B&B Partner David Belfort was called upon for comment and quoted extensively in a recent Massachusetts Lawyers Weekly (“MLW”) article discussing enforcement of employee non-compete agreements. The front page article entitled “Company acquisition leads to non-compete confusion” was published in the March 9, 2017, edition of MLW and focused on the implications on the enforcement of a restrictive covenant first in the case of an assignment and then as to statutory merger of the employer.
Two recent successive rulings by the Massachusetts Superior Court Business Litigation Session (NetScout Systems, Inc. v. Hohenstein) demonstrate that an employee non-compete agreement will only be as strong as the structural formation and modifications of the employer corporation. In these two opinions, Judge Kenneth Salinger explained that an “assignment” of rights to a new entity, from one company to another, is treated less deferentially in enforcement of non-competition terms than a statutory merger, where a subsidiary of the original employer stands in the same legal shoes as the original employer.
In an initial ruling on a motion for preliminary injunction, the Court denied enforcement of a non-compete provision which included an assignment provision that included the company’s subsidiaries and affiliates, but did not specifically include its assignees in the definition of the company employer. Moving for reconsideration, the acquiring company was able to present new evidence that it was, in fact, a legal successor to the original company employer. Despite the fact that the Court then found the non-compete to be enforceable, Judge Salinger concluded that the non-compete restrictions were too geographically broad. As such, the non-compete could only be applied to the geographic area in which the employee formerly worked and he was free to continue working in a new region.
In this case the non-compete provision ultimately did not make a practical difference to the employee’s ability to work because the judge only prohibited him from working in his former region, which was outside of the territory he handled at his new employer. Nonetheless, Attorney Belfort explained to MLW that these rulings provide a “cautionary tale” and illustrate the importance of careful drafting and review of non competition agreements. Attorney Belfort also stressed that, while these cases may provide a road map for enforcement to legal professionals, employees who have not sought legal counsel are often pressured to sign non-compete agreements “largely in the dark.” In consideration of the complexity of non-compete agreements and their enforcement, Attorney Belfort added that this is an area of the law that screams out for legislative intervention.
Be sure to read the full article at: http://masslawyersweekly.com/2017/03/09/company-acquisition-leads-to-non-compete-confusion