Recently in Non-compete Agreements Category

August 5, 2014

Non-Compete Agreements Survive Another Legislative Session

Massachusetts legislators have once again declined to amend Massachusetts law relative to non-competition agreements, which operate to ban employees who sign them from working for competitors after they leave a company. According to the Boston Herald, the final version of a proposed Massachusetts economic development bill will not include language placing limitations on non-compete clauses, as many of those opposed to non-competes had hoped.

The legislation has been hotly debated for years. Most of those in favor of keeping non-compete agreements valid and enforceable are employers and owners of large organizations intent on protecting their business information and intellectual property. Earlier this year, as part of a larger economic development bill, Massachusetts Governor Deval Patrick proposed an outright ban on non-compete agreements. As a compromise, Governor Patrick later suggested that Massachusetts adopt the Uniform Trade Secrets Act, a federal act currently in use by 46 states as well as Washington, DC. The Uniform Trade Secrets Act aims to protect employers' intellectual property rights without necessarily limiting employees' ability to change jobs.

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April 15, 2014

Proposed Legislation Threatens the Future Enforceability of Non-Compete Agreements

In the past, Massachusetts legislators have proposed legislation that would ban the enforcement of non-competition agreements in Massachusetts, but no such law has yet passed. Last week, Governor Deval Patrick announced that he would propose similar legislation as part of an economic growth bill, in an effort to remove the barriers that non-compete agreements create for workers in high-tech companies who wish to open their own competing business.

As we have previously discussed, Massachusetts law presently views non-competition agreements as valid and enforceable, if they are reasonable in duration, geographic scope, and restricted activities. These agreements have been essential to many Massachusetts employers to prevent employees from leaving the employer and taking with them the employer's valuable business information and trade secrets.

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March 20, 2014

No Breach of Fiduciary Duty by Corporate Shareholder Who Opened Similar Business

In Ricci Consultants, Inc. v. Bournival, a case recently tried in the Norfolk Superior Court, it was determined that a defendant did not breach a fiduciary duty when she left employment with Ricci Consultants, Inc. (RCI), an actuarial consulting firm in which she was a shareholder with a one-third interest, to start her own actuarial consulting firm, KMS Actuaries, Inc. (KMS). Although both firms provided actuarial consulting services for clients, the types of clients each firm serviced differed: RCI specialized in private sector work, while KMS focused on the public sector. Following the defendant's departure from RCI, both parties filed suit against each other, both alleging intentional interference with contractual/advantageous relations with customers, and breaches of fiduciary duties. A jury returned verdicts in favor of the defendant and KMS on the intentional interference claims. The parties waived their right to have a jury decide the breach of fiduciary duty claim, which the judge considered.

RCI alleged that the defendant, through KMS, competed with RCI and thereby stole corporate opportunities from KMS, to which she owed fiduciary duties. In doing so, RCI alleged that the defendant breached her duty of loyalty owed to RCI.

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February 27, 2014

Can A Social Media Post Constitute Solicitation in Violation of a Non-Compete Agreement?

Last fall, the business litigation session of the Massachusetts Superior Court considered whether former employee's LinkedIn profile change constituted a violation of the employee's non-competition agreement. In KNF&T Staffing Inc. v. Muller, KNF&T, a staffing agency in the Boston area, had hired the defendant, Charlotte Muller, in 2005. When Muller was hired, she signed an Employee Confidentiality and Non-Competition Agreement that prohibited her from recruiting or referring potential employees for placement in the "Company's Field of Placement" for one year within 50 miles of any of KNF&T's offices. Muller worked at KNF&T for eight years, and was eventually promoted to Vice President and manager of the plaintiff's Boston office. Muller resigned from KNF&T, and three months later joined Panther Global Group, a staffing firm in Boston and direct competitor of KNF&T in certain areas. Muller posted on her LinkedIn account that she had changed jobs, notifying her 500+ contacts of the change. KNF&T filed a lawsuit to enforce the non-compete agreement Muller had signed in 2005.

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January 30, 2014

Non-Compete Case: No Competition, No Preliminary Injunction

A federal district court in Massachusetts recently denied a corporation's motion to preliminarily enjoin its former employee from working at an alleged competitor corporation, as was prohibited in the employee's non-competition agreement. The court's decision turned on the fact that the plaintiff never proved that the defendant corporation was in fact a competitor in the marketplace, and thus did not satisfy the requirements that would warrant a preliminary injunction.

