Noncompete Agreements

The Massachusetts Noncompetition Agreement Act – Eight Years and Trying

June 29, 2016

Laws are like sausages, it is better not to see them being made.  Otto von Bismarck [Update, July 13, 2016: This bill is in flux as it moves through the Massachusetts House and Senate. To see updates follow my twitter account at @gesmer, or search #noncompete on Twitter] You could go to sleep for years, Rip van Winkle-like, and not miss much when it comes to keeping up with Massachusetts noncompetition legislation. Bills have been filed every year since 2009 and failed to be enacted into law. These bills have displayed all kinds of restrictions on non-competes, ranging from an outright ban (California-style), to a minimum salary requirement. However, it’s worth taking an occasional peak at what the drafters of this legislation are up to, and the proposed 2016 law is worth waking up for, particularly since it passed the Massachusetts House and is headed for the Senate and possible delivery to Governor Baker for signature by the end of July. Unsuprisingly, watching the sausage factory (the legislature) at work is not a pretty sight. At the same time, it’s difficult to avert your eyes. The bill, now H. 4434, contains a lot of what you might expect based on past bills: a 12 month restriction on non-competes (expanded to two years if the employee has breached her fiduciary duty to the employer or unlawfully taken, physically or electronically, property belonging to the…

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Both the White House and U.S. Treasury Critical of Noncompetes

May 10, 2016

Early this month the White House issued a report titled, Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses. The conclusion of this 16 page report is as follows: In some cases, non-compete agreements can play an important role in protecting businesses and promoting innovation. They can also encourage employers to invest in training for their employees. However, as detailed in this report, non-competes can impose substantial costs on workers, consumers, and the economy more generally. This report informs future discussions and potential recommendations for reform by providing an overview of the research on the prevalence of noncompetes, evidence of their effects, and examples of actions states are taking to limit the use and enforcement of unnecessary non-competes. There is more work to be done. The Administration will identify key areas where implementation and enforcement of non-competes may present issues, examine promising practices in states, and identify the best approaches for policy reform. Researchers must continue to assess and identify promising policy reforms and the potential impact of those reforms including unintended consequences. Ultimately, most of the power is in the hands of State legislators and policymakers in their ability to adopt institutional reforms that promote the use and enforcement of non-competes in instances that appropriately weigh their costs and benefits and in ways that provide workers appropriate levels of transparency about their rights. Among many interesting points…

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Slides From My Presentation on Noncompetes at Mass. Bar Assoc., April 2016

April 21, 2016

Download the pdf file

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New Employment Agreement Leaves Noncompete Provision in Earlier Agreement Unenforceable

December 22, 2015

I’ve often written about how easy it can be for an employer to lose the ability to enforce an employee noncompete provision.  In recent years the courts have come down hard on employers who materially change an employee’s job responsibilities but fail to require the employee to enter into a new contract, holding in many cases that a noncompete provision in the old contract does not survive the job change.  (For example, see Rent-A-PC Fails to Enforce Restrictive Covenants Against Former Employees). However, there is an even more fundamental mistake employers can make, as illustrated in the decision in Meschino v. Frazier Industrial Co. (D. Mass. November 18, 2015). In this case the employee entered into an agreement in 2005 which contained a covenant not to compete and a confidentiality provision.  The employee then signed a new employment agreement in 2012, but the 2012 agreement did not include these terms or refer back to the 2005 agreement. As the court noted, the 2012 agreement “states on its face that it contains ‘the terms of [the employee’s] employment’ without any reservation or reference to any other document or agreement.” That, so far as Massachusetts Federal District Court Judge Stearns was concerned, was the end of the matter.  The employer may have intended to preserve the 2005 noncompete provision in the 2012 contract (as it claimed), but the 2012 agreement contained not even the…

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Eleventh Circuit Requires a Hearing on Noncompete Where Evidence “Bitterly Disputed”

September 16, 2014

Now that the Massachusetts legislature has abandoned (at least until next session) a bill to make employer/employee noncompete agreements unenforceable (or more difficult to enforce) in Massachusetts, we’re back to business as usual in Massachusetts, and how the courts handle these cases remains of interest. And, since the preliminary injunction stage of these cases is so critical, how the courts handle preliminary injunction motions in noncompete cases is of particular interest. Of course, noncompete law (sometimes statutory, sometimes “judge-made” case law) varies from state-to-state. A recent case highlights the extent to which even the procedure for handling these cases can differ from state-to-state. In Massachusetts, the trial courts — federal or state — have no obligation to hold an evidentiary hearing when resolving a preliminary injunction motion. Affidavits are usually enough, and its rare to see a hearing with witnesses and cross-examination. However, this is not the case in the 11th Circuit, which covers federal cases in Alabama, Florida and Georgia. The 11th Circuit recently held, in a noncompete case involving a preliminary injunction motion, that while an evidentiary hearing is not always required before issuance of a preliminary injunction, ““[w]here the injunction turns on the resolution of bitterly disputed facts … an evidentiary hearing is normally required to decide credibility issues. … where much depends upon the accurate presentation of numerous facts, the trial court erred in not holding an evidentiary hearing to resolve…

