harmful conduct against the employer or members of the employer’s family or individuals residing in the employer’s home. G.L. c. 149, § 190(k); 940 CMR 32.03(9)(b).
No termination notice or severance is required for workers who do not reside in the employer’s home.
Enforcement
Violations of the DWBR are enforced by the AG or by the aggrieved worker pursuant to the Massachusetts Wage Act, G.L. c. 149, § 150. Workers who prevail in court are awarded treble damages, the costs of litigation and attorneys’ fees. Violations of the DWBR’s anti-discrimination and anti-harassment provisions are enforced by the MCAD.
Andrea Peraner-Sweet is a partner at Fitch Law Partners LLP. Her practice focuses on general business litigation with an emphasis on employment litigation as well as probate litigation.
Distinguishing Employees’ “General Skill or Knowledge” From Protectable Trade Secrets Under Massachusetts Law
Posted: August 15, 2018 Filed under: Legal Analysis, Summer 2018 Vol. 62 #3 | Tags: Employment Law, intellectual property, massachusetts, trade secrets Leave a commentby Gregory S. Bombard and Adam M. Santeusanio
Legal Analysis
Trade secret claims often arise when a highly skilled employee leaves to work for a competitor. Under Massachusetts trade secret law, this fact pattern creates a tension between the employer’s interest in protecting its trade secrets and the employee’s competing interest in using his or her own general experience and abilities to foster a successful career. Though Massachusetts courts have long recognized this tension, the line between what constitutes a protectable trade secret as compared to an employee’s “general skill or knowledge” is not explicitly defined in Massachusetts case law. The inquiry is highly fact-based and does not easily lend itself to bright lines. This article examines the leading cases addressing the distinction between trade secrets and general skill or knowledge, and identifies the four factors courts most commonly use to draw the line.
I. The Legal Framework
Massachusetts law protects trade secret information, which is defined by statute as “a formula, pattern, compilation, program, device, method, technique, process, business strategy, customer list, invention, or scientific, technical, financial or customer data that (i) at the time of the alleged misappropriation, provided economic advantage, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, others who might obtain economic advantage from its acquisition, disclosure or use; and (ii) at the time of the alleged misappropriation was the subject of efforts that were reasonable under the circumstances . . . to protect against it being acquired, disclosed or used.”[i]
Although a company must safeguard the secrecy of purported trade secrets in order to seek legal protection for them, the company must, of course, disclose such secrets to at least some of its employees for use in the company’s business. That disclosure creates a legally-implied duty by the employee to maintain the confidentiality of the trade secrets. In addition, employees are often subject to contractual nondisclosure covenants, which survive the termination of employment.
However, Massachusetts courts recognize an important limitation on trade secret protection: a departing employee may continue to use his “general skill or knowledge acquired during the course of the employment” following his departure.[iii] This doctrine, which has been the law in Massachusetts since at least 1912,[iv] provides that an employer may not claim trade secret protection over an employee’s general skill or knowledge regardless of whether the employee developed it prior to or during his employment. By limiting the types of information that an employer can protect as trade secrets, the general skill or knowledge rule “effectuates the public interest in labor mobility, promotes the employee’s freedom to practice a profession, and [promotes] freedom of competition.”[v] The rule applies both when a former employer sues a former employee for misappropriation of the former employer’s trade secrets,[vi] and when an employer seeks to enforce post-employment restrictive covenants, like noncompetition agreements.[vii]
The facts of Intertek Testing Servs. NA, Inc. v. Curtis-Strauss LLC provides an example of how the doctrine plays out in practice. Intertek was a product inspection, testing and certification company that sued several of its former salespeople for having misappropriated “secret” information about “the quality of the relationship that certain customers had with Intertek,” including whether those relationships were “good,” “bad,” or “in-between.” Judge Gants, then sitting in the Business Litigation Session, granted summary judgment in favor of the salespeople, ruling that the strength of an employer’s relationship with a particular customer “certainly falls into the category of general knowledge acquired during the course of employment.” Speaking to the rule’s policy goal of promoting labor mobility, Judge Gants observed that “if this general information were deemed secret or confidential, then no salesman could ever work for a competitor, because every salesman inevitably knows this information and could not help but use it in some fashion.”[viii]
II. Distinguishing Trade Secrets from General Skill or Knowledge
Although the general skill or knowledge doctrine is widely cited in Massachusetts case law, no court has articulated a test for distinguishing between protectable trade secrets and nonprotectable general skill or knowledge. In the cases applying the doctrine, however, the courts most commonly consider the following four factors: (1) whether an employee had significant experience or expertise prior to starting their employment; (2) whether an employee assisted in the development of the alleged trade secret; (3) whether the alleged trade secrets were actually put to use or were merely inchoate “concepts” or “goals”; and (4) whether the alleged misappropriation involved the removal of documents or merely the contents of the employee’s memory. None of the four factors standing alone is dispositive.
