Noncompete Reform – A Non-Issue?

An arcane provision in Chapter 149 of the Massachusetts General Laws states that “No person shall, by intimidation or force, prevent or seek to prevent a person from entering into or continuing in the employment of any person.” G. L. c. 149, § 19. Representative Lori A. Erlich (D-Marblehead) and others filed bills in the Massachusetts legislature, most recently in January of this year, seeking to expand the prohibition to include an outright ban on noncompetition agreements. Specifically, Erlich’s bill proposes that “Any written or oral agreement arising out of an employment or independent contractor relationship that prohibits, impairs, restrains, restricts, or places any condition on a person’s ability to seek, engage in, or accept any type of employment or independent contractor work, for any period of time after an employment or independent contractor relationship has ended, shall, to that extent, be void and unenforceable.” House Docket, No. 2332. Proponents of the bill say that a ban on non-competition agreements is necessary because the agreements unduly restrict mobility in the workforce and harm the economy, while opponents stress that such agreements are essential to protecting trade secrets and other proprietary information.

Loss of Momentum?

While similar bills seeking to limit the enforceability of noncompetition agreements had gained some traction under Governor Deval Patrick’s administration, there has been recent speculation that so-called “noncompete reform” has come to a halt, as Governor Charlie Baker settles into his first term in office. Noncompete reform “doesn’t impress me as being a front-burner issue at the moment,” Massachusetts Lawyers Weekly recently quoted Andrew P. Botti, the governor’s recent appointee to his transition team subcommittee on jobs and the economy. Erlich is quoted as stating that “it would be premature to assume the governor is wholly opposed to placing limits on the agreements.”

Existing Judicial Limitations on Enforceability

Regardless of whether the legislature takes up the issue, employers are reminded to heed judicially-crafted limitations on the enforceability of noncompetition agreements. In general, Massachusetts courts will enforce noncompetition agreements, provided that they (1) are supported by adequate consideration, (2) are reasonably limited in time, space, and scope, (3) are used to protect a legitimate business interest, and (4) do not prevent an employee from using his or her own skills or knowledge. See Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716 (1961). While Massachusetts courts have recognized that “[t]he non-disclosure of confidential or proprietary corporate information and a company’s good-will are legitimate business interests,” courts have refused to enforce noncompetition agreements to prevent ordinary competition in the workplace. Modis, Inc. v. Revolution Group, Ltd., 11 Mass. L. Rptr. 246 (Mass. Super. Ct. 1999) (citing New England Canteen Service, Inc. v. Ashley, 372 Mass. 671, 674 (1977); Marine Contractors Co., Inc. v. Hurley, 365 Mass. 280, 287-88 (1974); All Stainless Inc. v. Colby, 364 Mass. 773, 778 (1974)). In addition, where there is unequal bargaining power between employers and employees, courts will strictly construe the agreement against the employer. Sentry Ins. v. Firnstein, 14 Mass. App. Ct. 706, 707 (1982).

Is an Outright Ban Necessary?

It is worth noting that in one sampling of reported cases involving the enforcement of noncompetition agreements within the past ten years, nearly twice as many injunctions were denied than allowed. See 45 Mass. Prac., Employment Law § 5.4 (2d ed.) (compiling table of cases granting or denying preliminary injunctions enforcing covenants not to compete). While the legislature may have an interest in further refining the existing judicial limits on enforcement of noncompetition agreements, an outright ban seems unnecessary and could throw out the baby with the bathwater.

JOHANNA MATLOFF

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2017-01-13T17:21:43+00:00 June 19th, 2015|Categories: Human Resources Compliance, Johanna Matloff, Noncompete Agreements, Wage & Hour|0 Comments

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