U.S. - Massachusetts
2018 Update - SeeMA Law Change
Non-competition Agreements (General Rule).
Per Aspect Software v Barnett (D. Mass., 2011.May.27), the key conditions for enforcement of a non-competition agreement are that they are "necessary to protect a legitimate business interest,reasonably limited in time and space; and consonant with the public interest." The foregoing citation quotes from Boulanger v. Dunkin Donuts, 441 Mass. 635, 639 (2004).
Duration. The Aspect Software decision further states, with citations to Massachusetts cases, that "courts have upheld non-compete periods significantly longer than one year."2013.May.28 Massachusetts Court Declines to Enforce Non-compete
Equitable relief denied -- due to the executive's material change in duties (due to promotion) and his non-compete agreement being made with a smaller company rather than the larger one that bought it. Here is a relevant excerpt from Rent-a-PC vs. March:
Similarly, Cole experienced a material change in his employment relationship between the time he entered into the restrict covenants that SmartSource seeks to enforce and his resignation. He initially worked for All Service Computer Rental, Inc. (“ASCR”), first in the inventory department and then in the sales department. He signed an agreement with ASCR in 2002 containing non-disclosure, non-competition, and non-solicitation provisions, at which time he was an outside sales person.
SmartSource acquired ASCR in 2003. Although Cole’s official title never changed, it appears from the materials submitted in connection with the present motion that his duties, authority, and compensation may have changed substantially. As of his resignation, he had become “one of SmartSource’s most successful account executives, earning approximately $160,900 . . . in base pay in 2012” and was “the face of SmartSource to many of its customers.” (Am. Compl. ¶¶ 42, 43 (dkt. no. 7).) Under F.A. Bartlett, such material changes could well mean that Cole’s 2002 agreement with ASCR was no longer in effect. What is more, Cole’s agreement was with ASCR, which was much smaller than SmartSource and much more limited in scope.
Because his intent was to enter into restrictive covenants with this smaller company, it would be inequitable to enforce these covenants against him in relation to SmartSource.2012.Apr.28 Material Change in Post-Closing Employment Terms - New Noncompete Needed (Grace Hunt IT v SIS, Mass. Sup. Ct.). In the aftermath of M&A transaction, the buyer notified seller's key employees by letter describing a new more incentive-based compensation structure, and warning that they would have to sign a new non-competition agreement. Here are quotations from the court's ruling that denied enforcement of the non-competition agreements in effect before the closing:
"It is well-settled under Massachusetts law that each 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." Iron Mountain, 455 F. Supp. 2d at 132-133.
There is sufficient evidence, at this stage, to suggest that under the new compensation plan, Joyce and Olsen would have made significantly less, at least until there was sufficient work to enable them to bil enough hours to be eligible for bonuses. That their fringe benefits were better, as the plaintiff stlggests, is also immaterial. Under F.A. Bartlett and its progeny, it is the existence of a material change in the relationship that voids the prior non-compete agreement, not the nature of that change.
2011.Aug.29 Souter on Non-Compete Drafting.
In a First Circuit decision denying equitable relief because the employer's protection period had expired, former Sup. Ct. Justice Souter notes that the employer could have drafted the underlying agreement to provide for "tolling during the term of litigation, or for a period of restriction to commence upon a preliminary finding of breach." EMC Corp. v. Arturi (1st Cir., 8/26/2011).
Copyright © Joseph Poerio. All rights reserved.