Two Recent Noncompete Cases From the Superior Court

by Lee Gesmer on 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 a company that had subsequently been acquired, and the acquiring company was attempting to enforce the non-compete agreement.  Judge Lauriat  seemed to put some weight on the fact that the new employer had asked the employees to  sign new non-competition agreements after the acquisition,  implying that the new employer had thought the employment relationships had materially changed, requiring new agreements.*  Preliminary injunction denied.

*Sometimes an acquisition alone will void a non-compete. That was not the case here, likely because the employment agreements permitted assignment.  However, many agreements do not include assignment clauses, preventing the post-acquisition employer from enforcing a non-compete agreement signed with the pre-acquisition employer.  See the discussion of L-3 Communications v. Reveal Imagining at this prior post (non-compete agreement signed not assigned as part of a sale to current employer was not enforceable).

The second of the two decisions illustrates more of a cookie-cutter approach to the enforcement of a non-compete covenant.  In this case, A.R.S. Services v. Baker, the plaintiff, a company disaster restoration field, asked the  court to enforce a one year non-compete provision against an employee who had resigned from the plaintiff’s firm .  It appears that the only argument Baker could make against enforcement was that his former employer had asked him to engage in “a fraudulent act involving moral turpitude,” and that this was a “material breach” of the non-compete agreement, rendering it unenforceable.  It is true that a material breach by an employer can invalidate a non-compete covenant.  However, this case appears to have involved  little  more than an internal disagreement between Baker and the employer over a cost estimate to rebuild a home.  The judge didn’t buy it – quite rightly, if the evidence in support of this assertion was as weak as the decision suggests.  This case was “plain vanilla.”  Preliminary injunction allowed.

Grace Hunt IT Soutions v. SIS Software, LLC

A.R.S. Services v. Baker

 

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