Boston Employment Lawyer Blog

The garden leave provision in your employment contract may be unenforceable. In Bear, Stearns & Co., Inc. v. Sharon, the U.S. District Court for the District of Massachusetts refused to issue a preliminary injunction to enforce a contractual provision requiring an employee to provide 90 days before resigning or retiring (aka "garden leave").

Douglas A. Sharon was a Broker and Managing Director of Bear, Stearns & Co., Inc.'s private client services group in its Boston office. According to Bear Stearns, Sharon was the Boston office’s top producer, generating $5.2 million annually in commissions and managing more than $867 million in assets. In December, 2005, the company distributed a memorandum to all of its Senior Managing Directors, including Sharon, which allowed recipients to accept a raise in their base salary, among other benefits, subject to the acceptance of the above-described garden leave provision. Sharon agreed to the garden leave provision.

On March 17, 2008, Sharon resigned from Bear Stearns, effective immediately. He began work for his new employer, Morgan Stanley, the next day. Following Sharon’s resignation, on March 26, 2008, Bear Stearns filed a Complaint, Motion for a Temporary Restraining Order (“TRO”), and a Preliminary Injunction to enjoin, among other things, Sharon’s continued employment at Morgan Stanley.

As an aside, an important distinction exists between a TRO and Preliminary Injunction. Under Rule 65(a) of the Massachusetts Rules of Civil Procedure, a TRO does not generally exceed 10 days. In sharp contrast, a Preliminary Injunction will last until the case has been decided.

On March 27, 2008, the Court entered Bear Stearns' request for a TRO. After the TRO expired, Bear Stearns sought injunctive relief. To obtain preliminary injunctive relief, Bear Stearns was required to show: (1) a substantial likelihood of success on the merits, (2) a significant risk of irreparable harm if the injunction is withheld, (3) a favorable balance of hardships, and (4) accord with the public interest.

The Court denied Bear Stearns' request for Preliminary Injunction for three main reasons. First, the company could not establish that it would suffer irreparable harm because any alleged harm could be recompensed through a monetary award. Second, the harm to Bear Stearns was outweighed by the potential harm to Sharon’s “professional standing and the inability to advise his clients in times of economic turmoil.” Finally, the Court noted an inherent inconsistency in the garden leave provision. Specifically, Sharon's employment was at-will, which meant that Bear Stearns could terminate his employment at any time, for any reason or no reason. Likewise, because he was an employee-at-will, Sharon should be able to resign at any time. Accordingly, enforcing the garden provision would run afoul of the employee-at-will doctrine:

Because the effect of specific performance in this case would be to require the defendant to continue an at-will employment relationship against his will, it is unenforceable in that manner.

Although the court refused to issue the Preliminary Injunction, it is important to note that Sharon could still be held liable for monetary damages. This case, however, sheds much needed light on "garden leave" provisions.

The subprime disaster has catapulted employment contracts, and the golden parachutes that sometimes come with them, into the limelight. While negotiating $100 million in severance pay that Countrywide Financial CEO Angelo Mozilo could receive is certainly not the norm, there are certain bases that every employment contract should cover.

Mike Hyatt, Chief Strategy Officer of N2Growth, provides a helpful overview of what every contract should include in his article entitled, Management Matters with Mike Myatt: 6 Tips to a Better Employment Contract. The article outlines 6 main points: (1) Job Description, (2) Term, (3) Compensation, (4) Indemnification, (5) Termination, and (6) Winding Up Provisions.

An ounce of prevention equals a pound of cure. Employment contracts protect an employee's professional and financial interests in the event that the employer has a sudden change in heart. Every contract will contain its own nuances. The more an employee understands the details of what his or her contract should include going into the negotiation, the smoother the transition down the road.

Non-competition agreements are more common today than ever before. I broach this subject because, a few months back, our Firm was successful in defending an employee against a Motion for Preliminary Injunction brought by her former employer. As we gear up for trial, I'd like to take this opportunity to review the nuts-and-bolts of non-competes.

Fortunately for employees and consumers, Massachusetts courts carefully scrutinize non-compete agreements and construe them against the employer. A covenant not to compete is enforceable only if: (1) it is necessary to protect a legitimate business interest, (2) reasonably limited in time and geographic scope, (3) consonant with the public interest, and (4) supported by consideration. The burden of proof as to the enforceability of a non-compete agreement lies with the employer.

What does all this mean? To address the first requirement, an agreement that attempts to merely prohibit ordinary competition does not satisfy a legitimate business interest. Employees may use the general skills and knowledge they acquired during their employment when they change jobs. Employees may not, however, use trade secrets or confidential information obtained from their former employer. The difference can be illustrated in the following hypotheticals using the (hilarious) TV sitcom, The Office:

(A) Michael Scott leaves Dunder Mifflin Infinity to work for a competitor, Staples, Inc., as a motivational speaker.
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(B) Michael Scott leaves Dunder Mifflin Infinity to work for a competitor, Staples, Inc., in the same position. In doing so, Mr. Scott takes with him Dunder Mifflin's pricing models, confidential customer lists, vendor information, and (of course) his trusty side-kick, Dwight Schrute.

Dunder Mifflin's (DH) attempt to prohibit Mr. Scott from working for Staples in Hypothetical A would probably be construed as an attempt to stamp out ordinary business competition because, while Staples may be a competitor, Mr. Scott would neither be using any specialized training provided by DH nor confidential information to compete with Dunder Mifflin. On the other hand, Dunder Mifflin's effort to enforce a non-compete agreement in Hypothetical B would probably be interpreted as protecting a legitimate business interest since Mr. Scott would be poaching employees and using DH's trade secrets against them while in an identical role at his new job with Staples.

Continue reading "Massachusetts Non-Compete Agreements in a Nutshell" »

Employment contracts must be drafted with care. Paula Barran, an attorney specializing in employment law in Oregon, wrote a great article on the 8 areas that well-drafted employment contracts should address: (1) duties, (2) obligations, (3) timing, (4) payment, (5) extra benefits, (6) parting, (7) prenuptials, and (8) disagreements.

Unless otherwise specified, employment in Massachusetts is "at will." This means that employees can be terminated for any reason or no reason, so long as the termination is not motivated by the employee's status within a protected class such as age, race, gender, national original, or handicap. In other words, an employer can not fire you because you are female, 40 years old or older, require medical leave, or because you're black.

This also means that an employer can legally fire you for an arbitrary and capricious reason. To illustrate the concept of "at will" employment, suppose you are a Red Sox fan. You've been with Company A for 20 years. Unbeknownst to you, your new boss is a Yankees fan. You send out a company-wide e-mail celebrating the Red Sox second World Series Championship in just three years. Angered and embarrassed, your boss terminates your employment because you sent the e-mail. Illegal? Not if you're an "at-will" employee.

Employment contracts create the opportunity to leave behind the precarious world of "at will" employment, at least until the contract the expires. An employment contract should be seen as the equivalent to tenure. The employment contracts that I have negotiated, for instance, typically include a "cause" provision, stating that an employee can only be terminated for "good cause" or "just cause." As you've probably guessed, sending an e-mail celebrating a Red Sox victory would not meet the "good cause" standard.

Continue reading "Employment Contracts For Executives: 8 Things to Consider" »