A. The Employee’s Prior Experience or Expertise
Massachusetts courts are more likely to find that an alleged secret falls within an employee’s general skill and knowledge if the employee had significant experience, expertise, or education in the field before starting his employment. This factor is based on the policy that “the loss to the individual and the economic loss to society are both greatest when a highly trained and specialized person is prevented from employing his special abilities.”[ix]
For example, in Dynamics Research Corp v. Analytic Sciences Corp., an employer claimed its former employee misappropriated a system for managing data and providing feedback during the development of weapons systems for government contracts. Prior to his employment, the employee had been decorated by the Air Force for his management ability and had worked as a manager of an MIT laboratory. In fact, the employer hired him “in part because he [already] understood its management system concept.” The Appeals Court ruled that the alleged secret fell within the employee’s general skill and knowledge, observing he had come to the job “with knowledge and skill in the plaintiff’s area of operation” and “much of the [alleged trade secret] was known to the defendant prior to his employment.”[x] Conversely, in Junker v. Plummer, the employer’s claimed secret was a novel machine for “combining shoe cloth,” and the former employees “had never seen a combining machine” before their employment.[xi] There, the SJC ruled that the machine’s functionality was not part of the employees’ general skill or knowledge and was instead a protectable trade secret of their former employer.
B. The Employee’s Personal Participation in Developing the Secret
Massachusetts courts are more likely to find that an alleged secret falls within an employee’s general skill and knowledge if the employee directly participated in developing the alleged secret. The rationale behind this factor is that if the employee personally contributed towards the alleged secret’s creation or development, then the alleged secret may consist, at least in part, of the skill, knowledge, and experience that the employee brought to bear on the project.
Thus, in Chomerics, Inc. v. Ehrreich, the employee had been “personally actively involved in all of the inventions and discoveries made” by the employer in developing the alleged secret.[xii] Indeed, the employer’s “effort in this field was pioneered largely through [the defendant employee’s] inventions and research,” and the research into conductive plastics was “peculiarly his . . . almost private domain.” The Appeals Court ruled that the information fell within the employee’s general skill or knowledge as a scientist, despite the fact that the employer took reasonable measures to safeguard the information as a trade secret, including requiring the defendant to keep his laboratory notebooks locked up. Similarly, in New Method Die & Cut-Out Co. v. Milton Bradley Co., the employee “took part to a substantial extent in developing the [allegedly secret] process” for manufacturing cardboard toys, bringing to bear “his faculties, skill and experience.”[xiii] The SJC held that the process for manufacturing cardboard toys did not constitute a protectable trade secret, but rather was “the product of [the employee’s] knowledge,” which he developed in the course of his work for his former employer.
C. The Employer’s Unfinished Concepts and Goals
Massachusetts courts are more likely to find that information is within an employee’s general skill or knowledge where the alleged secret is merely an unfinished “concept” or “goal,” as opposed to information that has been reduced to practice in the form of a functioning devise, machine, or system. For example, in Chomerics, Inc. v. Ehrreich, the employer sought to develop electrically conductive plastics using “metal particles embedded in a plastic matrix.”[xiv] During his employment, the employee worked on a project to develop an electrically conductive gasket that contained less than 10 percent silver particles. The employee eventually quit and began working for a competitor, which soon thereafter patented an electrically conductive gasket that used less than 10 percent silver. The Appeals Court ruled that the use of a certain amount of silver represented only a “concept,” and that “when [the defendant] left [the plaintiff’s employ] he took with him nothing but possibilities and goals which had hitherto proved impossible to bring to fruition.” The Appeals Court ruled those “possibilities and goals” were part of the employee’s general skill or knowledge, not a protectable trade secret of the former employer.
