Sally-Fitch.com
March 1, 2010
/24-7PressRelease/ --
Noncompete Agreements That Stick in Massachusetts
Many companies require employees to sign agreements not to compete with the employer after leaving their position. Noncompetition agreements have been a common contract clause for some time. In the current economy, however, these agreements have become especially important, as both employees and employers may be under increased pressure to push the legal limits of these clauses.
Employees otherwise bound by noncompetition clauses may be tempted to break them if the economy keeps employers from making payroll or paying out commissions. With a reduced consumer base, employers may be at greater risk from former employees competing for the same business. The question, then, is what can be included in a valid
noncompetition agreement?
Elements of a Valid Noncompete
States vary widely in whether and under what circumstances their laws and courts will enforce covenants not to compete. Massachusetts courts have a long history of recognizing the validity of such agreements when certain requirements are met.
Massachusetts court opinions state that, to be enforceable, the restriction on competition must be "necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest." The court will examine the particular agreement and surrounding circumstances to determine whether the noncompete is reasonable, and the terms may be "no more restrictive than necessary." In analyzing a noncompete, a Massachusetts court will strictly construe the agreement in favor of the employee because of his or her weak bargaining power in comparison to that of the employer.
Legitimate Business Interests
Business interests considered legitimate enough to merit protection under noncompete agreements and similar provisions include:
-Proprietary information
-Confidential business information such as customer lists
-Trade secrets
-Good will, also called good reputation
-Customer lists
The Supreme Judicial Court of Massachusetts has stated that "ordinary competition" is not a legitimate interest worthy of protection.
Limits on Time and Space
Massachusetts requires that noncompetes impose reasonable restrictions on how long a former employee may not compete and in what geographical area he or she may not engage in competing business for that time period. Many decisions have found durations under five years to be reasonable, but it is entirely dependent on the individual situation.
Consistent With Public Interest
Massachusetts courts recognize the tension between two public interests: an employer's right to protect its legitimate business interests from the potentially damaging commercial activity of a former employee, and that employee's right to earn a living after leaving employment by participating in robust commercial activity of his or her choice. The court may find the terms of a noncompete inconsistent with either of these public interests.
Reformation of Agreement
A Massachusetts court will wholly enforce a completely valid noncompetition agreement, but may reform individually invalid parts of an otherwise legitimate agreement. For example, the court might shorten the unreasonable duration time of a noncompete, leaving its other reasonable terms intact.
Seek Legal Advice
Skilled legal counsel is essential for both employers and employees dealing with noncompetes. Employers want to make their noncompetition agreements airtight and enforceable, and need legal advice when trying to enforce them against former employees. On the other hand, an employee considering a noncompete should consult with an experienced
employment attorney about whether it is reasonable and valid. Workers may also need legal advice when contemplating whether certain activity would violate their noncompetes.
The law surrounding covenants not to compete is complicated and evolving, especially in light of the changes in perspective new technologies and Web-based commerce bring.
Article provided by Sally & Fitch LLP
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