Blog Post – The Ties That Bind (or not)

Blog Post – The Ties That Bind (or not)

2016 West Hill Counsel 0

Restrictive covenants in MA employment agreements

Massachusetts employers who wish to rely on non-competition agreements may face an uphill battle in the near future.  Restrictive covenants are facing challenges both in the courts and in the legislature.

In 2014, the Massachusetts Senate passed a bill that would have placed significant restrictions on the ability to enforce non-competition agreements in the Commonwealth.  At the time, the House of Representatives, and House Speaker Robert DeLeo did not agree with the Bill and the issue was dropped.  Recently, however, Speaker DeLeo has indicated that he is in support of revisiting the issue.  DeLeo stated would support a Bill that imposed a 12 month limit on such agreements and a provision that potential employees be notified before they are hired that they will be asked to sign a non-compete agreement.  Consistent with previous legislation, DeLeo stated that he is in support of banning non-compete agreements for low-wage workers.  The previous version of the Bill banned non-competes for non-exempt employees and had a 6 month time limit. Now that the House Speaker appears to be on board with the reform, it seems even more likely that legislation is not far behind.[1]

Non-competition agreements

Non-competition agreements are also taking hits from the courts.  Recently the United States District Court of Massachusetts decided a case that was centered on the validity of a confidentiality/non-compete agreement.[2]  When the employee was hired in 2005, he signed an employment agreement that included a non-compete provision.  In 2012, the employee received a promotion and signed a revised employment agreement.  The revised agreement did not contain a non-compete provision and did not mention the 2005 agreement.

In January 2015, plaintiff sued his now-former employer seeking to recover unpaid commissions. The employer filed counterclaims against plaintiff, including, but not limited to, breach of the confidentiality and non-compete agreement. The employer alleged that plaintiff had breached the confidentiality/non-compete agreement by disclosing private information in the course of litigation over the unpaid commissions.

The question for the court became: was a confidentiality agreement signed by an employee in conjunction with a separate employment agreement still enforceable after the employee executed a new employment agreement several years later that made no reference to any existing confidentiality agreement?   The answer, according to Judge Stearns, is no.  The new employment agreement superseded the previous agreement, including the non-compete clause.  This case was decided on strict contract interpretation, but it could have also been decided following a line of cases that have held that a material change in employment may also invalidate a previous non-competition agreement.

The landscape of non-competition agreements is changing in Massachusetts.  When considering a non-competition agreement with a future employee, employers should consult with an attorney, given the probability that new legislation will change the legality of such agreements in the near future.  For employers who have existing non-competition agreements, these agreements should be revisited any time there is a new employment agreement with the employee or even if there is a promotion or any other change in employment.

[1] https://www.bostonglobe.com/business/2016/03/02/shift-deleo-vows-put-new-limits-noncompetes-for-mass-companies/79EspNqCgehQDnv8vdYumN/story.html

[2] Meschino v. Fraizer Industrial Company, No. 15-10327-RGS (D. Mass. 2015).