By comparison, in Junker, the machine for combining shoe cloth was fully operational, in use in the employer’s manufacturing facility in “actual and substantial production.”[xv] Several of the plaintiff’s employees quit, started working for a competitor, and duplicated the machine, up to which point “there was none other faintly resembling it in use anywhere.” The SJC ruled that the machine was a protectable trade secret belonging to the employer.
D. Employees’ Memory and Nondocumentary Information
Massachusetts courts are more likely to find that an alleged trade secret falls within an employee’s general skill and knowledge if the employee allegedly used information from his memory, without taking away documents or electronically stored information. The SJC has, in several cases, “considered it significant that the former employee did or did not take actual lists or papers belonging to his former employer.”[xvi] For example, in American Window Cleaning Co. of Springfield v. Cohen, the plaintiff alleged that its former employees had misappropriated secret information regarding its customers. The SJC ruled the former employees had not breached their duty of confidentiality to their former employer because “[r]emembered information” regarding certain of the employer’s customers was “not confidential” and “a discharged employee, without the use of a list belonging to his former employer, may solicit the latter’s customers.”[xvii]
Similarly, in New Method Die & Cut-Out Co., the SJC ruled that an allegedly secret method for manufacturing cardboard toys was within the defendant employee’s general skill or knowledge, noting that “the defendant . . . when he left the employment of the plaintiff . . . took no documentary manufacturing data, cost figures, or customers’ lists and no drawing which were a part of the plaintiff’s files or were final drawings which had been used by the [plaintiff] for the manufacture of toys.”[xviii]
By contrast, in Pacific Packaging Products v. Barenboim, the plaintiff employer alleged that five of its former employees removed, among other things, sales history reports, cost books, invoices, and spreadsheets containing the employer’s information about particular customer accounts, all in order to form a competing company using the plaintiff’s customer base. In granting the plaintiff’s request for a preliminary injunction against the defendants’ use of the information, Judge Billings ruled “[m]y focus herein is almost exclusively on documentary information” alleged to have been misappropriated because “while it is theoretically possible to make the showing that a former employee used his memory to compete unfairly with the former employer, it is not―particularly where business, not technical, information is concerned―an easy task.”[xix]
III. Conclusion
Distinguishing trade secrets from general skill and knowledge is not a precise science and requires a fact-specific analysis. While Massachusetts courts have not articulated a specific set of rules to apply in making the distinction, the four factors discussed above provide an outline of the key considerations Massachusetts courts have used to decide whether certain information was within a departing employee’s general skill or knowledge.
[i] Massachusetts adopted a version of the Uniform Trade Secrets Act (“UTSA”), effective October 1, 2018. See Mass. Gen. Laws ch. 93, §§ 42-42G. Other UTSA jurisdictions distinguish trade secrets from general skill or knowledge. See, e.g., American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1410 (11th Cir. 1998) (applying Florida law).
[ii] Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972) (citing Restatement of Torts § 757, cmt. b.).
[iii] Junker v. Plummer, 320 Mass. 76, 79 (1946).
[iv] American Stay Co. v. Delaney, 211 Mass. 229, 231-32 (1912).
[v] CVD, Inc. v. Raytheon Co., 769 F.2d 842, 852 (1st Cir. 1985) (applying Mass. law).
[vi] See, e.g., Dynamics Research Corp. v. Analytic Sciences Corp., 9 Mass. App. Ct. 254, 267 (1980).
[vii] See, e.g., EMC Corp. v. Loafman, No. 2012-3115-F, 2012 WL 3620374 (Mass. Super. Ct. 2012) (Wilkins, J.) (“Nor does general knowledge acquired on the job justify a non-compete.”) (citing Dynamics Research Corp. v. Analytic Sciences Corp., 9 Mass. App. Ct. 254, 267 (1980)).
[viii] Intertek Testing Servs. NA, Inc. v. Curtis-Strauss LLC, No. 98903F, 2000 WL 1473126, at *8 (Mass. Super. Ct. Aug. 8, 2000) (Gants, J.).
