SJC Finds Massachusetts Choice of Law Provision Unenforceable as to California Employee

Last month, the Supreme Judicial Court dismissed a suit brought by a Massachusetts employer to enforce a non-compete on its California-based employee on the ground of forum non conveniens. The SJC held that the non-compete’s Massachusetts choice of law provision was unenforceable and that California substantive law should apply. Recall that even with the recent change in Massachusetts non-compete law, such restrictive covenants are still permissible, while in California, employee non-competes are subject to an outright ban.

In Oxford Global Resources, LLC v. Hernandez, 480 Mass. 462 (2018), Hernandez, the employee, had signed a confidentiality, non-solicitation, and non-competition agreement when he began working at Oxford in 2013. The non-compete only applied during the period of employment, but the non-solicit provisions applied for twelve months after the end of his employment. In March of 2016, Hernandez resigned from Oxford and began work at a competitor, allegedly retaining Oxford’s confidential information and using it to solicit Oxford’s clients.

After Oxford sued Hernandez in Massachusetts, he successfully moved to dismiss on the grounds of forum non conveniens (essentially arguing the case should instead be heard in California). Oxford appealed, and the SJC transferred the case to its court on its own motion.

First, the SJC analyzed under Massachusetts choice of law principles which state’s law would apply in the absence of the choice of law provision, that is, the state which had the most significant relationship to the parties and the transaction at issue. It was clear to the SJC that California “undoubtedly” had the most significant relationship, as Hernandez “interviewed for the position in California, signed the agreement in California, trained in California, and performed all of his job duties in California.” His employment was located exclusively in California, and further, the alleged breaches of the contract – soliciting clients in California while working for a competitor located in California – occurred in California.

Second, the SJC considered whether the Massachusetts choice of law provision was contrary to public policy, and found that it was: that application of Massachusetts law would be “contrary to a fundamental policy of a state which [had] a materially greater interest than” Massachusetts in the dispute. Specifically, application of Massachusetts law would be contrary to California’s “settled legislative policy in favor of open competition and employee mobility.” According to the SJC, under California law, customer non-solicitation provisions are void in addition to non-competition agreements.

Under this analysis, the SJC found the Massachusetts choice of law provision to be unenforceable. In addition, the SJC affirmed the superior court’s dismissal of the action on the grounds of forum non conveniens, noting that the only factor that was waived by Hernandez in agreeing to the forum selection clause was his inconvenience in having the case tried in Massachusetts – not any other private factor, such as the convenience of witnesses and the location of evidence.

This case is a good reminder to employers that choice of law provisions are subject to challenge from employees who live or work outside of the chosen state. The SJC’s analysis of Massachusetts non-compete law also serves as a good reminder – especially in light of Massachusetts’ new non-compete law – that even in Massachusetts, a state which allows non-competes, non-competes and customer non-solicit provisions are “enforceable only if it is necessary to protect a legitimate business interest,” and are “reasonably limited in time and space.” (emphasis added).

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.

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