Shepard Davidson

the in-house advisor

Noncompetition & Other Restrictive Covenants


Many companies have ceased using noncompete clauses for employees working in California. At best the clauses have become unenforceable, at worst, a liability for the company.

If you thought this issue was behind you, think again…

A change to California Business and Professions Code Section 16600, enacted as Section 16600.1 and effective January 1, 2024, requires employers to notify current and certain former employees who are signatories to any noncompete clause or agreement that the restriction is void. Employers must do this by February 14, 2024, or risk liability for an act of unfair competition under Section 17200, which provides remedies such as injunctions and restitution.

Specifically, Section 16600.1(b)(1) requires that employers provide notice to the following individuals:

  1. Current employees whose contracts include a noncompete clause or who were required to enter a noncompete agreement; and
  2. Former employees employed after January 1, 2022, whose contracts include a noncompete clause or who were required to enter a noncompete agreement.

The notice to employees must:

  1. Be in writing;
  2. Be an individualized communication to the employee;
  3. Be mailed or hand delivered to the last known address of the employee;
  4. Be emailed to the employee;
  5. State that the employee’s noncompete clause
… Keep reading
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As a follow up to my post a few weeks ago on McLaren Macomb, the NLRB has issued new Guidance of which in-house counsel should take note.

  • The McLaren Macomb decision is retroactive. This means that any severance agreement entered into by an employee prior to February 21, 2023, which violates the McLaren Macomb decision, is now unlawful.
  • An unlawful severance agreement is a “continuing violation” of the Act, such that the six-month statute of limitations does not prohibit an employee from bringing a claim based upon a past severance agreement entered into over six months ago.
  • The decision applies to current and former non-supervisory employees, which means in-house counsel must consider whether past and current severance agreements are lawful.
  • Employees cannot waive their right to lawful confidentiality and/or non-disparagement clauses.
  • An employee need not execute a settlement agreement for there to be a violation; the Board will find a violation of the Act if an unlawful severance agreement is offered, which could result in equitable and economic remedies in favor of the impacted employee.
  • The McLaren Macomb decision impacts any employer communication to employees that tends to interfere, restrain, or coerce an employee’s Section 7 rights (i.e.,
… Keep reading


When seeking to enforce a restrictive covenant, whether a noncompete or a nonsolicit, the standard play-book calls for an aggrieved party to file suit and seek a temporary restraining order and preliminary injunction to preclude the defendant from continuing to compete or solicit during the restrictive period. In order to obtain such relief, however, a plaintiff must show not only that it is likely to succeed on the merits, but also that (i) absent such relief it has a substantial risk of suffering irreparable harm, and (ii) the risk of such harm outweighs the risk of irreparable harm to the defendant if injunctive relief were to issue. Thus, it is possible that even if a plaintiff convinces the court that the defendant is violating a restrictive covenant, the court may not grant any injunctive relief. (One common scenario where this happens is when the defendant can show that enforcing the restrictive covenant, essentially, will prevent him/her from being able to be gainfully employed.)

Assuming your case is strong, even if no injunctive relief enters, you still may want to pursue a claim for damages against your former employee. While that is all well and good, proving damages for a … Keep reading


In Part I of Key Changes to Massachusetts Noncompetes, I outlined some of the most significant new mandates that will apply to all noncompete agreements executed on or after October 1. In this post, I want to discuss some of the practical implications of the new law and how in-house counsel might address them.

  • The new law does not apply to covenants not to solicit customers, clients, or vendors of the employer

 

While this may not sound like a significant exception, in many instances, it provides the ultimate loophole. For example, if your company uses noncompetes primarily or exclusively to prevent your sales force from competing against you, simply revising those agreements so that they are structured as nonsolicitation agreements may give you most, if not all, of the functional protections of a noncompete – but without having to worry about any of the requirements of the new law.

  • Noncompete agreements entered at the outset of employment only are valid if they are provided to the employee by the earlier of a formal offer of employment or 10 business days prior to the commencement of employment

 

In light of this, it is critical that in-house counsel … Keep reading


Over the years, I have written blog posts related to a plethora of nuances concerning noncompetition agreements. While the signing into law last Friday of new legislation on noncompetes does not eviscerate them (despite advocacy on the part of some for such a result), there are a number of new mandates that significantly change the legal landscape – but only for noncompete agreements entered into on or after October 1, 2018. Here are what I believe to be the most significant changes to Massachusetts noncompete law:

I. The definition of noncompetes does NOT include, and the new law will NOT apply to:

  • A. Covenants not to solicit or transact business with customers, clients, or vendors of the employer
  • B. Noncompetes in the context of the sale of a business or substantial assets thereof, when the individual is a “significant” equity holder and will receive “significant” consideration for the transaction
  • C. Noncompetes in connection with a separation agreement, if the employee is given seven days to rescind the agreement
  • D. Covenants not to solicit or hire employees of the employer

