Massachusetts Non-Compete Agreements in a Nutshell
Non-competition agreements are more common today than ever before. I broach this subject because, a few months back, our Firm was successful in defending an employee against a Motion for Preliminary Injunction brought by her former employer. As we gear up for trial, I'd like to take this opportunity to review the nuts-and-bolts of non-competes.
Fortunately for employees and consumers, Massachusetts courts carefully scrutinize non-compete agreements and construe them against the employer. A covenant not to compete is enforceable only if: (1) it is necessary to protect a legitimate business interest, (2) reasonably limited in time and geographic scope, (3) consonant with the public interest, and (4) supported by consideration. The burden of proof as to the enforceability of a non-compete agreement lies with the employer.
What does all this mean? To address the first requirement, an agreement that attempts to merely prohibit ordinary competition does not satisfy a legitimate business interest. Employees may use the general skills and knowledge they acquired during their employment when they change jobs. Employees may not, however, use trade secrets or confidential information obtained from their former employer. The difference can be illustrated in the following hypotheticals using the (hilarious) TV sitcom, The Office:
(A) Michael Scott leaves Dunder Mifflin Infinity to work for a competitor, Staples, Inc., as a motivational speaker.
vs.
(B) Michael Scott leaves Dunder Mifflin Infinity to work for a competitor, Staples, Inc., in the same position. In doing so, Mr. Scott takes with him Dunder Mifflin's pricing models, confidential customer lists, vendor information, and (of course) his trusty side-kick, Dwight Schrute.
Dunder Mifflin's (DH) attempt to prohibit Mr. Scott from working for Staples in Hypothetical A would probably be construed as an attempt to stamp out ordinary business competition because, while Staples may be a competitor, Mr. Scott would neither be using any specialized training provided by DH nor confidential information to compete with Dunder Mifflin. On the other hand, Dunder Mifflin's effort to enforce a non-compete agreement in Hypothetical B would probably be interpreted as protecting a legitimate business interest since Mr. Scott would be poaching employees and using DH's trade secrets against them while in an identical role at his new job with Staples.
To address the second requirement, non-compete agreements must also be reasonable in both geographic scope and time. The definition of "reasonable" is typically decided on a case-by-case basis. Regarding geographic scope, Massachusetts courts have upheld worldwide restrictions where the business is unique and limited to a select list of international clientele. In contrast, enjoining an employee from working in a particular county may be unreasonable where the business produces a high demand.
Regarding time, a non-compete agreement containing a restriction of up to two years may ordinarily be found to be reasonable. Two years, however, may be too long where the business involves personal services provided at regular intervals.
In our case, the non-compete spanned all of Essex County and contained a two year time restriction. In denying the Motion for Preliminary Injunction, the Judge questioned the Agreement’s reasonableness in both time and scope:
Massachusetts courts have enforced non-competition agreements up to two years in some circumstances, but it is not apparent that such a long time is necessary in this context, involving a service clients usually require at intervals of weeks or months. As to territorial scope, Essex County encompasses many square miles of territory.
Click here for the full decision.
To address the third requirement, non-compete agreements that restrict workers in certain professions run afoul of the public interest. In Massachusetts, for example, non-compete agreements as to doctors and attorneys are per se illegal.
To address the fourth and final requirement, non-compete agreements, like other contracts, must be supported by consideration. When the agreement is signed before or at the beginning of employment, the offer of employment constitutes consideration. With respect to agreements executed after the commencement of employment, an open question in Massachusetts exists as to whether some additional consideration, beyond continued employment, is necessary to make a non-compete agreement legally binding.
Overall, non-competes can be confusing and costly to defend in court should the employment relationship unravel. Its better to do your due diligence before you sign on the dotted line.