In Upromise, Inc. v. Peter Angus and Intuition Systems, Inc., Upromise, Inc. ("Upromise") specialized in servicing college savings plans, and was the former employer of Peter Angus ("Angus"). Angus left Upromise, and found a position with Intuition Systems, Inc. ("Intuition"), a company that focused on providing prepaid service of college savings plans. Upromise filed a lawsuit and a motion for preliminary injunction against Angus and Intuition, seeking (1) to enjoin Angus from accepting employment with Intuition, an alleged competitor of Upromise, for a period of one year pursuant to Angus' non-competition agreement with Upromise, or (2) specific performance of a negotiated settlement agreement to prevent Intuition from hiring Angus.

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January 2, 2013

Preliminary Injunction Granted in Non-Competition Agreement Violation Claim

In Harlan Laboratories, Inc. v. Campbell, the defendant worked as a regional sales manager for a company that provided laboratory animal test products and services to various medical and scientific entities. When the defendant left the company to work for a competitor, the company sued the defendant, claiming that he had violated the noncompetition agreement he had signed with the company, and sought a preliminary injunction to prevent him from violating the noncompetition agreement. To secure the injunction, the burden of proof was on the company to show that the defendant had access to valuable and/or confidential information that would be of value to a competitor.
The company presented evidence that the defendant had access to the company's valuable and confidential information, which included customer accounts, inventory reports, pricing data, revenue data, strategic planning, and marketing strategies. Further, the company presented computer records that showed that prior to leaving the company, the defendant downloaded onto a flash drive thousands of pages which contained company documents. Finally, it was shown that after taking this information the defendant later used the company's client information, various reports, and PowerPoint presentations for select customers, to work on a project for his new employer. Because the defendant allegedly lost the flash drive, the flash drive could not be presented at the injunction hearing.
The district court held that "the noncompetition agreement is reasonable in light of the narrow and competitive nature of the industry, the substantial overlap between services and products provided by the named direct competitors, and the legitimate interest in protecting sales information useful to the two competing companies. ... [since the defendant had a] clear understanding of what conduct is prohibited' by this agreement." The court then concluded that the company had made a successful showing of its likelihood of success on the merits of the non-compete claim, as well as the potential for irreparable harm.
Accordingly, the court issued a preliminary injunction preventing the defendant from working for a company that directly competes with the plaintiff in specific areas.

December 14, 2012

Facebook Posting Advertising Former Employee's New Position Not A Violation of Nonsolicitation Agreement- Boston Business Laywers Parker Scheer LLP

A Massachusetts Superior Court recently held that a Facebook posting regarding a former employee's new employment did not violate the nonsolicitation covenant she signed with her former employer, although there was evidence that the former employee violated her non-competition agreement with the former employer.

In Invidia LLC v. DiFonzo, DiFonzo, a stylist at the Invidia hair salon, was required to sign a non-competition agreement and non-solicitation covenant with Invidia at the time she was hired. This agreement restricted her from working with any competitor of Invidia within ten miles of the salon and within two years after DiFonzo was no longer employed at Invidia. After two years of working at Invidia, DiFonzo left the hair salon. The next day, DiFonzo took a similar stylist position with one of Invidia's competitors, which was located less than two miles from Invidia. The competing salon posted an announcement on Facebook advertising that DiFonzo had joined the salon.

Following DiFonzo's departure from Invidia, the salon experienced a significant number of no-shows, cancellations and nonresponses from clients, which the salon attributed to DiFonzo. Invidia threatened to sue both DiFonzo and the competing hair salon for the loss of business and DiFonzo's violation of her non-compete agreement and nonsolicitation covenant. DiFonzo's new employer then terminated her employment, and Invidia sought a preliminary injunction against DiFonzo to enforce the non-compete agreement restrictions, and to prevent DiFonzo from soliciting Invidia clients or using confidential information she may have obtained from Invidia.

In its analysis of her non-compete agreement case, the superior court noted that, while Invidia had presented sufficient evidence to calculate any monetary damages caused by the loss of each client DiFonzo may have solicited from Invidia, it was not entitled to monetary damages if DiFonzo did not breach the nonsolicitation covenant. Invidia claimed that DiFonzo's Facebook activities violated the nonsolicitation agreement. However, the court found no such violation. First, the competing hair salon - not DiFonzo herself - posted the Facebook announcement regarding DiFonzo joining its salon, and the posting appeared on DiFonzo's personal Facebook page only as a result of her name being "tagged" in the announcement. Second, the mere fact that DiFonzo was "friends" on Facebook with some Invidia clients was not sufficient to amount to solicitation in violation of the agreement. Accordingly, the court held that DiFonzo did not breach the nonsolicitation covenant with Invidia.

