NON-COMPETE ENFORCEMENT

Below is an article by Robert Adelson that was first posted in July 2012 at his website executiveemploymentattorney.com The article indicates that employers in many industries seek to protect themselves from unfair competition that would arise from employees using company knowledge or contacts to create or join a competing business, and that employees entering into employment agreements and later seeking to change positions need to be aware of the scope and coverage of non-compete agreements in Massachusetts.The article further indicates that to protect companies, Massachusetts law has long held that an employment contract can include a provision restricting trade or competition for the employee after the employment ends, if:

  • The employer needs the restriction to protect its legitimate business interests
  • The restriction is reasonably limited in time and space
  • The restriction doesn’t violate public interest

What is reasonable depends on the facts in each case. The article then discusses three noncompete cases decided this year in Massachusetts which reveal how varied such cases can be.

Recent Massachusetts Cases Reveal Breadth of Noncompete Law

By Robert A. Adelson

Employers in many industries must protect themselves from unfair competition that would arise from employees using company knowledge or contacts to create or join a competing business. To prevent this, Massachusetts law has long held that an employment contract can include a provision restricting trade or competition for the employee after the employment ends, if:

  • The employer needs the restriction to protect its legitimate business interests
  • The restriction is reasonably limited in time and space
  • The restriction doesn’t violate public interest

What is reasonable depends on the facts in each case. Noncompete cases decided this year in Massachusetts reveal how varied such cases can be.

Trillium v. Cheung

This case arose when Cheung, an employee of Trillium, released another employee from a noncompete agreement without first obtaining the approval of the company. Trillium brought an action against Cheung for a breach of fiduciary duty and fraudulent concealment. The case is notable for the actions of the presiding judge. The two parties had agreed to a jury trial regarding whether Cheung breached his duty to Trillium by releasing the employee from the noncompete agreement. However, the two parties also agreed to have the judge decide on the issue of damages to Trillium.

This case involved a trial within a trial, because before the jury could decide if Cheung breached his duty to Trillium, a decision first had to be made on whether the non-compete was enforceable. Here, the judge interceded and instead of deciding damages, the judge ruled that the noncompete agreement was unenforceable and Trillium hence suffered no damages. Trillium appealed, and the Massachusetts Court of Appeals overturned the decision, holding that the judge erred by failing to describe the legal standard he used to determine the unenforceability of the noncompete agreement. The trial judge also used evidence from the jury trial, but did not describe these facts in his decision. The appeals court remanded the case and the two parties must retry the case.

A.R.S. Services v. Baker

A.R.S. Services is a disaster relief company that employed Baker. Baker resigned from the company and A.R.S. filed suit to enforce its one-year noncompete agreement that prevented Baker from competing with the company within a 40-mile radius. Baker argued that he resigned because of “moral turpitude” on the part of A.R.S. and that its actions constituted a material breach of the employment agreement.

A material breach of the employment agreement on the part of the employer does render a noncompete agreement unenforceable. However, no such breach was proven here: the court did not find that the employer behaved with moral turpitude, and thus upheld the agreement not to compete and the preliminary injunction sought A.R.S was allowed.

Grace Hunt IT Soutions v. SIS Software, LLC.

This case involved the question of whether a “material change” had occurred in the relationship between the employer and employee, rendering the pre-change noncompete agreement unenforceable. In this case, the court found that there was a material change, as the employees in question were forced to take a 20 percent cut in compensation when a new company acquired the business. The court found that this was enough to render the previous employment agreement containing the noncompete agreement unenforceable and the injunction sought by the acquirer to enforce the non-compete covenant was denied.

Contact an Attorney

Noncompete covenants can be delicate legal agreements that requires up-to-date knowledge of the law. For example, the Massachusetts legislature has considered in recent years changes to statutory law that would severely restrict noncompete agreements, and the legislature may again consider the current bill (which is opposed by the Associated Industries of Massachusetts) before the end of the session on July 31, 2012.

If you have questions regarding covenants not to compete, contact a skilled employment law attorney to discuss your legal options.

Robert A. Adelson, Esq. is a corporate and tax attorney and partner at Engel & Schultz LLP, Boston, Massachusetts. executiveemploymentattorney.com He represents C-Level executives and key employees in negotiations over employment terms, equity, compensation, relocation, retention, separation, severance negotiations, non-competes, NDAs and restrictive convents. He has worked with litigators at his Boston law firm in law suits over the enforcement of non-compete agreements, non-solicitation agreements and other restrictive covenants in Massachusetts. Email: radelson@engelschultz.com

© 2010 Robert A. Adelson