Noncompete Agreements

The "Alliance for Open Competition" or "Noncompete Agreements Should Not Be Enforceable in Massachusetts"

February 11, 2008

In December I wrote a post title Why Has Silicon Valley Outperformed Boston/Route 128 as a High Tech Hub? The topic was whether the legality of noncompete agreements (“NCAs”) in Massachusetts has put the state at a disadvantage to California, where NCAs are not enforceable. The Alliance for Open Competition is a blog where people and organizations who would like Massachusetts to join California (and other states) and make NCAs illegal express their views on this issue. The first entry in the blog is Spark Capital’s open letter to Governor Deval Patrick in early December 2007. The purpose of the Alliance is described as follows: The Alliance for Open Competition is a group of entrepreneurs, investors and executives dedicated to fostering innovation throughout the US. We seek to breakdown a major barrier to entrepreneurialism: the use of non-competition agreements mandated by employers that force employees to sign away their rights to engage in any business of a competitive nature when they leave their present jobs. Today Massachusetts, New York and Michigan are among dozens of other states that still enforce non-compete clauses. We believe that employment non-competes are stifling the emergence of start-up companies in these states, forcing innovative entrepreneurs to take on tremendous legal and financial risks, and hampering the ability to meet our fullest economic potential as a nation. To be clear, we do support non disclosure agreements…

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Why Has Silicon Valley Outperformed Boston/ Route 128 as a High Tech Hub?

December 6, 2007

In a post on TechDirt Mike Masnick argues (with references to supporting studies) that the fact that noncompete agreements are enforceable in Massachusetts but not in California has been a major factor in Silicon Valley’s success. A few excerpts from the article: Ronald Gilson . . . [found that the success of Silicon Valley] had much less to do with cultural reasons and much more to do with the legal differences between the two places, specifically: California does not enforce noncompetes, while Massachusetts does. Gilson looks at a few of the other possible explanations for the difference and shows how they’re all lacking, leaving the difference in noncompetes as being the key difference between the two regions in terms of the flow of information and ideas leading to new innovations. * * * . . . [T]he Federal Reserve and the National Bureau of Economic Research, . . . produced some data to back up the[se] findings . . . in their report Job Hopping in Silicon Valley. Their data showed that, indeed, there was much greater mobility in Silicon Valley than elsewhere. Their research further backed up Gilson’s suggestion that it was noncompetes that made the difference by showing that other high tech communities in California outside of Silicon Valley also showed greater job mobility — suggesting it was a California-wide phenomenon. Finally, to make the case even more…

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It's A Tough Job, But Somebody's Got To Do It

October 26, 2007

[Update, November 20, 2007]: Howie Carr has returned to WRKO[Update, October 30,2007]: Today’s Boston Globe reports that Howie Carr’s appeal was denied. Litigation over noncompete agreements rarely gets this interesting. The Contestants. In one corner you have Howie Carr, one of the most popular talk show hosts in the country. In next corner (there are players in all four corners of this ring) stands Entercom Boston, owned by Entercom Communications, one of the largest radio broadcasters in the U.S. and owner of Boston radio station WRKO-AM, which hosts the popular Howie Carr Show. Opposite WRKO stands Greater Media, owner of numerous media assets, including WTKK-FM in Boston, and would-be employer of Carr. Finally, in the corner directly opposite Mr. Carr is Massachusetts Superior Court Judge Allan Van Gestel. The Contest, In Brief. Howie Carr wants to leave WRKO and work for WTKK. However, his contract with WRKO gave WRKO the right to match the offer made by WTKK, and WRKO did match WTKK’s five year, $7 million offer. Carr filed suit, claiming that this provision of the contract is unenforceable under Massachusetts law. Judge Van Gestel ruled that under the circumstances present here WRKO had the right to match WTKK’s offer, requiring Carr to honor his contract with WRKO. Carr has appealed this ruling, but at the moment Carr is off the air, refusing to broadcast for WRKO (which wants…

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Recent Business Law Decisions From the Mass State Courts

August 18, 2006

Noncompete Agreements. Plaintiffs seeking to enforce noncompete agreements by means of preliminary injunctions have been up against it as of late. In Payson’s Trucking v. Yeskevicz (pdf file) Judge Peter Agnes denied the plaintiff’s motion, which was brought against a contracting party (as opposed to an employee), on the grounds (among others) that the agreement was too vague as to its geographic reach and in the identification of the plaintiff’s actual customers. In Merchant Business Solutions v. Arst (pdf file) Judge Richard Connon denied a preliminary injunction against a former sales employee on the grounds that the geographical limits were too broad and that the plaintiff was seeking protection from ordinary competition (among other reasons). Both cases are worth reviewing, since the impression one takes away is that the pendulum has swung (yet again) in the direction away from enforcement of these agreements. A plaintiff simply needs better facts than the parties had here in order to obtain a preliminary injunction to enforce a noncompete agreement. Derivative Shareholder Suits. When it turns out a company has made an operational mistake it can expect two lawsuits. The ubiquitous and much publicized class action and the less well-known derivative shareholder suit. The latter seeks damages on behalf of the corporation from the officers and directors who allegedly were involved in the wrongdoing. Often the two suits are coordinated by plaintiffs’ counsel,hoping that…

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Covenant Not-to-Compete Not Enforceable Against English-Challenged Russian Immigrant

August 4, 2006

It’s a bad day when your client wants you to enforce a noncompete agreement against a $10/hour Russian immigrant with “a very limited command of English,” who sends most of her earnings back to her son and elderly parents in Russia, and who, after a year of at-will employment and with no further payment of consideration, was told that unless she signed the noncompete agreement she’d be fired the next day. Nevertheless, that’s what the plaintiff’s lawyer faced in Zabota Community Center, Inc. v. Frolova. Not surprisingly, Judge Allan van Gestel of the Suffolk County Business Litigation Session threw the book at the plaintiff in this case, denying the motion for every reason conceivable. You can read the case here (pdf file).

