When seeking preliminary injunctive relief to enforce a non-compete, the moving party is often focused on how obvious it is that the defendant breached the parties’ agreement. As 7-Eleven recently learned, however, even when there is a valid and enforceable noncompetition provision and a clear breach of it, unless you can show that you will suffer irreparable harm without an injunction, and that such harm outweighs the irreparable harm to the defendant that an injunction would inflict, a court will not issue injunctive relief. … Keep reading
Noncompetition & Other Restrictive Covenants
As the debate continues in Massachusetts as to whether or not to ban noncompetition agreements, a related question remains: Is there really any value in having employees sign noncompetition provisions? As a recent decision by U.S. District Court Judge Denise Casper in Boston Scientific Corp. v. Dongchul Lee confirms, if an employer has valuable trade secrets and wishes to prevent employees from potentially sharing them with a competitor, the answer is a resounding “yes!”
In Boston Scientific, the defendant, Dongchul Lee, was a former Boston Scientific employee who had worked on a number of its projects, including Mechanism of Action (“MOA”) research related to spinal cord stimulation (“SCS”). While Dr. Lee had signed an employment agreement containing a non-disclosure provision and requiring him to return all Boston Scientific property upon termination of his employment, the agreement did not include a noncompetition provision (presumably because Dr. Lee worked in Boston Scientific’s Valencia, California office and noncompetition provisions are unlawful in California).
In November 2013, Dr. Lee resigned from Boston Scientific and went to work for Nevro, a competitor of Boston Scientific. Further, Dr. Lee’s work for Nevro included engaging in MOA research related to SCS that was extremely similar … Keep reading
Earlier this month Gov. Deval Patrick called for the elimination of noncompete agreements and formally proposed this as part of a bill called An Act to Promote Growth and Opportunity. The Governor’s proposal, and the rallying cry of its various supporters, are firmly based on the premise that noncompete agreements have a negative impact on Massachusetts workers and the Commonwealth’s economy. However, the notion that outlawing noncompete agreements is likely to have any appreciable, positive impact on the Massachusetts economy, as a whole, simply is not justified. In fact, changing the law could well have a negative effect on the Commonwealth.… Keep reading
In a previous blog post, The Fiduciary Duty of Preserving Corporate Opportunities, I wrote:
In general, an officer, director, partner, LLC member or shareholder in a closely held corporation owes a fiduciary duty not to usurp for his personal benefit, a business opportunity that could and should belong to the corporation.
While I have no qualms about that statement, a recent decision out of the Massachusetts Superior Court found that a company insider was not liable for breach of fiduciary duty even though she terminated her employment relationship with the company and started her own independent business that undertook the exact same work she had been doing for her prior company. … Keep reading
As in-house counsel, how would you like to tell your CEO: “While our customer lists, pricing information, and business processes are trade secrets, we can’t sue the independent contractor who stole them because we did not do enough to protect those trade secrets.” Sound contrived? Well, that is exactly the ruling one Massachusetts Superior Court judge recently issued in C.R.T.R., Inc. v. Lao. … Keep reading
In a prior blog post Three Issues In-House Counsel Should Raise Before Asking Employees To Sign Non-Competes, my co-publisher, Shep Davidson, provided suggestions to help in-house counsel ensure that non-competition restrictions on employees were appropriate and enforceable.
As it is Valentine’s Day, we look at three ways in which enforcement of non-competition agreements is like dating.
1. Has there been a material change in the relationship? Massachusetts courts have long held that a material change in the terms and conditions of an employee’s employment will void an otherwise valid non-competition agreement. What constitutes a material change, however, can vary widely depending upon which judge is hearing the case. Some judges have applied the material change doctrine only where the change was adverse to the employee (Grace Hunt IT Solutions, LLC v. SIS Software, LLC, 29 Mass. L. Rptr. 460, 2012 WL 108825 (Mass. Super. 2012; Lauriat, J.); R.E. Moulton, Inc. v. Lee, 18 Mass. L. Rptr. 157, 2004 WL 1894910 (Mass. Super. 2004; Kottmeyer, J.). Other judges have applied the material change where the employee had been promoted, demoted and promoted again (Akibia, Inc. v. Hood, No. SUCV201202974F (Mass. Super. Ct. Oct. 09, 2012); Lycos, Inc. v. Jackson, … Keep reading
A client recently forwarded me an article about a lawsuit that Oakley brought against Nike and golf wonder-boy Rory McIlroy. In that suit, Oakley claims that as part of its endorsement agreement with McIlroy it had a right to match any new endorsement proposals made to McIlroy. Nevertheless, after Nike made a proposal to McIlroy, the golf star refused to consider Oakley’s tender of a match. While it appears that Oakley’s claims in that case will rise or fall based on whether McIlroy/Nike can prove that Oakley waived its right to match, the dispute reminded me that rights to match (sometimes denoted as “rights of first refusal”) can turn out to be extremely valuable assets in a host of contexts.
Perhaps the most common use of rights to match arises in the context of restrictions on the transfer of equity in a closely held business. Indeed, without such restrictions, a competitor might easily be able to buy out a minority equity holder and instantly gain access to key company data. Even if that is not a genuine concern, those involved in a closely held business generally do not want a stranger to suddenly … Keep reading
In the January 24-31, 2013 “Business View” section of the Boston Business Journal, State Senator William Brownsberger and State Representative Lori Erlich claimed that one reason Massachusetts is losing jobs to Silicon Valley is that California law prohibits non-compete agreements, whereas in Massachusetts they are routinely enforced. The authors then use this conclusion to argue that the Commonwealth should legislate the elimination, or at least curtail the enforceability, of non-compete agreements.
While I have no reason to doubt that Senator Brownsberger and Representative Erlich genuinely believe that eliminating or curtailing the enforceability of non-competes would be beneficial to the Commonwealth, their argument is deeply flawed. As an initial matter, the legislators’ starting point is the “dozens of stories [they have been told] of young workers whose careers were delayed or substantially derailed by overreaching noncompetition agreements.” Even assuming all of these stories are true, if the issue is the impact non-competes are having on the Massachusetts economy, the real starting point should be the number of people who actually left the Commonwealth simply to avoid signing a non-compete agreement. Further, while Senator Brownsberger and Representative Erlich provide no empirical or even anecdotal data with which to make such … Keep reading
In Enforcing Non-Compete Agreements Against California Employees — Part I, I discussed how a Massachusetts company might be able to enforce a non-compete against a California employee by including a Massachusetts choice of law provision in an employment agreement. In this post, I will discuss three scenarios under which an employer may be able to obtain an actual (or the functional equivalent) of a non-compete with respect to California residents/employees even if California law applies.
1. Enforcing a Non-Compete Against the Seller of Goodwill or Equity
Section 16601 of the California Business and Professional Code states:
… Keep reading
Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to
In a post this summer, I raised three issues employers may want to consider before even requesting that an employee execute a covenant not to compete. One issue that I did not mention is whether the company’s employee lives and works in California. Although where an employee lives may be relevant, contrary to what many attorneys think, it may be possible for a Massachusetts company to enforce a non-compete against a California resident.… Keep reading