Noncompete Agreements

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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Noncompete Unenforceable Where Employer Changed Terms of Employment

September 2, 2012

A recent Massachusetts Superior Court decision holds, on summary judgment, that a company may not enforce a noncompete/non-solicitation agreement against a former employee when the former employer had materially breached the agreement by changing the terms of  employment. Specifically, the employer changed the employee’s job responsibilities and title, and cut his annual salary by $40,000. There’s nothing particularly surprising about this ruling, which is a reminder to employers that they can sacrifice the enforceability of a noncompete by materially changing the terms of an employment agreement. This can be avoided by entering into a new agreement containing the modified terms, something the employer in this case failed to do. Protege Software v. Colameta (Sup. Ct. Middlesex, July 16, 2012) ( Kirpalani, J.)

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Inevitable Disclosure Doctrine Fails Again in Massachusetts

July 10, 2012

Can an employer prevent a former employee from working for a competitor in the absence of a non-compete agreement and with no evidence the employee has violated the former employer’s trade secret or confidentiality rights?  You would think not, but a couple of cases — infamous in the annals of non-compete law  – have imposed a non-compete in these circumstances.  The case cited most frequently on this issue is PepsiCo v. Redmond, a 1995 case in which the 7th Circuit affirmed a preliminary injunction ordering the former employee of PepsiCo to cease working for a competitor for six months, despite the fact that the employee did not have a non-compete agreement.  Another high profile case prohibiting an employee from working for a competitor, even in the absence of a non-compete agreement, is Bimbo Bakeries USA, Inc. v. Botticella, decided by the 3rd Circuit in 2010. In these cases the employee does have non-disclosure/trade secret agreements.  The employer’s argument, based on these, is that the employee will  “inevitably” disclose the former employer’s trade secrets or confidential information in the course of working for a competitor. However, cases where the courts have accepted this theory without evidence of actual misappropriation are almost as rare as hens teeth, and Massachusetts U.S. District Court Judge Denise Casper recognized this when she denied the former employer a preliminary injunction in U.S. Electrical Services v. Schmidt in June of this…

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You Want to Enforce a Non-Compete? Bad Facts, Sir, Give Me Some Bad Facts!

June 22, 2012

What is the first thing a lawyer looks for when a client wants to enforce a non-compete agreement?  What is the first thing a lawyer hopes not to find when a client is the subject of a non-competition demand letter or lawsuit? Bad facts. Did the employee take confidential information belonging to the former employer?  Did the employee contact customers of the former employer and solicit them for the prospective employer before leaving the former employer?  If the employee was an executive or owed a fiduciary duty to the former employer, did the employee solicit other employees to leave with her? If the employee did any of these things, did the employee try to cover it up?  Bad facts!  The plaintiff’s lawyer will say.  Give me those bad facts! OK, I exaggerate a bit – of course a lawyer first wants to see if there is a written agreement that contains a non-compete provision.  But believe me, any experienced lawyer is itching to find those bad facts.  Lawyers know that judges are ambivalent about non-compete agreements, and putting someone out of work by issuing an preliminary injunction to enforce a non-compete provision is something few judges do with an easy conscience.  It’s no secret that there are some judges who will bend over backwards to find a way not to enforce a non-compete. So, lawyers trying to enforce these agreements know that the one…

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Mass. Appeals Court Reverses an Unusual Trial Order in Non-Compete Case: Trillium v. Cheung

April 4, 2012

Here is an unusual spin on Massachusetts non-compete law.  As best I can understand the facts (which require a bit of “between the lines” reading) Trillium sued Cheung, a former employee of Trillium.  Cheung had, it appears, released an employee from a non-compete agreement without company approval. Trillium’s suit asserted breach of fiduciary duty to the company. A trial ensued, but at the outset the judge observed that if the underlying non-compete agreement had not been enforceable the release had caused no harm to Trillium, and hence there had been no legal wrong committed by Cheung.  In other words, the trial involved a concept that lawyers dislike greatly: a “trial within a trial.”  (Think Russian nesting dolls). Here, the two trials involved the question of whether the non-compete was enforceable and, if so, whether Cheung acted illegally by releasing the employee from the agreement. The trial began with a jury proceeding, during which the jury was asked to decide the second of these issues first  - whether Cheung had improperly given the employee a release from  the non-compete.  However, in an odd twist the parties agreed that the judge, not the jury, would rule on damages.  Before doing so, however, the judge addressed the second issue (which, one would think, should have gone first),  held that the non-compete agreement was unenforceable, and concluded therefore that Trillium had suffered no damages….

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Two Recent Noncompete Cases From the Superior Court

March 23, 2012

Noncompete opinions from the Massachusetts Superior Court are few and far between, so the two decisions that have been issued so far this year — one from Judge Peter Lauriat sitting in the Suffolk Business Litigation Section (BLS), the other from Judge Thomas R. Murtagh in Middlesex Cournty — are worth noting.  Both judges are respected judicial veterans, and each decision illustrates a legal principle basic to this controversial and often confusing area of law. The more note-worthy of the two cases is Judge Lauriat’s decision in Grace Hunt IT Soutions v. SIS Software, LLC.   There are relatively few ways to wriggle out of a non-compete, but one that should be near the top of every lawyer’s list is the question whether there has been a “material change” in the employment relationship since the non-compete agreement was signed.  If so, a “pre-change” non-compete may be unenforceable.  In this case the court found that there had been such a change, and therefore it denied a motion for preliminary injunction to enforce the  non-compete  covenant against the defendants.  Of course, what constitutes a “material change” can vary, depending upon the eye of the beholder, which in a preliminary injunction context is the judge.  In this case Judge Lauriat concluded that a 20% cut in salary was enough of a change to satisfy this standard.  Also, the employees had signed the non-compete with…

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