II. To be valid, a noncompete MUST meet ALL of the following conditions:

  • A. The noncompetition period may
… Keep reading


As I have counseled many clients, a non-compete provision is different than most other contractual terms, because simply having mutual consent and consideration will not automatically render it enforceable for reasons of public policy. Thus, even in states like Massachusetts that are known to enforce non-competes, such restrictions will be deemed invalid unless they are reasonable in time and scope and also are necessary to protect against unfair competition – which occurs when the employee uses the company’s confidential information, trade secrets or goodwill to compete against it. As oxymoronic as it may sound, a non-compete that merely prevents “ordinary competition” will be deemed unreasonable and unenforceable.

While some businesses try to make an end-run around this law by requiring an employee to forfeit some benefit or pay liquidated damages if he/she competes against his/her company, any such requirement will be viewed through the same public policy lens used to scrutinize a formal non-compete provision. Indeed, as the Supreme Judicial Court of Massachusetts noted long ago in Cheney v. Automatic Sprinkler Corp.:

If forfeiture for competition provisions were enforced without regard to the reasonableness of their terms while covenants not to compete were subjected to such a

… Keep reading


When two parties reside and/or conduct business in different states, any agreement between them almost always has a choice of law provision. Typically, such a clause is as simple as: “The Parties agree that this Contract shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts.” As the Superior Court held earlier this month in Oxford Global Resources, LLC v. Hernandez, however, such simple and straight-forward language is no guaranty that a court will abide by it.

Oxford is a Delaware corporation and claims to have its principal place of business in Beverly, Massachusetts. Jeremy Hernandez is a California resident and was hired by Oxford to work in the company’s California office. As part of the hiring process, Hernandez was required to sign Oxford’s Protective Covenants Agreement, which included (i) non-compete and non-solicitation covenants; and (ii) a provision stating that the Agreement was governed by Massachusetts law.

Oxford later brought suit against Hernandez, alleging that he breached the Agreement by using information regarding Oxford’s customers to solicit them on behalf of a competitor. Hernandez countered by moving to dismiss, and, in that connection, he argued that the Court should construe the Agreement in … Keep reading


No doubt, having a properly drafted agreement is critical if you wish to prevent a former employee from competing against you or soliciting your customers. But, simply having a clear and straight-forward agreement may not be enough to persuade a court to enjoin someone from violating the terms of it. Rather, a plaintiff must show that a post-employment restrictive covenant is necessary to protect “legitimate business interests” before any injunctive relief will issue. Further, and as the Superior Court reconfirmed earlier this month in ABM Industry Groups, LLC v. Palmarozzo, making such a showing is not always easy to do.

Joseph Palmarozzo was a branch manager for ABM Industry Group, a large, public company that provides janitorial and maintenance services to large facilities. In connection with his job, Palmarozzo entered into an employment agreement that included non-competition, non-solicitation and non-disclosure obligations.

In December of 2016, Palmarozzo left ABM to become the General Manager of Compass Facility Services (“CFS”), a much smaller company than ABM, but one that also provided janitorial services. Shortly thereafter, ABM filed suit and moved for a preliminary injunction to prevent Palmarozzo from competing against ABM and soliciting its customers.

As a prelude to its

… Keep reading


It is standard practice in M&A transactions for the acquired business to assign all if its contractual rights to the purchaser. While that may sound good in theory, depending upon how the underlying contracts are drafted, they could have little or no value to the purchaser. Indeed, as the Massachusetts Superior Court’s decision in NetScout, Inc. v. Hohenstein confirms, this warning can be particularly important when the underlying contract involves an employee non-compete.

Carl Hohenstein was employed by a subsidiary of Danaher Corporation, and in 2011 he and Danaher entered into a contract that included a non-compete agreement. Four years later, NetScout acquired Danaher and its subsidiaries, and as part of that transaction (i) Hohenstein became a NetScout employee; and (ii) Danaher assigned its rights under the 2011 contract with Hohenstein to NetScout. Six years after that, Hohenstein left NetScout and began working for one of its competitors.

NetScout sued Hohenstein and moved for a preliminary injunction, asking the Court to bar him from competing against the company. While the Superior Court found that the non-compete agreement in the 2011 contract between Hohenstein and Danaher was enforceable, and that NetScout was entitled to enforce that contract as Danaher’s assignee, … Keep reading


It generally is a defense to a breach of contract claim if the defendant proves that the plaintiff was the first one to materially breach the parties’ agreement. As a recent case from the Business Litigation Session of the Massachusetts Superior Court confirms, however, a plaintiff seeking to enforce a post-employment restrictive covenant can avoid falling victim to such a defense – if, that is, the company has a carefully crafted agreement is in place.… Keep reading

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