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First Circuit Upholds Preliminary Injunction Enforcing 12 Month Non-Solicitation Clause

September 24, 2013

In Corporate Technologies v. Harnett, decided by the First Circuit on August 23, 2013, the court upheld the Massachusetts U.S. District Court’s enforcement of a 12-month employee non-solicitation clause. The court rejected Harnett’s (the former employee) argument that he did not solicit Corporate Technologies’ customers, particularly given evidence that the new employer sent a “blast email” to a group that included many of Corporate Technologies’ customers. The opinion contains an extensive discussion of the “metaphysical” distinction between “soliciting” and “merely accepting” business, an issue I discussed in another post this summer (Nudge, Nudge, Wink, Wink – Are You “Soliciting” in Violation of an Employee Non-Solicitation Agreement?). The First Circuit rejected a “bright-line” rule in determining who made initial contact in a non-solicitation case (the former employee or a customer), stating that – we believe that the better view holds that the identity of the party making initial contact is just one factor among many that the trial court should consider in drawing the line between solicitation and acceptance in a given case. This flexible formulation not only reflects sound policy but also comports with well-reasoned case law from other jurisdictions. Of interest is the First Circuit’s rejection of Massachusetts Superior Court cases as precedent on this issue: “these trial court decisions have no precedential force … Where, as here, the highest court of a state has not spoken to a question of state law, our precedents teach that…

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Nudge, Nudge, Wink, Wink – Are You “Soliciting” in Violation of an Employee Non-Solicitation Agreement?

July 2, 2013

Two note-worthy decisions have emerged from AMD v. Feldstein, a trade secret case pending in federal district court in Massachusetts. At the heart of the case is the conduct of several AMD employees who left to work for Nvidia Corporation. Inexplicably, they copied and took with them huge amounts of AMD data, actions which earned them a preliminary injunction in the first of two opinions, dated May 15, 2013. However, in the May 15th decision Massachusetts federal district court judge Timothy Hillman also addressed the thorny issue of  what constitutes a “solicitation” in violation of a non-solicitation agreement, and specifically solicitation of employees (as opposed to customers) of the former employer. The employee non-solicitation provisions in this case were fairly standard. For example, Feldstein’s provided that: during [Feldstein’s] employment with [AMD] and for a period of one year following the termination of [Feldstein’s] employment, whether voluntary or involuntary, [Feldstein would] not hire or attempt to hire an employee of [AMD], or directly or indirectly solicit, induce or encourage an employee of [AMD] to leave his or her employ to work for another employer, without first getting the written consent of an Officer of [AMD]. However, just what kinds of behavior violate such a provision, and which do not? Clearly, expressly asking or encouraging an AMD employee to leave AMD would do so (“you should leave AMD and come to work for Nvidia with me – you…

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Material Change In Employment Relationship Leaves Noncompete Agreement Unenforceable

June 17, 2013

My late May post on Rent-A-PC, Inc. v. Robert March, et al.  discussed a Massachusetts federal district court case in which Judge O’Toole refused to issue a preliminary injunction enforcing noncompete provisions against two former employees of Rent-A-PC because their job responsibilities had substantially changed since their non-compete agreements had been signed. In a decision issued by a Massachusetts Superior Court Judge in May, the court refused to issue a preliminary injunction on the same grounds. In Intepros v. Athy one defendant, Paul Athy, had advanced from branch manager to regional vice president. Relying on the hoary case of F.A. Bartlett Tree Expert Co. v. Barrington (1968), as well as several more recent cases, the court held that this change in job title responsibilities, as well as changes in pay, constituted a material change rendering the noncompete agreement void and unenforceable. A second defendant, Anne Marie Canty, had been hired and fired twice, and had signed a noncompete agreement on the first two hires. However, she was not asked to sign a noncompete agreement at the time of her third hire, a fact that left the employer without an enforceable noncompete agreement against her. Ms. Canty’s case was open and shut: if you fire an employee don’t expect a noncompete provision from that employment to be enforceable if you rehire the employee and don’t get a new agreement. Mr. Athy’s case is more difficult. Must an employer require…

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Rent-A-PC Fails to Enforce Restrictive Covenants Against Former Employees

