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Archive for May, 2012

B&B Attorney Belfort Quoted by Boston Herald As To Standards In EEOC Hiring Bias Investigation

Posted on: May 24th, 2012 by admin No Comments

We are pleased to announce that on May 24, 2012, Bennett & Belfort, P.C. attorney David E. Belfort was quoted in the newspaper, The Boston Herald, in an article entitled “Marylou’s hit with discrimination inquiry: Coffee house chain bitter over federal ‘witch hunt.’”  In the context of an EEOC investigation into the coffee shop chain, Marylou’s, Mr. Belfort was asked by the reporter to opine on the legal standards applied to job applicants, under federal discrimination law, and whether age and gender may play a role in hiring.  Attorney Belfort indicated that membership in protected classes under the discrimination laws (e.g. sex, age, race, etc.) may generally not be considered in hiring, (See EEOC list of prohibited discrimination) or other job actions.  However, in certain cases, legitimate business reasons allow employers the selection of candidates because of their status, such as seeking females to serve as attendants in the women’s locker room.  In these narrow cases, employees may indeed be legitimately chosen or excluded from a job due to membership (e.g. gender) in a protected class without necessarily violating the law.  This analysis becomes tricky when subjective physical features (e.g. attractiveness) are used as a measuring stick by employers given that such filters may be used as a proxy for age or gender bias.  Congratulations to Attorney Belfort for being recognized for his knowledge and experience in the field of discrimination law.

NON-COMPETE ENFORCEMENT: THE DEFENSES OF MATERIAL JOB CHANGES AND WRONGFUL CONDUCT

Posted on: May 18th, 2012 by admin No Comments

Two recent Massachusetts Superior Court decisions have refined the considerations used to examine the enforcement of non-compete agreements, and whether a material change in one’s employment status is a valid defense.  When evaluating non-compete agreements, no two situations are exactly alike and therefore the analysis is individualized and fact intensive.

In Grace Hunt IT Soutions v. SIS Software, LLC, (Suffolk Superior Court, Civil Action No. 12-00080-BLS1),  Judge Lauriat, of the Business Litigation Session, ruled that a non-compete agreement was unenforceable because of a “material change” in the employment relationship that occurred after the agreement was signed.  As confirmed by Judge Lauriat, in certain circumstances a “pre-change” non-compete may be unenforceable.  Indeed, “[e]ach time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.”  Lycos, Inc. v. Jackson, 2004 WL 2341335 at *3 citing Marine Contractors. Co. v. Hurley, 365 Mass. 280, 285-86 (1974).  Factors such as compensation terms, work territory, and job duties have been considered sufficiently material in considering the enforceability of restrictive covenants.  F.A. Bartlett Tree Expert Co. v. Barrington, 353 Mass. 585, 588 (1968).   “[F]ar reaching changes strongly suggest that the parties had abandoned their old arrangement and had entered into a new relationship.”  Id. at 587. 

In Grace Hunt IT Soutions, the court found that there was such a “material change,” and denied a motion for preliminary injunction, declining to enforce the non-compete covenant against the defendants.  This confirmed that what constitutes a “material change” can be broad and vary depending upon the facts and the particular judge hearing the matter.  In this case, Judge Lauriat concluded that a 20% decrease in the employees’ salary was enough of a change to satisfy this materiality standard.  More specifically, the defendants had previously signed non-compete agreements with a company acquired by plaintiff.  Once plaintiff purchased the assets of the old business, thus becoming the new employer, the employees were told that they had to sign new non-compete agreements.  The employer/plaintiff further planned to implement a different compensation structure and change eligibility for fringe benefits. 

According to the defendants, their base salary was decreased by 20%, but they were informed that they could earn the difference through discretionary bonuses based on billable hours.  The individual defendants signed and returned their offer letters, but refused to sign the new non-compete agreements.  Relying on the fact that the defendants rejected the new non-competes, and because of the “material changes” in the employment relationship (20% decrease in pay), the Court deemed the non-compete agreements to be unenforceable.

The second of these two decisions relating to non-compete agreements illustrates that not every claim of generalized “unfairness” will be sufficient to avoid enforcement of a non-competition agreement.  In this more typical restrictive covenant enforcement case, A.R.S. Services v. Baker, (Murtagh, J., Middlesex Superior Court, Civil Action No. 12-00105), plaintiff, a disaster restoration company, asked the court to enforce a one year non-compete provision against an employee who resigned.  

Defendant argued that his former employer asked him to engage in “a fraudulent act involving moral turpitude,” and that this was a “material breach” of the non-compete agreement, rendering it unenforceable.  It appears that the employee did not argue that the reasonableness or scope of the non-competition agreement rendered it unenforceable.  Instead, the employee merely alleged that the company’s president coerced him to improperly reduce an estimate to rebuild a home.   Despite this argument, the court, ruled that there was insufficient evidence that the employee was engaged in any fraud or illegal activity.  Instead the Court opined that mere business disagreements with an employer are not sufficient grounds to avoid the covenants of a non-compete.