[ix] Dynamics Research Corp., 9 Mass. App. Ct. at 268 (quoting Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 684-85 (1960)); see also Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 175 n.31 (D. Mass. 2001) (applying Mass. law) (“The issue of whether the information lies within the employee’s general skill or knowledge depends, in part, upon the amount of knowledge and skill the employee had in the relevant area at the start of his employment.”).
[x] Dynamics Research Corp., 9 Mass. App. Ct. at 268; see also New Method Die & Cut-Out Co. v. Milton Bradley Co., 289 Mass. 277, 281-82 (1935) (finding no protectable secret where “much of the [allegedly secret] process was familiar to [the employee] from his [prior] experience”).
[xi] Junker v. Plummer, 320 Mass. 76, 79 (1946).
[xii] Chomerics, Inc. v. Ehrreich, 12 Mass. App. Ct. 1, 4 (1981).
[xiii] New Method Die & Cut-Out Co., 289 Mass. at 282.
[xiv] Chomerics, 12 Mass. App. Ct. at 4.
[xvi] Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972) (citing cases). Like the other factors, however, this factor is not dispositive. The SJC ruled in Jet Spray Cooler that “the fact that no list or paper was taken does not prevent the former employee from being enjoined if the information which he gained through his employment and retained in his memory is confidential in nature.” Id.
[xvii] Am. Window Cleaning Co. of Springfield v. Cohen, 343 Mass. 195, 199 (1961).
[xviii] New Method Die & Cut-Out Co., 289 Mass. at 280.
[xix] Pac. Packaging Prod., Inc. v. Barenboim, No. MICV2009-04320, 2010 WL 11068538, at *1 (Mass. Super. Ct. Apr. 20, 2010) (Billings, J.). To avoid an injunction on that basis, the defendants represented to the court they had completely divested themselves of the paper and electronic versions of the plaintiff’s information. The court later found that representation to be a fraud on the court because the defendants had not in fact turned over the information; the court entered a default on the defendants’ counterclaims and awarded fees and costs in excess of $1 million to the plaintiff.
Gregory S. Bombard, a trial lawyer at Duane Morris, focuses his practice on trade secret litigation, business torts, and other complex commercial disputes. He represents pharmaceutical, manufacturing and technology companies in state and federal courts and arbitration proceedings throughout the United States.
Adam M. Santeusanio is a trial lawyer at Duane Morris. His practice focuses on intellectual property and commercial litigation.
Director Liability Under the Massachusetts Wage Act: The Supreme Judicial Court Clarifies the Law but Traps May Remain for the Unwary
Posted: May 14, 2018 Filed under: Case Focus, Spring 2018 Vol. 62 #2 | Tags: director liability, Employment Law, liability, massachusetts, wage act Leave a commentby Mark D. Finsterwald
Case Focus
In Segal v. Genitrix, 478 Mass. 551 (2017), the Supreme Judicial Court (“SJC”) addressed whether members of a company’s board of directors may be personally liable under the Massachusetts Wage Act, G.L. c. 149, §§ 148, 150, for the company’s failure to pay wages to employees. In Segal, the SJC interpreted, for the first time, language in the Wage Act defining “employer” in the context of directors. The SJC held that the Wage Act does not impose liability on directors acting only in their capacity as directors. Even so, the Court did not fully insulate directors from Wage Act liability. There remains a possibility that directors could, perhaps unwittingly, become subject to personal liability in the event a company fails to pay wages.
The Wage Act
The Wage Act enables employees to sue employers who do not pay earned wages, with mandatory awards of treble damages and attorney’s fees for successful claims. Liability is not limited to the business entity, as the Wage Act defines “employer” to include “the president and treasurer of a corporation and any officers or agents having the management of such corporation.” This definition does not mention directors. Nor does it explain how to assess whether a person is an “agent[] having the management of such corporation.” G.L. c. 149, § 148.
Facts and Procedural History
Plaintiff Andrew Segal was the president of Genitrix, LLC, a biotechnology startup that he cofounded with defendant H. Fisk Johnson, III. Johnson was also an investor in Genitrix, and he appointed his representative, defendant Stephen Rose, to the company’s board of directors. Johnson funded Genitrix through a company called Fisk, which Johnson and Rose co-owned. Segal, as president, managed all of Genitrix’s day-to-day operations, including payroll.
