In order to keep our readers abreast of recent developments and legal trends, we are continuing our \u201ctop five to ten\u201d list of cases and topics of importance to executives and professionals. This time, we are addressing cases and topics in the following fields: executive compensation; contract modification; evaluating damages; and invasion of privacy. Our list also includes a \u201cheads up\u201d regarding an important case about executive compensation, likely to be decided soon.<\/p>\n
Hertz v. Frissora et al.,<\/em> C.A. No. 19-cv-08927 (D.N.J.)<\/p>\n Whoever coined the old adage, \u201cpossession is nine-tenths of the law,\u201d was clearly not talking about executive compensation. Professionals and executives must always be mindful of their potential exposure to their employer (e.g<\/em>., liability for monetary damages and\/or having to return some portion of their compensation). A recent case out of New Jersey serves as a valuable reminder.<\/p>\n In Hertz v. Frissora, et al.<\/em>, after being investigated and penalized by the SEC for filing inflated financial reports, Hertz filed suit against three senior executives. The suit did not allege intentional fraud. Instead, Hertz cited \u201cgross negligence\u201d and \u201cinconsistent and inappropriate tone at the top\u201d (e.g.<\/em>, pressuring subordinates to meet internal budgets) as a basis for seeking the contractual clawback of $70 million in incentive compensation, and approximately $200 million as monetary damages to cover the company\u2019s costs relative to the SEC proceedings. This case is still being litigated, and its outcome remains unclear.<\/p>\n In Massachusetts, clawback agreements may be enforceable, such as those relating to stock awards or deferred compensation payments. See e.g.<\/em>, Balles v. Babcock Power, Inc.<\/em>, 476 Mass. 565 (2017), and our article on that case: \u201cTermination for Cause, Office Romance and Unexpected Forgiveness in the Courts.”<\/a>\u00a0In Massachusetts, executives can also be subject to \u201cequitable forfeiture,\u201d where an employer recovers compensation that was paid to an employee during the time period that the employee was breaching his or her fiduciary or contractual obligations to the employer. See e.g.<\/em>, Chelsea Indus., Inc. v. Gaffney,<\/em> 389 Mass. 1 (1983). Notably, executives and professionals may be subject to equitable forfeiture even when the employer cannot show actual injury<\/em><\/strong>. Id.<\/em><\/p>\n Many of these issues can be addressed with sound drafting and negotiating at the outset of employment. However, where misconduct is involved, counsel can help you assess your exposure, along with your leverage, to help develop a clear picture of your situation.<\/p>\n Levesque v. Schroder Inv. Mgmt. N. Am., Inc., <\/em>368 F.Supp.3d 302 (D. Mass. 2019)<\/p>\n An employer who fails to pay an employee all \u201cwages earned\u201d can be held liable for three times that amount plus interest and attorneys\u2019 fees under the Massachusetts Wage Act (the \u201cWage Act\u201d). However, not all compensation promised to an employee is an \u201cearned wage.\u201d For example, commissions that are \u201cdefinitively determined and \u2026 due and payable\u201d are considered \u201cwages earned,\u201d but purely discretionary bonuses are not. Whether such incentive compensation constitutes \u201cwages earned\u201d is always fact-specific, as a recent federal decision illustrates.<\/p>\n In Levesque v. Schroder Inv. Mgmt. N. Am., Inc<\/em>., an incentive compensation plan provided employees with a \u201cquantitative bonus\u201d shortly after the close of the fiscal year, based on an employee\u2019s sales numbers as compared to his or her sales goal. When the east coast director of institutional sales was terminated without being paid his quantitative bonus \u2013 despite having sufficient sales numbers \u2013 he filed suit under the Wage Act.<\/p>\n The Court quickly looked past the \u201cbonus\u201d label and analyzed whether the incentive compensation was \u201cdefinitively determined and \u2026 due and payable.\u201d The employer contended that, because the plan required \u201ccontinued employment\u201d through payday, it was not an \u201cearned wage.\u201d The Court, however, rejected that argument and stated that the terminated executive stated a valid claim under the Wage Act. Specifically, the Court reasoned that the employee \u201cearned\u201d the compensation when the sales were completed; the incentive compensation was still \u201cdefinitively determined,\u201d even if the payment calculation took place at some point in the future, and was still \u201cdue and payable\u201d even if the pay-date fell after termination.<\/p>\n Shachoy v. Conrades, <\/em>35 Mass.L.Rptr. 445 (2019)<\/p>\n It is a basic tenant of contract law that contracts may be modified, whether explicitly or implicitly, orally, in writing, or through the course of conduct. Many professionals intuitively understand this. Less intuitive, however, is that even those portions of a contract which define how the contract can be modified<\/strong><\/em>, are subject to the same principles of modification.<\/p>\n That was the case in Shachoy v. Conrades<\/em>, where a dispute arose over an oral modification of a written agreement. There was no dispute that an oral understanding was reached to modify the written agreement. Instead, the Defendant argued that the oral understanding was unenforceable because the written agreement stated: \u201cmodification must be in writing and signed\u201d by the parties.