Winter 2005

Archived Articles

Recent Decisions in Massachusetts Relating to Terminated Employees

Enforcement of noncompetition and nonsolicitation covenants in Massachusetts is becoming an increasingly complex area. Employers are sometimes disappointed to find that it can be difficult or impossible to prevent the ex-employee from setting up a competing firm, joining the competition or soliciting its customers or clients. Employees are sometimes disappointed to find that a restrictive agreement with his or her previous employer is enforceable.”

In this article we describe several recent Massachusetts Superior Court decisions with the principal objective of demonstrating the difficult balance that the courts are seeking to achieve between protecting the legitimate interests of employers while not unnecessarily interfering with the ability of employees to change new jobs and establish new enterprises. Add to this mix a number of related business trends, including corporate downsizing, outsourcing, and the upward spiraling pressures of competition, and it should come as no surprise that disputes involving employees continue to comprise a substantial percentage of litigation in the commercial arena.

Noncompete invalid after change in job at the same employer.

In R.E Moulton an insurance company sought a preliminary injunction enforcing a 12 month noncompetition covenant against the former employee who had accepted employment with a competitor. The noncompetition covenant had been executed when the defendant was director of underwriting. Subsequently his position changed to regional sales director. The court concluded that with the change in position, the defendant was no longer a “management level” employee and had entered into a new employment relationship rendering the prior noncompetition covenant unenforceable. Note that while R.E. Moulton could be interpreted to be limited to the situation where the former employee’s position has been reduced, the second two cases involve situations where the employee’s position and responsibilities were increased.

In the Cypress case, a headhunter sought enforcement of a noncompetition covenant against two former employees. The two defendants had signed one year noncompetition covenants. Both defendants were promoted first from “placement counselor” to “practice counselor” and then to an even higher position; one was required to sign a new noncompetition agreement upon the first promotion but neither signed anything upon the second promotion. The court in this case again concluded that upon each promotion a new employment relationship was entered into, voiding the noncompetition agreement associated with the prior employment relationships. Similarly, in Lycos, the defendant left Lycos to work for Ask Jeeves, a direct competitor. She had also signed a one-year noncompetition agreement. The court denied Lycos’s petition for injunctive relief noting that the former employee had subsequently received several promotions during the course of her four years of employment with Lycos. Again, the court concluded that the terms of her employment had changed materially, thereby voiding the noncompetition agreement that she had signed upon commencement of her employment.

Non-solicitation covenant held to be enforceable.

Summary Conclusions.

• Decisions relating to the enforceability of restrictive covenants are extremely fact specific. One of the facts that courts may consider is whether the employer was consistent in the administration and enforcement of its restrictive covenants.
  
  
• Companies should consider making it a checklist item to require employees to re-sign restrictive agreements when there has been a material change of position or substantive responsibilities. Unfortunately, many companies – particularly start-ups – will find it difficult if not impossible to manage to this level of precision.
  
  
• Restrictive covenants remain viable in the Commonwealth but courts will not hesitate to cut them back if they are viewed as being unreasonably broad in scope, i.e., not supporting any legitimate interest of the employer.
  
  
• Historically Massachusetts has been known as a “blue pencil” jurisdiction in that our courts will reduce the scope of an unreasonably broad restriction but still enforce it in the final analysis. These decisions suggest a possible trend in which the enforceability of restrictive covenants, particularly noncompetition covenants, may be eroding in this state. Given this, employers should seek to impose restrictions that are as narrow as they can reasonably accept or risk the possibility that a court will void the restriction entirely.

Footnotes:
[1] Lawyers Weekly No. 12-233-04.
[2] Lawyers Weekly No. 12-031-04.
[3] Middlesex Superior Court No. 2004-3009.