Further to my post below, commenting on whether the enforceability of noncompete agreements in Massachusetts has been a major factor in Silicon Valley’s relatively greater success in attracting high tech start-ups, a review of recent Massachusetts noncompete cases shows how difficult it has become to enforce these agreements in Massachusetts. Judges appear to be leaning over backwards to deny preliminary injunction motions (which is where the real action lies in these cases). Here is a quick summary of several recent state court cases.
In Bank of America v. Verille, decided by Superior Court Judge Thomas A Connors in Norfolk County in August, the Court denied BoA a preliminary injunction to enforce a non-soliciation agreement (a close relative of noncompete agreements), on the grounds that the customers that followed the former employee to his new job signed affidavits to the effect that they were not solicited by him. To put this in context, many years ago I saw a Superior Court judge state from the bench that the line between “soliciting” a customer and the customer “following” an employee is so fine that she would presume that a customer had been solicited, even in the face of affidavits from the customer stating it had not been solicited. I doubt that this judge would draw the same inference today.
In addition, in the Verille case the judge questions whether the “goodwill” (that is, the “relationship”) with these customers belongs to BoA or to the former employee, a defense to noncompetes that has definitely gained tranction in Massachusetts in recent years, after being viewed as having dubious credibility many times in the past, except in instances where the employee had pre-existing relationships with the customers (not the case here).
In Edwards v. Athena Capital, decided by Judge D. Lloyd MacDonald in Suffolk Superior Court in August, Edwards brought suit to enjoin the enforcement of his noncompete agreement with Athena, his former employer. In other words, rather than wait for Athena to sue him, he forced the issue by bringing suit first. Judge MacDonald ruled in favor of Edwards, holding that the noncompete was overbroad (it overstated the areas in which the former employee could not compete, and was of unlimited duration). In the past, the Massachusetts courts have been willing to “redline” agreements of this sort to make them acceptable (for example, rewrite the time period), but here the Court ruled against Athena based, in large part, on Edwards’ overbreadth argument.
In Boston Software Systems v. Doherty, decided by Judge Gants in the Business Litigation Session in April 2007, the Court refused to impose a preliminary injunction upon a former employee of Boston Software that had entered into a noncompete agreement. Judge Gants questioned whether the “good will” at issue belonged to the employee or the former employer (the employee had returned to her pre-Boston Software employer after being terminated by Boston Software). He also found that Boston Software would likely be able to prove any damages at trial, and therefore was unable to prove the irreparable harm necessary for a preliminary injunction. The defendant “stole the thunder” of Boston Software by representing to the Court that she would not deal with any of Boston Software’s former customers during the one year noncompete period, would work outside Boston Software’s market area during that year, and would not utilize any of Boston Software’s confidential information. The Court accepted these representations, and included them in its Order.
Going back a little farther, to October 2006, Judge Allen Van Gestel, in the Suffolk County Business Litigation Session, denied the employer a preliminary injunction against its former salesperson/employee in Tyler Technologies, Inc. v. Reidy. In that case the noncompete agreement misidentified Reidy, the former employee, as a consultant, when in fact he was an employee. This error (admittedly somewhat bizarre), doomed the effort to obtain an injunction for reasons explained in the decision. Tyler’s argument that it was clear from the context and the relationship that the parties intended Reidy to be bound by the agreement, whether it referred to him as a “consultant” or an “employee” held no water. Judge Van Gestel defended his ruling by stating that “in reading the agreement so strictly the Court may seem to be overreaching,” but this was the former employer’s agreement, “for which it is wholly responsible.”
In Advanced Cable Ties v. Hewes, decided by Judge Jeffrey A. Locke, sitting in Worcester County in October 2006, the employer sought to enforce a noncompete agreement against its former employee, Hewes, relying on Hewes’ knowledge of the former employer’s trade secrets to justify enforcement. The judge could find no flaw in the agreement itself (it was reasonable in geographic scope and duration), and found that Hewes had been given access to proprietary manufacturing information. However, pointing to extenuating circumstances (Hewes’ new employer competed with only 10% of the former employers’ product line, and Hewes had changed jobs in order to work near a sick and elderly parent), the judge refused to bar Hewes from the competing employment. Instead, he issued an order that Hewes not work on the competing product line for the duration of the one year noncompete period.
It seems clear that, although there is no statute in Massachusetts prohibiting the enforcement of noncompete agreements (as there is in California), Massachusetts Superior Court judges have gotten the message: these agreements are to be enforced only where the contract is clear and enforceable, and where the equities demand it. Maybe someone whispered in their ears – exercise some discretion in these cases, or the legislature may ensure that you have no discretion at all.