As these two cases demonstrate, the enforcement of non-compete agreements (and other restrictive covenants) often depends on a fact intensive review.  While the scope, geographic area and duration of a non-compete remain important factors in assessing non-competition terms, careful review of job changes and perceived wrongful conduct must be conducted.  The attorneys at Bennett & Belfort are well versed in the legal intricacies involved with evaluating and litigating non-compete agreements and similar restrictive covenants.

 

RECENT RULING HIGHLIGHTS THE IMPORTANCE OF DAMAGES PROVISIONS IN COMMERCIAL LEASE CONTRACTS

Posted on: May 2nd, 2012 by admin No Comments

A recent Massachusetts Appeals Court ruling highlights the importance of negotiating and drafting applicable damages provisions in commercial lease contracts.  When possible, landlords must seek a well-drafted liquidated damages provision in each commercial lease agreement, providing for the landlord’s ability to accelerate rent for the balance of the lease term in the event of a tenant default.  Conversely, tenants will want to eliminate or, at the very least, “water down” such a clause as much as possible. 

In 275 Washington Street Corp. v. Hudson River Intern., LLC, 81 Mass.App.Ct. 418, 963 N.E.2d 758 (2012) (Lawyers Weekly No. 11-038-12) the Appeals Court ruled that a commercial landlord whose tenant broke a 12 year lease after only 24 months, must wait until the expiration of the entire lease term before suing for damages.

The relevant commercial lease agreement had only a basic indemnification provision, entitling the landlord to be indemnified by the tenant for any losses that occurred as a result of the tenant’s breach of the lease agreement.  Noticeably absent from the lease was a liquidated damages clause, allowing the landlord, in the event of the tenant’s breach, to accelerate the balance of the unpaid rent owed by the tenant through the end of the lease term. 

Following the tenant’s default only 2 years into the 12 year lease agreement, the landlord re-entered the property and took possession of the commercial lease space.  Shortly thereafter, the landlord filed a breach of contract suit against the tenant, seeking unpaid rent for the balance of the 12 year lease term and other damages, including for money spent by the landlord on a build out sought by the tenant.  While the landlord’s breach of contract lawsuit against the former tenant was pending, the landlord entered into a 10 year lease agreement with a separate, replacement tenant for the same leased space.  The new lease term with the replacement tenant went beyond the original 12 year term, but was for less monthly rent.

Traditionally, the law has been that pursuant to a standard indemnification provision, a commercial landlord must wait until the end of the lease term to file suit to recover its damages.  The rationale for this law, is that an indemnification provision limits a landlord to recovery for those damages actually incurred.  Accordingly, if a lease term has not yet expired, the landlord’s damages technically remain unknown until the lease term expires. 

Originally, in 275 Washington Street Corp., the Superior Court awarded the landlord summary judgment, holding that because a replacement tenant was found, the landlord’s full damages were now known because the premises was currently rented.  The trial judge ruled that the landlord was entitled to immediately recover the difference between all unpaid rent through the balance of the 12 year lease term due to the original tenant’s default, less the rent the landlord expected from the replacement tenant. 

Unfortunately for the landlord, the Appeals Court overturned the Superior Court’s ruling, holding that because the indemnification agreement limited the landlord to reimbursement for losses actually incurred as a result of the tenant’s breach, and the full scope of the tenant’s breach could not be ascertained until the end of the lease term (notwithstanding the lease with the replacement tenant).  The court concluded that the landlord had to wait until the expiration of the lease term before calculating what its actual damages would be.  The landlord argued unsuccessfully, that because it secured a replacement tenant, its damages were fully ascertainable and it did not have to wait until the end of the 12 lease term.  The Appeals Court disagreed, finding that even though a replacement tenant was found, that replacement tenant could also default, thus making the landlord’s damages once again unknown until the end of the full lease term. 

Importantly, the Appeals Court noted that if the landlord’s commercial lease contract contained a liquidated damages provision, providing for the landlord’s ability to accelerate rent for the balance of the lease term in the event of the tenant’s default, the landlord would be able to secure damages through the end of the lease term by filing suit immediately.

Obviously, this ruling highlights the importance of proper language in a commercial lease contract.  Landlords will want to include a comprehensive liquidated damages provision, allowing them to accelerate rent through the balance of the lease term in the event of a tenant’s default.  Tenants will try to eliminate such lease provisions, or at least attempt to minimize the exposure they may incur.  There are several creative ways that tenants can attempt to negotiate such provisions.  However, ultimately, the ability to negotiate a commercial lease contract typically depends upon the commercial lease market (higher vacancy rates is often equated with flexible landlords), the personality and relative aggressiveness of the landlord and the amount of space and length of the tenant’s lease term (the larger the space and longer the lease term, the more bargaining power a tenant might have).

Bennett & Belfort, P.C. will strive to continue to update you on the varied developments in this rapidly evolving area of real estate litigation which significantly impacts commercial lease drafting and lease negotiations.