The Massachusetts Supreme Judicial Court (SJC) will soon hear argument in Miele v. Foundation Medicine, Inc., a case that is set to resolve a much-debated ambiguity in the Massachusetts Noncompetition Agreement Act (MNAA).
The MNAA requires noncompete agreements entered into during or at the start of employment to meet certain standards in order to be enforceable. For one example, such an agreement that purports to apply when an employee is laid off would not meet the standards of the MNAA and would, therefore, be unenforceable. Generally, however, the MNAA distinguishes between noncompete agreements and non-solicitation agreements. A non-solicitation agreement would include an agreement where a former employee is allowed to work for a competitor of their former employer, but is, for example, prohibited from attempting to recruit their former colleagues and clients to join them at their new employer. This carve-out means that non-solicitation agreements ordinarily do not need to comply with the MNAA’s strict requirements in order to be enforceable.
The ambiguity comes in when the MNAA addresses what it calls “forfeiture for competition agreements,” which the statute defines as agreements that impose “adverse financial consequences on a former employee as a result of the termination of an employment relationship if the employee engages in competitive activities” (emphasis added). To illustrate, a forfeiture for competition agreement would include an agreement where an employee is required to give their severance payment back to their former employer if they violate the agreement by engaging in “competitive activities.” The problem is that the MNAA does not define the term “competitive activities.”
In Miele, the employee signed an agreement in which she agreed to forfeit her severance payments if she violated a non-solicitation agreement. The issue before the SJC will be whether solicitation counts as a “competitive activity” under the MNAA and therefore whether the MNAA’s requirements apply to such an agreement. To date, many employers have provided their employees with severance payments with the understanding that a non-solicitation agreement does not count as a “competitive activity” under the MNAA. The SJC’s decision could substantially change the way severance payments and separation agreements are handled by employers in Massachusetts.
Bennett & Belfort is keeping an eye on this critical issue. Please check back with us soon.