In 2006, Genitrix began to have difficulty making payroll. Starting in 2007, Segal stopped taking salary to enable the company to meet its other financial commitments. Rose later declined to direct Fisk to invest enough money in Genitrix to pay Segal. In early 2009, Segal initiated Wage Act litigation against Johnson and Rose.
At trial, the judge instructed the jury that “a person qualifies as an ‘agent having the management of such corporation’ if he … controls, directs, and participates to a substantial degree in formulating and determining policy of the corporation or LLC.” The judge did not instruct the jury that the defendants needed to have been appointed as agents. Nor did the judge instruct the jury that defendants needed to have assumed responsibilities functionally equivalent to those of a president or treasurer. The jury found both defendants liable for Segal’s unpaid salary. Johnson and Rose moved for judgment notwithstanding the verdict, the trial court denied the motion, and Johnson and Rose appealed.
The SJC’s Analysis
At the outset, the Court stated that it viewed as significant the Legislature’s omission of directors from the Wage Act’s definition of “employer.” Segal, 478 Mass. at 558. Parsing the statutory language, the SJC dismissed the possibility that either defendant could be liable as president, treasurer, or any other officer, because neither of them held an office at Genitrix. Johnson and Rose could be liable only if they were “agents having the management” of the company. The Court explained that this language establishes “two important requirements: the defendant must both be an agent and have the management of the company.” Id. at 559. The Court differentiated between having some management responsibility and “having the management” of the company. “Having the management” means assuming responsibility similar to that performed by a corporation’s president or treasurer, the Court reasoned, “particularly in regard to the control of finances or payment of wages.”
As to agency, common law agency principles—set forth in the Restatement (Second) of Agency—counsel that directors are not typically considered agents. Restatement (Second) of Agency § 14C (1958). The SJC observed that “[a] board generally acts collectively, not individually.” Segal, 478 Mass. at 561. Such collective action does not confer individual agency authority on directors. Nevertheless, the Court explained that individual directors still could be “considered agents of the corporation if they are empowered to act as such, but any agency relationship stems from their appointment as an agent, not from their position as a director….” Id. at 563. An agency appointment could result from a board resolution, but also could “arise from either express or implied consent.” The Court gave as an example a scenario in which “a particular board member had been empowered to act individually as the functional equivalent of the president or treasurer of the corporation.” Genitrix, however, made no such appointment with respect to either defendant, instead delegating executive management authority (including dominion over wages) to Segal. Segal signed the checks, oversaw the payroll, and suspended the payment of his salary. Defendants had no such authority.
Moreover, just as a board’s collective authority over a corporation does not confer agency authority on an individual director, a board’s collective “oversight and control over management, finances, and policy is not oversight and control by individual board members.” Id. at 565. The Court noted that, since corporate statutes vest all management responsibility in a corporation’s board, if board members were to be considered agents and normal board oversight were considered “management,” then all directors would be personally liable under the Wage Act. That result would be inconsistent with the plain wording of the statute.
The Segal defendants’ participation in difficult board decisions that affected the company’s finances were not the acts of individual agents, did not involve the type of ordinary decisions left to individual managers, and did not confer Wage Act liability. Accordingly, the SJC determined that the trial court should have allowed defendants’ motion for judgment notwithstanding the verdict.
In addition to adjudicating the claim against Johnson and Rose, the SJC also provided guidance for instructing future juries. The Court explained that judges should instruct juries that there are two requirements for a defendant to qualify as an employer under the Wage Act: (1) the defendant must be an officer or agent; and (2) the defendant must have the management of the company. The Court cautioned that juries should be instructed that directors are not agents simply by being directors, and the collective powers of the board are distinct from the powers of individual directors. As to “having the management,” courts should instruct juries that the Wage Act imposes liability on the president, the treasurer, and other officers or agents who perform management responsibilities similar to a president or treasurer, “particularly in regard to the control of finances or the payment of wages.” Id. at 570.
Lessons for Directors and Corporate Advisors
After Segal, it is difficult, but not impossible, to establish Wage Act liability on the part of individual directors. Directors should be aware that they still may face personal liability (with attendant mandatory treble damages and fee shifting) if they are found to be agents of the corporation who performed responsibilities similar to that of a president or treasurer. Consequently, boards and their advisors should take precautionary measures to reduce the risk to directors.
