One of the biggest challenges startups and early stage companies face is attracting and retaining talented employees. When the potential of a company outstrips its ability to pay market value salaries, compensation packages that include grants of stock or options can bridge the gap until the business has sufficient cash flow. There are many advantages to these compensation arrangements, but companies need to be aware of some of the legal pitfalls as well.
In a recent landmark decision, Barbuto v. Advantage Sales & Marketing, LLC, the Supreme Judicial Court ruled that an employer that terminated an employee for testing positive for marijuana use (which violated the company's policy) could be found to have discriminated against the employee on the basis of her handicap. At the time she was hired, Barbuto was informed that the company would require her to undergo a drug test. She informed the company that her physician had provided her a written certification that allowed her to use marijuana for medical purposes, due to the fact that she suffered from a debilitating medical condition under Massachusetts law; she also agreed that she would not use marijuana before work. The employer told her that a positive result for marijuana would not disqualify her from the position. Despite having made that assurance, following Barbuto's first day of work Advantage Sales terminated her employment due to the positive drug test, on grounds that the company followed federal law, not state law. The use of marijuana for medicinal purposes, while legal in Massachusetts at the time (the non-medicinal use of marijuana had not yet been legalized), was still a crime pursuant to federal law. Therefore, the use marijuana for medical purposes, even while legal in Massachusetts, could still subject the user to federal criminal prosecution. Barbuto sued Advantage Sales, alleging (among other things) that she had been discriminated against on the basis of her handicap. In Massachusetts, a "handicap" is a physical or mental impairment that substantially limits one or more major life activities of a person (or a record of having such impairment or being regarded as having such impairment). Massachusetts law prohibits employers from terminating or refusing to hire an employee because of their handicap if that employee is capable of performing the essential functions of the position involved with "reasonable accommodation," unless the employer can demonstrate that the accommodation that would need to be made would impose an undue hardship to the employer's business. A reasonable accommodation is an adjustment or modification to a job (or the way it is done or the environment in which it is done) that makes it possible for the handicapped individual to perform the essential functions of the job. An employer who receives a request for a reasonable accommodation from a handicapped person is required by Massachusetts law to engage in an interactive process with the employee to ascertain whether the requested accommodation is reasonable and, if not, whether another accommodation can be made that would be reasonable. The Massachusetts medical marijuana law provides, "Any person meeting the requirements under this law shall not be penalized under Massachusetts law in any manner, or denied any right or privilege, for such actions." Advantage Sales claimed it owed Barbuto no obligation to participate in the interactive process to identify a reasonable accommodation before it terminated her employment because, it alleged, the accommodation she sought violated a federal statute and was, consequently, unreasonable. It also alleged that she was terminated because she failed the drug test in violation of company policy, not because of her handicap. The SJC rejected Advantage Sales' first argument on grounds that the fact that Barbuto's possession of medical marijuana violated federal law does not make it per se unreasonable as an accommodation. It noted that only the employee was at risk of federal criminal prosecution for her possession of the medical marijuana, not the employer. It concluded that to hold otherwise would operate to deny handicapped employees the right to or privilege of a reasonable accommodation under Massachusetts law. It also pointed out that, even if the requested accommodation had been unreasonable, Advantage Sales was still obligated to participate in the interactive process of trying to craft another, equally effective accommodation that was reasonable (which it had not done). The Court rejected Advantage Sales' second argument on grounds that it would permit employers to enact policies that would enable them to do an end-run around handicap discrimination laws (i.e., by adopting company policies that would deny employees reasonable accommodations). The Court reversed the lower court's dismissal of Barbuto's claims of handicap discrimination and sent the case back to the lower court to determine whether her use of medical marijuana would impose an undue hardship on Advantage Sales' business and would, therefore, not be a reasonable accommodation. The Barbuto decision does not mean that employers must permit the use of marijuana even by handicapped employees. The significance of the decision is, instead, that use of medical marijuana might constitute a reasonable accommodation available to a qualified handicapped employee even if the employer has a no-tolerance drug policy or federal law prohibits the possession of marijuana. When the use of medical marijuana is proposed as an accommodation by a qualified handicapped employee, employers must engage in the interactive process to determine whether it is reasonable and, if not, whether another reasonable accommodation exists.
Evaluating the enforceability of a non-compete agreement under Massachusetts law involves an inherent degree of uncertainty. This is because courts use subjective standards to determine whether to enforce a non-compete agreement based on whether it is: (1) reasonable in scope, length of time, and geographic area; (2) protective of a legitimate interest of the employer; and (3) supported by adequate consideration. Thus, enforceability depends on the facts of a particular case. Employers can increase the likelihood that a non-compete agreement will be enforced as written by tailoring non-compete agreements based on the guidance of past court decisions. To that end, non-compete agreements should be limited to a duration of no more than 1-2 years. The geographic scope of a non-compete agreement should be limited to the area actually served by the employer or where the employer has specific plans to expand. Non-compete agreements should also be presented to employees before hiring. If the employee is already employed, employers should include some form of additional consideration, such as a raise or one time payment, for added certainty that a non-compete agreement will be enforced as written.
Hiring qualified employees that are the right fit for a company is one of the hardest and most important jobs for employers. A bad hire is not only a waste of time and money, but also causes morale problems and the risk of a wrongful termination claim if the employee is terminated. Because it is impossible to have a perfect hiring record--particularly when a company is growing quickly and is hiring many new employees--employers often ask whether it makes sense to have a probationary period for new hires.
There are many anti-discrimination statutes aimed at protecting employees, such as the Americans with Disabilities Act, the Age Discrimination in Employment Act, and Title VII of the Civil Rights Act of 1964 under federal law and the anti-discrimination provisions of Chapter 151B of the Massachusetts General Laws to name a few. While understanding the nuances and the interplay between federal and state laws can pose challenges, the intention behind these laws is something that all well-meaning employers support. Nevertheless, situations can arise when even the most well-meaning employer may find compliance with the law and the behavior required to avoid a lawsuit both counterintuitive and difficult. One particularly dangerous area for employers can be found in the anti-retaliation language contained in many employment discrimination statutes. This is because employers too often react negatively to the assertion of a claim and consequently turn a weak discrimination case into a strong retaliation claim.