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Trying to Enforce Your Noncompete? – Denied, Denied and Denied Again

June 21, 2006

Noncompete Agreements. Plaintiffs trying to obtain preliminary injunctions to enforce noncompete contracts in the Massachusetts states courts are off to a bad start this year. In February Superior Court Judge Richard Connon refused to enforce a noncompete clause against a former employee for a reason we see all to often: the employee signed the noncompete with one company, and then worked for another (presumably related) company with which he had not signed a noncompete. Sorry, this may be only a technical detail, but it’s always enough prevent the noncompete from being enforced. The case is Merchant Business Solutions v. Arst. In mid-March Judge Jonathan Brant refused to enforce a preliminary injunction when the plaintiff’s former employee went to work for a competitor with the former employer’s blessing. A year later the former employer changed its mind and filed suit, seeking a preliminary injunction. A year is far too long, the judge ruled – motion denied. The case is New England Speciality Lumber v. Jarvl. Finally, in late March Judge Peter Agnes denied a request for a preliminary injunction that the plaintiff brought against a contractor (as opposed to an employee). Judge Agnes denied the injunction, holding that two years was too long in the context of the business in question and the agreement was too vague as to its geographic reach. The case is Payson’s Trucking v. Yeskevicz. The lessons…

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No New Consideration, No Enforceable Noncompete

March 29, 2006

Noncompete Agreements. Clients frequently present the following issue: we have existing employees who have not signed noncompete agreements. We’d like to ask them to sign them. Any problem with that? The knowledgeable lawyer then struggles with the following question: does the employee need to be given some consideration for the noncompete to be enforceable? Consideration is not an issue when an employee signs a noncompete at the beginning of employment, since the job itself provides the consideration. But when the employee already has the job, does the employer have to give the employee some new consideration? – a raise, a bonus, a promotion? There is a line of Massachusetts cases suggesting that continued employment (for an at-will employee) is itself adequate consideration, but the rule is not as clear as most lawyers would like, and many lawyers are forced to equivocate on this issue. And, some states have clearly held that continued employment is not adequate consideration, adding to the uncertainty. In a decision issued on February 2, 2006 in Metropolitan Removal Co. v. D.S.I. Removal Specialists, Inc. [click here for the decision] Superior Court Judge Peter Agnes, a well-respected judge in Massachusetts, held that a noncompete agreement was not enforceable where the employee did not receive new consideration. Citing no cases one way or the other, Judge Agnes noted that the employee “did not receive consideration in return for…

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Massachusetts Business Court Sanctions Company for Pursuing Frivolous Case to Enforce Noncompete Agreement

March 21, 2006

Noncompete Agreements. If I had a dollar for every time a client who had been sued asked me if they could recover attorney’s fees or damages if they won, I’d have, well, probably hundreds of dollars. Even when a lawsuit proves to be frivolous the Massachusetts courts have traditionally been extremely reluctant to turn the tables on a plaintiff and make it pay damages for the harm its suit has caused to the defendant. Every once in a while, however, a judge shows some courage and punishes a company the judge concludes has brought a frivolous case. In January 2006 Judge Gants, in the Suffolk Business Litigation Session, turned the tables on Brooks Automation, a Massachusetts company with a billion dollar-plus market valuation, ordering it to pay over $600,000 in damages for bringing a frvolous lawsuit against a former employee. After a trial Judge Gants concluded that the suit was devoid of both any reasonable factual support or any arguable basis in law. A link to the decision is [here]. Judge Gants found that the suit, which Brooks brought against a former employee and a new company he had formed to compete with Brooks (but which was not, as yet, actually competing), had been filed with “reckless disregard” for its merits and to disrupt a potential relationship between the former employee and one of Brooks’ customers (Brooks actually emailed the…

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Noncompete Litigation in the Massachusetts Courts: 2005 Year in Review (Part I)

March 8, 2006

Noncompete Agreements. Our firm used to write “year in review” articles [link], and I decided it was time for a reprise. Here is a year-in-review summary of the most significant Massachsetts state court cases from late 2004 through calender year 2005 involving the attempted enforcement of noncompete or nonsolicitation contracts. Rather than getting bogged down in the detailed facts of the cases I’ll provide a quick summary of the key facts and legal issues that led to the outcome in each case. The goal is to get a feel for how judges are approaching these kinds of cases – what works and doesn’t work in the state courts when employers are attempting to enforce noncompete/nonsolicitation agreements against former employees. L-3 Communications v. Reveal Imaging [link] involved a complex series of corporate sales, the result of which was that the defendant-employees were several corporate acquisitions down the road from the companies with whom they had signed their agreements years earlier. Their new employer, who had “acquired” the employees via acquisitions, had failed to require the employees to enter into new agreements. Tough luck for the plaintiffs, as Judge Van Gestel concluded in the Suffolk Business Litigation Session in a decision issued on December 2, 2004. One of the employees had signed a noncompete agreement with a company that wasn’t even a predecessor-in-interest with the plaintiff. Another group of employees had signed…

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