Three Ways in Which Enforcement of Non-Competition Agreements is Like Dating

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, 18 Mass. L. Rptr. 256, 2004 WL 2341335 (Mass. Super. 2004; Houston, J.).  A New York judge applying Massachusetts law even suggested that a provision in the non-competition agreement stating that material changes do not affect the enforceability of the agreement would eliminate a material change defense (Leibowitz v. Aternity, Inc., 2010 WL 2803979 (U.S. Dist. Ct. E.D.N.Y., July 14, 2010).  In-house counsel may be able to avoid an unexpected surprise by reviewing existing non-competition agreements; the circumstances under which they were signed; and implementing a process by which employees are required to sign new non-competition agreements as a condition of receiving a promotion, demotion, raise or change in location and, perhaps, including an acknowledgement that certain changes in an employee’s terms and conditions of employment will not be deemed a material change for the purposes of enforcing the non-competition provision.

2.  Never ask a question to which you don’t already know the answer.  In non-competition cases in particular, the denial of an injunction may not set a binding precedent, but it often does send a message to other current and former employees that their non-competition agreements may not be enforceable.  Although many companies are loathe to settle non-competition matters for fear that a settlement may interfere with their ability to enforce non-competition agreements in the future, if there is a weakness in the present facts and circumstances, the denial of an injunction by a court often is an even worse scenario.  In-house counsel should carefully consider the merits of a particular situation and the full impact not only of being granted an injunction, but also of the denial of an injunction.  Put another way, be sure you have a good idea as to what the court’s answer will be before you ask the court for a preliminary injunction.

3.  Presents will be required if there is a problem.  In the course of reviewing existing non-competition agreements in anticipation of any future issues, in-house counsel may discover that there are weaknesses in the non-competition agreement.  For example, there may be an issue about the sufficiency of consideration, the breadth, the duration, the scope, how well the legitimate business interests are described, or that there have been material changes not accounted for in the agreement.  As with any dating relationship, either you just accept the weakness, understanding that there may be an inability to protect yourself later, or give something of value to the other party to convince him or her to agree to a change in the agreement.  If you choose to give something of value, be sure that what you give is somewhat commensurate with the seriousness of the issue at hand.  That is, you may have to give roses, and not just a Valentine card.

As they say, all’s fair in love and war.  Keeping these three issues in mind before going to court may not help with love, but may ensure a win in the non-competition war.

Leave a Reply