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Massachusetts Courts Address an Often Used Escape Clause from Complying with a Covenant Not to Compete

On Behalf of | Sep 17, 2013 | Firm News

Depending upon where someone is employed, the employer may request that the employee execute a Covenant not to Compete at the time of hire. In the event that the employee leaves his job, these covenants typically prohibit an employee from competing with their employer for a certain period of time and within a certain geographic area. Provided that the covenant meets certain standards of reasonableness, it will likely be enforced under Massachusetts law. E.g., All Stainless, Inc. v. Colby, 364 Mass. 773 (1974) (upholding two-year covenant not to compete for geographical area that included portions of Maine, New Hampshire, and Massachusetts). Such covenants are even more likely to be enforced when the employer seeks to protect trade secrets and goodwill. E.g., New England Canteen Serv., Inc. v. Ashley, 372 Mass. 671 (1977).

Remaining subject to the restrictions of a Covenant Not to Compete can be burdensome as they can prevent a person from working in an entire type of an industry located within a certain area. Hilb Rogal & Hobbs of Mass. v. Sheppard, 24 Mass. L. Rep. 381 (Mass. Super. Ct. 2007). Massachusetts case law, however, excuses former employees from complying with Covenants Not to Compete in certain instances. In 1968, the Supreme Judicial Court adopted the common law rule that anytime an employee “materially changes” his position, the employee’s covenant not to compete becomes invalid. F.A. Bartlett Tree Expert Co. v. Barrington, 353 Mass. 585, 587 (1968). As explained by Judge Burnes, “Each time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.” Cypress Group v. Stride & Assocs., 17 Mass. L. Rep. 436 (Mass. Super. Ct. 2004).

This rule is frequently invoked as a defense when a former employer seeks to enforce a Covenant Not to Compete. Grace Hunt IT Solutions, LLC v. SIS Software, LLC, 29 Mass. L. Rep. 460 (Mass. Super. Ct. 2012). In Grace Hunt, Judge Lauriat denied the employer’s motion for preliminary injunction to enforce a covenant not to compete because the employees’ positions had materially changed. In reaching his decision, Judge Lauriat also found significant that the employee had refused to sign new covenants not to compete during the course of the employment relationship. In contrast, Judge Leibensperger granted an employer’s motion for preliminary injunction to enforce a covenant not to compete despite that the defendant’s title and position had changed from General Manager to Director of Operations. A.R.S. Servs. v. Morse, 31 Mass. L. Rep. 227 (Mass. Super. Ct. 2013). Judge Leibensperger’s decision was, in part, influenced by the fact that the employment agreement provided that it would survive any changes in the employee’s “duties, responsibilities, position or title.” As employers battle former employees over Covenants not to Compete, decisions from Massachusetts Courts on this issue continue to cut both ways.

The breadth of the legal landscape on this issue and the conflicting rulings demonstrate that the outcome of whether an employee’s position has “materially changed” is heavily dependent on the facts and may often require extensive discovery and litigation. The prudent approach from the perspective of an employer is to require employees to execute a new Covenant not to Compete upon any occasion that the employee is promoted or otherwise changes his position or duties. No procedure, however, is guaranteed to defeat the “material change” defense.