Massachusetts Needs Firm Rules on Noncompetition Agreements

February 8, 2013 By

The more you see noncompetition disputes play out in courtrooms or, more commonly, between law offices, the more it becomes clear that the Massachusetts Legislature needs to step in and set some rules in this area of law.  Regardless of viewpoint on  this often contentious topic, it’s hard to argue against a clear legislative statement that noncompetes are either permitted or banned. In the former case, clear guidelines as to who can be restricted from work, where and how long restrictions can apply, and the procedural prerequisites to the signing and enforcement of noncompetition agreements should be enacted.

While a boon to lawyers, the fact-driven and case-specific approach courts now take to noncompetition disputes otherwise benefits no one but unscrupulous or overly zealous employers and, of course, their attorneys. The problem with current law is its uncertainty. As with any set of what’s referred to as common laws — that is, rules developed in the courtroom and not formally enacted into law by legislative bodies — noncompetion law in Massachusetts lends itself to individualized judicial approaches that can yield inconsistent results. Because fights between employers and their former employees in this area are so common, the Legislature needs to act. Given the various efforts to enact noncompetition legislation in recent years, it should by now have a firm grasp of the concerns of opponents and proponents alike and be capable of bringing a balanced approach to a new noncompetition statute.

Among the rules that would bring immediate improvement to the current system by decreasing costly disputes is one requiring employers to provide copies of their proposed noncompetition agreements to their new hires as part of initial offers of employment. Gone quickly would be courtroom battles about whether a  contract was properly formed, as required by law. A rule defining when an absolute bar to employment with a competitor is permissible would also be useful, as would one clearly defining what constitutes “solicitation” of either customers or employees. The precise contours of legislative action is far less important, in this writer’s view, at least, than is the creation of a new statute that clearly defines what employers can do with noncompetition agreements and what they cannot.

Filed Under: Employee - Employment Law, Employer - Employment Law, Massachusetts Employment Law, Non-competition Agreements

New Hampshire Law on Non-Competes a Warning for Massachusetts Employers

September 10, 2012 By

While not directly relevant to employers who confine their business activities within Massachusetts, a New Hampshire law that took effect in July sends a warning on the effective use of non-competition agreements. Under the statute, New Hampshire employers will be barred from enforcing non-competition agreements that are not provided to their new hires at or prior to the time that a job offer is made. While Massachusetts now has no formal requirement like this one, the law as interpreted by many state court judges effectively requires the same thing. 

In Massachusetts, employers seeking to enforce non-competition agreements bear a substantial burden in court. Among the requirements is proving that their contracts are valid. This requires a showing that the employee at issue was given something in exchange for his/her agreement not to compete. Since continued employment is generally not of sufficient value to support a contract, employers are effectively if not statutorily required to present non-compete agreements to their new hires before they start work. Failure to do so can invalidate an otherwise effective contract and render employers vulnerable to unfair competition from their former workers. [Read more...]

Filed Under: Employer - Employment Law, Massachusetts Employment Law, Non-competition Agreements

Protecting Assets Against the Competition

August 2, 2012 By

Starting a successful business isn’t easy. It may require financial risk, long hours at the office, and maybe a bit of luck. The last thing a small business owner needs is to be damaged by the disclosure of its trade secrets to the competition.

Protecting the information that helps make a business successful, then, should be a central part of every business plan. Employees, after all, become former employees, sometimes with an aim of starting a competing enterprise. Through this route, by accidental disclosures, or as the result of careless use of secrets, key inside information can be revealed. The damage such disclosure can cause to profitability can be substantial. At times, it may even threaten a company’s survival.

Preventing a crisis like that requires careful planning. By first identifying critical inside trade information, then taking steps to control its dissemination, small companies can minimize their exposure in this area. The process should include several steps. [Read more...]