May 30, 2013

In this May 28th, 2013 decision by Massachusetts Federal District Court Judge George O’Toole, Rent-A-PC unsuccessfully sought to obtain a preliminary injunction against two former employees, and to enforce a confidentiality agreement against a third. As to two of the employees, Rent-A-PC attempted to enforce a one year covenant not to compete. Judge O’Toole denied that motion, finding that the employees underwent several material changes to their employment, making it likely that their agreements had been abrogated. In analyzing this issue Judge O’Toole relied heavily on F.A. Bartlett Tree Expert Co. v. Barrington, a hallowed chestnut in Massachusetts noncompete case law dating back to 1968, but one that had been largely ignored until it was revived by a series of Superior Court cases in 2004.* Judge O’Toole’s reliance on F.A. Bartlett reinforces the impression that this doctrine has come full circle. *These cases held that when the employment itself was the consideration for a noncompetition provision but the employee’s job had substantially changed, the provision was no longer enforceable. The third employee had only a confidentiality/non-disclosure agreement, and the court found there was insufficient evidence to show he had violated it. Rent-A-PC, Inc. v. Robert March, et al. (D. Mass., May 28, 2013)    

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Repeat After Me: Competitors Cannot Agree Not to Hire Each Others Employees

November 29, 2012

Employee non-compete agreements are unenforceable under California statutory law, but that hasn’t stopped many California tech companies from finding a back-room work-around. In October 2010 I wrote a short post discussing the FTC’s complaint that a number of California companies had illegally agreed not to solicit each others employees – so-called “no-poach” agreements.  (Apple, Google, Have You No Shame? Really!). Now, two years later, the DOJ has filed a suit against eBay which, the suit claims, entered into a no recruit/no hire agreement with Intuit. Intuit is one of the companies caught engaging in this practice in 2010, and is subject to an agreement not to do so. To make matters even worse, according to the DOJ press release the agreement was entered into at the highest levels of both companies – Meg Whitman (then eBay’s CEO) and Scott Cook (CEO of Intuit). These companies have huge in-house legal departments (not to mention Big Law outside counsel).  But, the fact that the Justice Department views these types of agreements as per se illegal seems to have escaped them. Or, perhaps the benefit of these agreements (if a company is caught) is worth the cost.  

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Posting Your New Job Info on Facebook Is Not “Soliciting” Former Employer’s Customers

November 20, 2012

It’s not often that a Massachusetts Superior Court decision gets national attention, but if you search for Invidia, LLC, v. DiFonzo (Mass. Super. Ct. Oct. 22, 2012) you’ll see that legal blogs around the country have picked-up on this obscure case. Why? Because anything that involves the intersection of law and social media gets attention. In this case, the issue that attracted attention was whether a hairdresser employed by a beauty salon in Sudbury, Mass. “solicited” her former employer’s customers in violation of a noncompete/non-solicitation agreement. What did Ms. DiFonzo do to trigger this claim? She posted news of her job change on her Facebook page. The court held neither posting news of her new salon, nor friending several customers, constituted solicitation. Professor Eric Goldman has a lot to say about this case, including his question of how widespread litigation in the hair salon industry improves social welfare. And, he quite rightly gloats over the fact that an agreement like Ms. DiFonzo’s would not be enforceable in California, which has prohibited employee non-competes by statute. Not noted by most commentators outside of Massachusetts is the judge’s tentative conclusion that the customer “good will” this hair dresser developed with her customers may belong to her, not her salon. Most of Ms. DiFonzo’s customers seem to have been developed by her while working at the old salon, which makes this holding somewhat unusual. Goodwill…

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Massachusetts Quick Links – October 2012

November 5, 2012

Oriental Financial Group, Inc. v.  Cooperativa De Ahorro y Crédito Oriental (1st Cir. October 18, 2012) — In this case the First Circuit adopts the trademark law “progressive encroachment doctrine,” joining the 6th, 7th, 8th, 9th and 11th circuits. The progressive encroachment doctrine may be used as an offensive countermeasure to the affirmative defense of laches (delay in brining suit) where the trademark owner can show that “(1) during the period of the delay the plaintiff could reasonably conclude that it should not bring suit to challenge the allegedly infringing activity; (2) the defendant materially altered its infringing activities; and (3) suit was not unreasonably delayed after the alteration in infringing activity” (quoting Oriental Financial). Harlan Laboratories, Inc. v. Gerald Campbell (D. Mass. October 25, 2012) — Applying Indiana law, Judge Patti Saris issues a preliminary injunction enforcing a one year non-compete agreement. However, the opinion makes liberal use of Massachusetts and First Circuit precedents. Blake v. Professional Coin Grading Service (D. Mass. October 6, 2012) — In this case, which involves alleged trade secrets associated with a method to grade the “eye appeal” of coins, Judge William Young concluded that the “method” was not subject to trade secret protection due to the fact it had been publicly disseminated before being disclosed to the defendants. However, Judge Young ruled that the case could proceed based on the alleged misappropriation of a proposed marketing plan.  In addition to…

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