Last month, the Court of Appeals for the First Circuit found that a Delaware choice of law provision in a non-competition and non-solicitation agreement with a former Massachusetts employee was sufficient to invoke Delaware law. Notably, the non-compete agreement at issue was entered into prior to the October 1, 2018 effective date of the Massachusetts Noncompetition Agreement Act (the “Noncompetition Act”).
In NuVasive, Inc. v. Day, the First Circuit affirmed the District Court’s grant of a preliminary injunction enforcing the non-solicitation provision of the agreement against a former Massachusetts-based employee of the medical device company NuVasive, thereby preventing the employee from soliciting NuVasive customers in his former territory.
The employee, Timothy Day, had argued that notwithstanding a contractual choice-of-law provision providing that Delaware law applied, Massachusetts law applied and that the breach of contract and tortious interference claims brought against him by NuVasive must be dismissed. Day argued that Massachusetts’ standard choice-of-law rule (that the law of the state selected in a choice-of-law clause generally should control) did not apply in his case, in part based on an exception to the choice of law rule where the state chosen – here, Delaware - had no substantial relationship to the parties or the transaction and there was no other reasonable basis for the parties’ choice. Day was a resident of Massachusetts and covered a territory of Massachusetts and Rhode Island while working for NuVasive.
The First Circuit agreed with the lower court that the “no substantial relationship” exception “plainly [did] not apply here,” because Delaware was NuVasive’s state of incorporation. In so doing, the First Circuit confirmed that, for contracts entered into prior to the Noncompetition Act, incorporation in a state is sufficient to support use of that state’s law in a non-competition agreement’s choice of law provision.
In addition, the First Circuit rejected Day’s argument that application of Delaware law would be contrary to a fundamental policy of Massachusetts. Day based this argument in part on Massachusetts’ enactment of the Noncompetition Agreement Act, which imposes certain requirements on non-competition agreements entered into with employees who live or work in Massachusetts. The court noted that the Noncompetition Act only applies to agreements entered into after October 1, 2018, unlike Day’s contract. Moreover, the Noncompetition Act was irrelevant because it does not, by its terms, apply to non-solicit agreements like the provision at issue. This ruling may foretell Massachusetts courts favoring non-solicitation agreements to protect employer interests.
While the First Circuit’s holding clarifies important legal issues with respect to choice-of-law provisions for restrictive covenants entered into prior to October 1, 2018, the court likely would have come out differently if the challenged provision had been a non-compete entered into after the Noncompetition Act came into effect. This is because the statute states that non-competes entered into after October 1, 2018 with employees who live in or work in Massachusetts must have a Massachusetts choice-of-law provision. If any other state’s law is chosen for such a provision, the Noncompetition Act renders such provision unenforceable.
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