Earlier this week, the Joint Committee on Labor and Workforce Development released proposed amendments to the Uniform Trade Secrets Act, which would include the creation of the Massachusetts Noncompetition Agreement Act. The legislation, if enacted, would significantly alter the non-compete landscape, rendering unenforceable or practically unworkable most Massachusetts employers’ non-competition agreements. Here are some of the highlights:
In the last few weeks, Utah and Idaho have each passed bills changing the landscape of non-compete enforceability in strikingly different ways. Utah’s law places further limitations on the use of non-competes. In contrast, the Idaho bill (expected to be signed by the governor shortly) permits greater enforceability of non-competes.
In Meschino v. Frazier Industrial Co., Civil No. 15-10327-RGS, 2015 WL 7295463 (D. Mass. Nov. 18, 2015), Judge Stearns held that an employment agreement superseded an earlier employment agreement and a separate earlier confidentiality and non-compete agreement. A 2005 employment agreement provided that the employee would be required to execute a separate confidentiality and non-compete agreement. The employee executed both agreements in 2005. Notably, the separate confidentiality and non-compete agreement was not expressly incorporated into the 2005 employment agreement, and the employment agreement did not contain an integration clause indicating that it was the final and complete agreement regarding the terms of employment.
This morning, House Speaker Robert DeLeo announced at a Greater Boston Chamber of Commerce breakfast that the House will be releasing a bill this session that imposes some limitations on non-competes. Although the language of the proposed bill is not yet available, Speaker DeLeo described two key elements:
- Time Limit: The proposed bill would limit non-competes to 12 months in length.
- Notice Requirement: The proposed bill would require that employers inform employees in advance that they will be asked to sign a non-compete, and advise them of their right to seek legal counsel.
Judge Janet L. Sanders of the Superior Court’s Business Litigation Session has continued the trend of Massachusetts courts refusing to recognize the inevitable disclosure doctrine.
In The Gillette Company v. Craig Provost et al, Civ. Action No. 15-0149 (Mass. Sup. Dec. 22, 2015), Gillette moved for a preliminary injunction to prevent its former counsel and ShaveLogic’s current general counsel, Chester Cekala, from providing any legal advice regarding Gillette’s patents, not only with respect to patent validity but also on infringement and scope. Although Cekala’s non-compete agreement with Gillette had long expired, Gillette contended that Cekala’s legal advice inevitably disclosed Gillette’s trade secrets to its competitor given his experience with the company.
In American Well Corporation v. Obourn, Civil No. 15-12265-LTS, 2015 WL 7737328 (D. Mass. Dec. 1, 2015), Judge Sorokin of the United States District Court for the District of Massachusetts upheld a non-compete entered into seven months after the employee’s start date. The Court explained that as to whether continued employment constitutes sufficient consideration for a non-compete:
“[T]he SJC has squarely addressed this question. Decades ago, it held that a non-competition agreement signed during employment was not void for lack of consideration because it contained a promise by the plaintiff thereafter to employ the defendant and by the defendant to work for the plaintiff.”
The states have a rich tradition of passing legislation forbidding or limiting the use of non-compete agreements with identified classes of employees. As you might expect, a number of states forbid or limit the use of non-compete agreements with:
- Physicians, nurses, psychologists, social workers and other medical professionals
- Individuals working in broadcasting
A recent decision from a Wisconsin state court serves as a cautionary tale for employers that do not routinely impose or enforce non-compete restrictions consistent with the employee’s role and potential to harm the business.
In Kohl’s Department Stores Inc. v. Janet Schalk, 2015CV001465 (Wis. Cir. Ct. Aug. 11, 2015), Judge Robert Mawdsley denied Kohl’s request for an injunction preventing its Chief Information Officer, Janet Schalk, from joining Hudson’s Bay Company partly on the grounds that Schalk’s non-compete was overly restrictive in light of Schalk’s role in comparison with the non-competes of other employees. Kohl’s, relying upon its non-compete contract with Schalk barring her from working in a similar position with a competitive retailer for one year, argued that Schalk should be barred from joining Hudson’s Bay, a Canadian department store company, because Schalk “has the playbook, the crown jewels, our entire strategy in her hands.” Schalk argued that the non-compete was too broad and that Hudson’s Bay was not a competitor given its high-end retailing–featuring Saks Fifth Avenue and Lord & Taylor–compared to Kohl’s mid-tier status. Schalk also contended that Kohl’s overstated her role and knowledge of the company’s strategy.
The Pennsylvania Supreme Court recently held in Socko v. Mid-Atlantic Systems of CPA, Inc. that a non-compete is enforceable only if a current employee receives new consideration beyond continued employment. The Court held that this is the case even if a non-compete provides that the parties “intend to be legally bound,” which typically obviates the need for consideration under the Pennsylvania Uniform Written Obligations Act (UWOA). After considering the historical background regarding non-competes and general principles of statutory construction, the Court concluded that “a construction of the UWOA which would vitiate the need for new and valuable consideration when entering into an agreement containing a restrictive covenant after the initiation of employment would be unreasonable.”
The Boston Bar Association recently held its 7th Annual Symposium on Employee Noncompete and Trade Secrets. In addition to practicing attorneys and an MIT-Sloan professor, the panel included three Massachusetts state legislators – Senators Jason Lewis and William Brownsberger, and Representative Lori Ehrlich – who have each authored pending legislation that would, to varying extents, render non-compete agreements unenforceable in the Commonwealth.
In the rapidly changing business world, protecting a company's human capital and proprietary information is critical to maintaining a competitive edge. On this blog, Nutter's experienced Business Litigation and Labor, Employment & Benefits attorneys offer news and insights on all aspects of restrictive covenants and trade secrets—from analyzing a rapidly evolving body of case law, to summarizing new legislation and legislative efforts, to providing other need-to-know updates and more.