Corporate counsel would be wise to include in companies’ governing documents language stating that individual directors are not authorized to speak or act on behalf of the company. Counsel should then advise boards to abide by such language in practice. While it is common for boards to delegate tasks and authority to particular directors or committees, counsel should screen such delegations carefully to ensure that they cannot reasonably be construed as conferring management or agency authority. Counsel also would be wise to monitor initiatives that might not expressly delegate agency authority but could be deemed to do so by implication.
To the extent a board bestows management or agency authority on individual directors or committees of directors, that authority should be limited to discrete issues. More importantly, that authority should not encroach on officer control over finances and wages. For example, individual directors should not have check-writing authority, control over payroll, or authority to approve or deny wage payments.
Overall, counsel should be vigilant in ensuring that boards and board committees, including compensation committees, exercise their oversight function collectively, with such collective action formally recorded. These steps would help directors perform their fiduciary responsibilities with less risk of personal liability under the Wage Act.
Mark D. Finsterwald is an associate at Foley Hoag LLP and a member of the firm’s litigation department. He focuses his practice in the area of complex business litigation.
What to do When Your Client Discovers Child Pornography on Workplace Computers
Posted: June 13, 2012 Filed under: Practice Tips, Summer 2012, Vol. 56, #3 | Tags: child pornography, Employment Law, Workplace Computers 2 Commentsby Matthew L. Mitchell
Practice Tips
Scenario: An employer’s Information Technology department performs a routine software update on an employee’s office computer. During the course of the maintenance, an Information Technology professional discovers what appears to be child pornography saved on the hard drive.
This nightmare scenario raises several very difficult questions for the employer:
- Should the matter be resolved through internal discipline procedures, or should (or must) the employer involve local police or other law enforcement authorities?
- What should the employer do with the offending images or materials?
- Should the employer conduct a further investigation?
The answers to these questions depend on a rapidly evolving body of case law and statutes, including statutory mandates that impose specific, affirmative duties on employers who discover child pornography in the workplace. Employers must be aware of their duties and responsibilities, and be prepared to act when violations occur. Failure to adhere to these mandates may subject employers to significant penalties and criminal sanctions.
Possession of Child Pornography Is a Crime
Under both Massachusettsand federal law, it is a crime to “knowingly possess” child pornography. See M.G.L. ch. 272, §29C ; 18 U.S.C. § 2552. As such, if child pornography is discovered in the workplace or on company computer networks, the employer is in violation of these laws. Under the federal law that criminalizes possession of child pornography, 18 U.S.C. § 2252, an employer that discovers child pornography in the workplace may limit its liability if it “promptly and in good faith” (a) destroys the offending materials; or (b) informs a law enforcement agency that it has discovered illegal child pornography and affords that agency the opportunity to access the materials. See 18 U.S.C. § 2252(c). This “safe harbor” may, however, be at odds with other statutory and regulatory mandates. For example, as discussed below, there are federal and state statutes, potentially applicable to some employers, which expressly prohibit the destruction of evidence of child pornography.
In addition, most jurisdictions, including Massachusetts, recognize that willful or deliberate ignorance is tantamount to actual knowledge of the wrongdoing. See, e.g., United States v. Guerrero, 114 F.3d 332, 343 n. 12 (1st Cir.1997) (“Where ‘the facts suggest a conscious course of deliberate ignorance,’ a jury is warranted in finding the defendants’ deliberate ignorance of criminal events, which is tantamount to knowledge.”) (internal citations omitted). Accordingly, if an employer has reason to suspect that an employee is storing child pornography at the worksite or within employer’s computer systems, the employer may not avoid liability by simply ignoring the situation. Rather, depending on the circumstances, the employer may have a duty to investigate the employee’s activities, including searching its computer files or monitoring employee’s computer usage, and taking prompt remedial action if offending material is discovered. This duty may trump any privacy rights of the employee. See, e.g., Doe v. XYZ Corporation, 887 A. 2d 1156, 1158 (N. J. Super. 2005) (“[An] employer who is on notice that one of its employees is using a workplace computer to access pornography, possibly child pornography, has a duty to investigate the employee’s activities and to take prompt and effective action to stop the unauthorized activity, lest it result in harm to innocent third-parties. No privacy interest of the employee stands in the way of this duty on the part of the employer.”).