Filed Under: Employee - Employment Law, Employer - Employment Law, Legal Questions & Answers, Massachusetts Employment Law, Non-competition Agreements

Enforcing Noncompetion Agreements against Independent Contractors may be Problematic for Employers

August 31, 2011 By

As if employers don’t have enough to worry about when they try to enforce noncompetition agrreements against their former employers, some are discovering that things get even trickier when they look to do so against workers who were arguably misclassified as independent contractors. In addition to the normal hurdles — including proving that a valid contract was formed and then breached by the employee, and establishing that a worker’s new job will substantially injure legitimate business interests — they may also face a formidable claim that the working relationship was itself illegal under Massachusetts law and, consequently, that their otherwise valid noncompetition agreements are void and of no effect.

This sort of situation is arising with increasing frequency in the real estate industry, for example, where agencies routinely classify their realtors as independent contractors despite the fact that, in all likelihood, they cannot pass muster under standards established by Mass. Gen. L. ch. 149, s. 148B. Many of these agencies also routinely required agents to sign non-competes. While it’s true that, to date, enforcement authorities have not focused attention on apparently illegal independent contractor deals like these, the approach by government does not impact the parties themselves. An improper independent contractor deal can still be raised as yet another substantial defense in a noncompetition enforcement action.

The problem for employers here is fundamental. Generally speaking, persons who violate provisions of law cannot later claim their benefits. Similarly, persons who violate contractual terms cannot later seek to enforce violations by other parties to them. In the employment setting, independent contractror arrangements that don’t comply with state law are void, and employees cannot be bound to honor them, even where they agreed to the terms in the first place. Employers, on the other hand, can be found liable for damages to the same employees who agreed to work as contractors. Where a noncompetition agreement is part of that sort of deal, an employee might argue persuasively that there is no valid basis to enforce it. Non-competes, after all, can withstand attack only when supported by a tangible benefit to the employee involved. Though hiring a worker and providing him/her a job is generally sufficient for this purpose, improperly classified workers might establish that, because the foundation of their work agreements are invalid, so too are the noncompetition clauses contained either within them or as part of some related document.

To be sure, this theory needs to be tested in the courts, and employers might in some cases argue for application of enforcement principles that apply to non-employment relationships. Standards there are in fact easier to meet in enforcement actions, but are unlikely to apply unless the employer can first establish the independent nature of the relationship to its former contractor. If that independent contractor was in fact an employee under law, that task may prove difficult or impossible.

Jack K. Merrill, Esq.

Filed Under: Articles, Employee - Employment Law, Employer - Employment Law, Independent Contractors, Massachusetts Employment Law, Non-competition Agreements

Can my old boss sue me based on a confidentiality agreement?

October 29, 2010 By

Additional Information:

I recently left my job at an IT company to start my own business. My old boss says he will sue me if I open a business in Massachusetts because that would violate the confidentiality agreement in my old one year contract. I’ve read the old contract and I don’t see how that could be true. Any thoughts? [Read more...]

Filed Under: Employee - Employment Law, Legal Questions & Answers, Non-competition Agreements

Legislature Considers Bill to Manage Non-Competition Agreements

June 1, 2010 By

Following the failure of a 2009 initiative to ban the enforcement of non-competition agreements, the Massachusetts legislature is now considering a bill to limit their applicability. The bill now winding its way through the legislative process would require, among other things, that non-compete agreemetns:

1.  Be written in a stand-alone format that both employer and employee sign. If non-competition is a condition of employment, the requirement must be disclosed to a new employee at least seven days prior to his/her starting work;

2.  If entered after an employee begins work, be supported by something valued at 10% or more of an employee’s annual salary. Notice of at least 2 weeks must also be provided to employees. This provision would ban the employer practice of requiring workers to enter a non-competition agreements immediately, under threat of job loss (this principle of law is already in effect under interpretative decisions of Massachusetts courts); [Read more...]

Filed Under: Articles, Employee - Employment Law, Employer - Employment Law, Massachusetts Employment Law, Non-competition Agreements