<\/p>\n The court disagreed with the defendants, and issued an important reminder: \u201cA \u2018prohibition against amendment except by written change may be waived or modified in the same way in which any other provision of a written agreement may be waived or modified.\u2019\u201d Id.<\/em> (Citing Delaware law). See also Wells Fargo Business Credit v. Environamics Corp.<\/em>, 77 Mass.App.Ct. 812 (2010), applying Massachusetts law. Keep in mind that your words and conduct matter and may serve to modify the terms and conditions of your employment, notwithstanding a prior written agreement that states otherwise.<\/p>\n Hall-Brewster v. Boston Police Department, <\/em>C.A. No. 18-P-260 (Mass. App. Ct. Sept. 5, 2019)<\/p>\n As lawyers, when assessing potential claims, we look not only at liability, i.e.<\/em>, whether the client can establish the defendant\u2019s unlawful conduct, but also at damages, i.e.<\/em>, what the client will recover if he or she prevails. There are many circumstances where litigation may not be advisable, even where an individual may have a strong likelihood of success on the merits because the cost of pursuing the claim outweighs the potential recovery.<\/p>\n That is precisely what happened to a former detective with the Boston Police Department. The officer alleged a violation of his constitutional due process rights, in that he was reassigned from detective to patrol officer without a hearing. Over six years, the former detective litigated his case \u2013 first to the Commissioner of the Boston Police Department, and ultimately to the Massachusetts Court of Appeals, where finally on September 5, 2019, he won a ruling that his constitutional rights had been violated. However, the Appeals Court awarded him $1<\/strong>, holding that the hearing of which he was unlawfully deprived would not have changed the outcome.<\/p>\n Litigation is only one of many tools available to an effective attorney. With the assistance of counsel, you can assess not only the strength, but the value of potential claims, and then chart a strategy that most effectively furthers your goals.<\/p>\n Serrano v. Cataldo Ambulance, <\/em>MCAD No. 14-BEM-02913 (June 27, 2019)<\/p>\n In many cases, plaintiffs are required to \u201cmitigate\u201d their damages by, for example, actively seeking new employment after what the employee believes was an unlawful termination. Such amounts earned in the new job are ultimately deducted from any lost wages and benefits the plaintiff may later recover as damages in a successful legal action.<\/p>\n It had been the longstanding practice at the Massachusetts Commission Against Discrimination (\u201cMCAD\u201d) to reduce an award of lost wages by any amount the employee received in unemployment insurance benefits. That practice, however, is finally changing. In 2017, the MCAD issued a decision that adopted the \u201ccollateral source rule,\u201d holding that damage awards should not<\/strong> be reduced by benefits received, such as insurance and welfare. See Schillace v. Enos Home Oxygen Therapy, Inc.<\/em>, 12-NEM-01742 (Apr. 21, 2017) (MCAD Full Commission). Specifically, the Schillace<\/em> decision addressed welfare benefits. In June, the MCAD issued a decision applying that reasoning to unemployment insurance and declined to reduce an award of lost wages by the amount the employee received from unemployment insurance. Serrano v. Cataldo Ambulance Service, Inc<\/em>., 2019 WL 3065910 *16 (MCAD June 27, 2019).\u00a0 There are many reasons that people should file for unemployment insurance if and when able, and this trend from the MCAD serves to add to the list.<\/p>\n Fredericks v. Markel CATCo Investment Management LTD et al .<\/em>, No. 1:19-cv-10331 in the U.S. District Court for the District of Massachusetts;<\/p>\n Belisle vs. Markel CATCo Investment Management LTD et al., <\/em>No. 1:19-cv-00189, in the U.S. District Court for the District of New Hampshire.<\/p>\n As we have noted before, under Massachusetts law, G.L. c. 214, \u00a7 1B employers may be held liable for \u201cunreasonable, substantial, or serious\u201d invasions of employee privacy. See Employees Don\u2019t Leave the Right to Privacy at the Office Door<\/a>. One employer recently found themselves defending such a claim after conducting allegedly improper cellphone searches.<\/p>\n In response to a governmental investigation into financial recordkeeping, a company demanded that its entire staff surrender personal cell phones to facilitate an \u201cinternal review.\u201d Two executives complied, believing they had no choice \u2013 and expecting that only company accounts would be searched. The company, however, also searched personal communications and discovered that the two executives were in a relationship, which the company used as a basis for termination.<\/p>\n The executives filed suit for, among other things, invasion of privacy. A mere five months after filing, the parties announced a settlement, the terms of which remain confidential.<\/p>\n(2)\u00a0 Is Your Incentive Compensation a Wage?<\/h4>\n
Contract Modification<\/span><\/h1>\n
(3)\u00a0 Your Contract is Subject to Change;<\/h4>\n
Evaluating Damages<\/span><\/h1>\n
(4)\u00a0 The Value of a Claim;<\/h4>\n
(5)\u00a0 The Duty to Mitigate and Unemployment Benefits at the MCAD;<\/h4>\n
Privacy Rights in the Workplace<\/span><\/h1>\n
(6)\u00a0 Your Right to Workplace Privacy \u2013 IT Edition;<\/h4>\n
Heads Up<\/span><\/h1>\n
(7)\u00a0 Beyond the Contract \u2013 the Covenant of Good Faith and Fair Dealing<\/h4>\n