Under both Massachusettsand federal law, penalties for knowing possession of child pornography include substantial fines and prison sentences. See M.G.L. ch. 272, § 29C (imposing state prison terms of up to 5 years, and fines up to $30,000 for knowing possession of child pornography); 18 U.S.C. § 2252 (imposing up to 20 year prison sentences for knowing possession of child pornography).
A Duty to Report?
There are several federal and Massachusettsstatutes that may impose affirmative duties on Massachusettsemployers to report child pornography to law enforcement authorities. For example, federal statute 18 U.S.C. § 2258A requires “whoever, while engaged in providing an electronic communication service or a remote computer services. . ., obtains actual knowledge of any facts or circumstances [concerning child pornography] . . . [must] provide to the CyberTipline of the National Center for Missing and Exploited Children . . . a report of such facts and circumstances. . .” 18 U.S.C. § 2258A. If the “facts and circumstances” of child pornography include physical materials, such as images, data, or digital files, those materials must be preserved in a “secure location,” and made available to the appropriate authorities upon request. 18 U.S.C. § 2258A(h). For purposes of the statute, the term “electronic communication service” is defined broadly as “any service which provides to users thereof the ability to send or receive wire or electronic communications.” 18 U.S.C. § 2510. On its face, the statute appears to apply its mandatory reporting requirement to any employer that provides e-mail access to its employees. Although some commentators suggest that the scope of 18. U.S.C. § 2258A is limited to Internet Service Providers (such as Comcast or Verizon), this limitation has not been addressed in regulations or case precedent.
Also, under Massachusetts General Law Chapter 119, §51A, certain “mandated reporters,” such as school or hospital employees, are required to report suspected incidents of child abuse and neglect to law enforcement authorities.
In addition to these statutory mandates, employers have been found liable for common law negligence for failing to report child pornography found on a work computer. In the New Jerseycase of Doe v. XYC Corporation, a mother, on behalf of her daughter, brought a negligence action against her husband’s employer, seeking to hold employer liable for the husband’s use of workplace computer to access pornography and send nude photographs of the daughter to a child pornography site. Although the employer was on notice that the husband was using work computers to access pornographic websites, the employer did not investigate the husband’s behavior or report his conduct to authorities. In reversing summary judgment in the employer’s favor, the court held that the employer “had a [common law] duty to report Employee’s activities to the proper authorities and to take effective internal action to stop those activities, whether by termination or some less drastic remedy.” See XYC Corporation, 887 A. 2d at 1168.
In sum, employers must be prepared to promptly report incidents of suspected child pornography to law enforcement authorities.
The Need to be Proactive
Although it is critically important for employers to understand the appropriate actions to take after discovering child pornography, it is equally important to adopt policies and procedures that limit the likelihood of such illegal material entering the work place. A fundamental tool in this regard is an effective media policy that addresses employee use of workplace computer equipment and systems. Such a policy should:
- Restrict employee computer use to authorized work-related activities and limited personal use that does not interfere with work activities or burden the employer’s computer system;
- Notify employees that work computers, e-mail accounts, and internet activity may be monitored by the employer, and that employees have no expectation of privacy in information stored on such equipment or transmitted through such services;
- Notify employees that the employer reserves the right to monitor employee usage of company computer equipment and systems; and
- Inform the employee that illegal use of the company’s computer systems may be reported to law enforcement authorities.
Employers should also be committed to enforcing the policy. When an employer suspects or becomes aware of an employee’s misuse of company computer systems, the employer should engage in a prompt and thorough investigation. If the investigation reveals inappropriate employee conduct, the employer should take remedial action. As discussed above, such action may involve subjecting the employee to internal disciplinary procedures or, if circumstances warrant, reporting the employee’s conduct to the appropriate authorities.
Conclusion
Although the statutory and case precedent on this issue continues to evolve, a clear principle has emerged: employers may not ignore employee conduct that may involve child abuse or child pornography.
Matthew L. Mitchell is a partner at Holland & Knight LLP. Mr. Mitchell represents businesses and educational institutions on a broad range of employment, student, and compliance related matters.