District Court Holds That Pre-Employment Conduct Is Not Covered by Chapter 93A

What you need to know:

The United States District Court of Massachusetts recently held that an executive could not pursue a claim against a former employer for alleged misrepresentations made during the course of his hiring process under the Massachusetts Consumer Protection Law, known as Chapter 93A.

What you need to do:

When a former employee or some other opponent threatens a claim under a state’s consumer protection statute, employers should consider whether the claim may be barred as outside the scope of the statute.

The Decision

In Smith v. Zipcar, Zipcar’s former Chief Technology Officer sued the company alleging, in part, violations of the Massachusetts Consumer Protection Law, known as Chapter 93A.  Over the course of several months, the executive had negotiated and ultimately accepted an offer of employment that included stock options.  Several weeks after he signed his offer letter, Zipcar signed a purchase agreement for its acquisition by Avis Budget Group.  Smith alleged that Zipcar should have informed him of the possibility of the acquisition before he accepted his offer of employment, in light of the negative effect it would have on his stock options if it closed.  Smith claimed that Zipcar had, in failing to inform him of the potential acquisition, engaged in an “unfair or deceptive act” in violation of Chapter 93A.

In seeking to dismiss Smith’s 93A claim on behalf of Zipcar, Choate relied on a line of cases holding that claims that arise in the course of an employment relationship are not actionable under 93A.  Under that precedent, employers and employees are engaged in private relationships, and not in the “trade and commerce” context that Chapter 93A was intended to cover.  Zipcar argued that even though the communications in its case predated the employment relationship, the claim still arose out of the employment relationship because the communications related to potential terms of employment, and the claim would never have arisen had the parties not ultimately entered into an employment relationship.

The District Court dismissed Smith’s 93A claim.  Though Chief Judge Saris acknowledged that Massachusetts higher courts had not yet ruled on whether pre-employment conduct was actionable under 93A, she cited a number of lower court rulings to hold that any dispute arising out of Smith’s hire was not actionable under 93A, because it still arose in the context of and in contemplation of the employment relationship.

What the Decision Means for Employers

The Court’s ruling in Zipcar is helpful in establishing that pre-employment conduct is not covered by Chapter 93A.  This development is significant because Chapter 93A is one of the few statutory claims that allows plaintiffs to receive treble damages in the event they prevail.