Although the court denied Invidia's request for a preliminary injunction, it did note that it found sufficient evidence to support Invidia's contention that DiFonzo had violated the noncompetition covenant.

If you believe you may have a non-compete agreement case and are in need of a business lawyer, please contact Parker | Scheer LLP for a free consultation with one of our experienced Business Law and Business Litigation Lawyers.

December 7, 2012

NO CONSUMER PROTECTION VIOLATIONS IN LAWSUIT BETWEEN TWO EMPLOYERS- Boston Business Lawyers Parker Scheer LLP

U.S. District Court Judge Dennis Saylor recently granted a motion to dismiss a former employer's 93A consumer protection claim against a company that had hired its former employees--employees who were bound by a non-competition agreement which they had entered into with the former employer. Interestingly, the former employer did not assert the 93A claim against the former employees, but instead against the company that employed those employees, on the theory that the company knew or should have known that the former employees would be breaching their respective non-competition agreements with the former employer by accepting employment with the new company. Although the court let the former employer's claims for intentional interference with contractual relations against the new company proceed, it determined that, because the proposed 93A claim arose out of an employer-employee relationship, the "trade or commerce" nexus required under the 93A statute was not satisfied in a claim involving two employers. The judge focused on the fact that the former employer's claims against the new company would not have arisen but for the employer-employee relationship between the former employer and its former employees.

Whether other courts construing the 93A statute will follow this federal judge's very expansive view remains to be seen. It is, at the very least, arguable that companies may be engaging in trade or commerce under circumstances similar to those in this case. Time will tell whether the same result would be reached if, for example, an employment agency lured employees away from one company to work for a competitor.

If you believe you have a claim related to non-compete agreements, please contact Parker | Scheer LLP for a free consultation with one of our experienced Business Lawyers.

June 5, 2012

New Non-Competition Considerations for Family Businesses

Following a recent Massachusetts Appeals Court decision, keeping it all in the family business has become a reality for divorcing spouses.

Last month, the Massachusetts Appeals Court held that the Probate and Family Court had the authority, as part of divorce proceedings, to enjoin a wife from operating a business that is in competition with the husband's family business, effectively binding the wife to a non-competition agreement to which she never agreed. Because the good will of a business is a divisible asset in divorce proceedings, the right of the spouse who does not receive that asset to open a competing business diminishes the value of the business, undermining the attempt at an equitable division of assets between the spouses.

Although this decision is not likely to have broad application outside of divorce matters, it is yet another dimension to consider in family business planning, taking into account the potential pitfalls that may occur when spouses are involved in the same family business, and where that family business may be distributable to one spouse in future divorce proceedings.

April 3, 2012

Reminder: A Material Change in Compensation Arrangement can Void a Non-compete

A Massachusetts Superior Court recently reminded employers that a previously valid non-compete agreement may become unenforceable against an employee if the employer implements a new salary structure.

In that case, employees had signed non-competition agreements with their original employer. After the assets of the original employer company were purchased by a new company, the new employer requested that the employees sign new offer letters and new non-competition agreements. The new employer proposed to decrease employees' base salaries by approximately 20%, but allow the employees to make up the difference by way of potential bonuses earned based upon billable hours. The employees signed the new offer letters, but refused to sign the new non-competition agreements. The employees later resigned from the new employer company and began working for a competing business, taking some clients with them. The new employer sought to enforce the original non-competition agreement against the employees.

However, under settled Massachusetts law, non-compete agreements may be voided by any "material change" in the employment relationship between the employee and the employer. Here, the court held that the new salary structure was a "material change" because under it, the employees would have received significantly less compensation. This change in the employment relationship was enough to render the original non-compete agreement ineffective against the employees who resigned.

The lesson for employers: be mindful that any change to your business structure that materially affects the employer-employee relationship may allow employees to escape the chains that bind them under a prior non-competition agreement.

January 17, 2011

Proposed Noncompete Legislation Continues to Loom

Employers dodged a bullet with the recent tabling of legislation that would have significantly restricted an employer's ability to enforce noncompetition agreements in Massachusetts. Nevertheless, employers are not yet completely out of the water.

As have most states, Massachusetts has traditionally taken a dim view of noncompetition agreements. Under current Massachusetts law, noncompetition agreements are considered valid and enforceable, provided that they are reasonable in duration, geographic scope, and restricted activities. Thus, Massachusetts employers have been able to use noncompetes to minimize the potentially harmful effects of an employee leaving the business to work for a competitor, taking with him valuable information and trade secrets that are the essence of the employer's business.

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