Avoiding Noncompetition Enforcement in Massachusetts

Though the forms are Enforceable in Massachusetts, obtaining an Injunction is tough for Employers, who must clear several Hurdles

Most often, workers feel they have no choice but to sign a noncompetition agreement with their employers. They are frequently presented with the document, maybe as part of a broader contract, early in the working relationship, perhaps even the first day on the job. The boss says the non-compete is routine and must be signed, so the employee does so, often without thoroughly reading or fully understanding it. What, after all, is a new hire to do? Among the last things any employee wants is to test the limits of the boss’s patience on day one. That, after all, can lead quickly to the unemployment line, a place far too many Massachusetts workers are tired of waiting in.

    The problem is, signing a non-compete agreement can also lead to loss of a job. Whether signed under questionable circumstances like these or not, employers tend to use the forms to try and limit or even prevent employees from taking jobs within the same industry. The issue normally arises at or shortly after an employee leaves work, whether voluntarily or otherwise. Employers then pull out what is sometimes an old or forgotten agreement that they claim restricts the worker’s future employment. The employee is sent scrambling for answers, uncertain whether or how he/she can avoid a lawsuit and make a living. Too often, intimidated workers don’t realize that entering a noncompetition agreement and enforcing it are two different things. Rather than seeking legal advice and weighing options effectively, they alter their plans in order to avoid a conflict with what is normally a financially more powerful adversary.

The better approach is to analyze the facts and make an informed decision how to proceed. This is normally done with the help of an attorney, who begins the analysis of a noncompetition agreement by collecting facts about the parties’ employment relationship. Sometimes, it’s discovered that a worker was not classified as an employee at all and was instead called an “independent contractor,” a label commonly used (legally or otherwise) in the real estate business, for example, and the courier industry. The question then necessarily arises whether the independent contractor label is appropriate and, if it is not, whether a noncompetition agreement can be enforced against a worker who was misclassified and thereby denied work benefits. A lawyer might also question whether the contract was properly formed, whether the working relationship changed over time, and whether the employer has valid business reasons for enforcing it. All these factors and more are relevant to the enforcement of non-compete agreements. All must be carefully analyzed by workers who face potential enforcement actions, which can be costly and unpredictable.

Workers who face noncompetition issues are well-served by engaging in this sort of analysis, either with the help of counsel or otherwise. The important point is that they understand the basic concepts of noncompetition enforcement under Massachusetts law. This, in turn, permits employees to make wise decisions based on facts and laws rather than panicked ones prompted by employer threats. While noncompetition agreements are valid in the Commonwealth, the road to effective enforcement is fraught with land mines. Only when an employer satisfies a rather heavy burden of proof can it succeed, and even then a court can modify a noncompetition agreement to permit a former worker to make a living while protecting legitimate business interests. Among the various items that could be relevant in a non-compete case are the following.

Employee or Independent Contractor

It’s been some years now since Massachusetts adopted a tough law against the use of independent contractors. Though the statute essentially bans them for most work-related purposes, certain employers continue to use independent contractors to streamline business operations and save money. In some industries, such as real estate, a long history of using contractors remains unaffected by Massachusetts law, aided in part by taxing authorities that may choose to accept the classification as valid regardless what Massachusetts law might say. This does not, however, make the relationship any more legal under the state’s independent contractor statute.

In noncompetition litigation, this question could prove important. Though a true independent contractor might be more easily bound by a non-compete agreement than an employee, the law could lean the other way for employees who are wrongly classified by a company. That practice is frowned upon in Massachusetts, which has a task force aimed at uncovering it. If an employer knowingly violates the independent contractor statute – that is, if it creates a contract that improperly treats an employee as a contractor, thereby avoiding both taxes otherwise owed to the government and benefits otherwise due to the worker – it might undermine its ability to enforce the noncompetition portion of that same contract. This question should certainly be explored, at least, by contractors who are threatened with litigation by their former employers.

Contract Formation

Noncompetition agreements cannot be enforced unless they are part of a valid contract. Generally speaking, this means that the parties must agree to terms based on relatively fair bargaining powers between them. Each side must get something in return for contractual obligations. For employers, that requirement is typically met by the agreement’s restrictions on future work, solicitation of customers or workers, protection of confidentiality, or the like. For employees, the benefit to a noncompetition bargain can be harder to identify. It is not satisfied, for example, by continuation of an existing working relationship, and this can mean that an agreement given to an employee for the first time after work commences isn’t valid. An agreement signed before and as a condition of starting a job is more likely to be enforced than one signed afterward.

Contract Continuity

Even a properly signed noncompetition agreement can be overridden by circumstances that follow. Under the at-will employment rule that prevails in Massachusetts, employer and employee alike are free to end the working relationship at any time. By the same token, they can rewrite it. Each time they do – by changing a worker’s job title, for example, or altering pay scales – a new non-compete agreement should be signed. The longer a worker has been employed, the more likely it is that some circumstance or other intervenes to undermine even a validly signed non-compete form. In looking at this question, workers should consider whether any changes have occurred in the relationship with their companies since the original non-compete was created. Any employment-related agreement could be relevant and might constitute a defense to enforcement.

 Legitimate Business Interests

Even where a noncompetition agreement is valid, employers seeking to enforce its terms must prove that doing so is essential to protection of a legitimate business interest. This commonly takes the form of a company’s good will (its reputation in the community or with customers) or trade secrets. An employer must show that, whatever its former worker is either doing or proposing to do for a competitive business, the conduct will somehow hurt it in a substantive way. It’s not enough, then, to simply prove that an agreement exists. The former employer must also demonstrate that the worker possesses some form of proprietary information that has already or inevitably will be used to cause it damage. It must also prove that the scope of its restrictions is reasonably targeted to prevent such damage and doesn’t unnecessarily block a worker from making a living.

These areas of inquiry represent some but not all of the factors employees or independent contractors should consider in noncompetition situations. It’s always preferable, of course, to do so before a dispute arises, if at all possible. Where this can be done, a worker will be well-served by reviewing his/her own agreement first, showing it to a prospective new employer, and consulting with an employment attorney as the situation may require. Where problems already exist, a former worker should act quickly to be sure he/she understands what may lie ahead. In most cases, it is the employer and not the employee who faces the more difficult burden in an enforcement action. Many times, litigation can be avoided by arming oneself with strong knowledge and using it to head off problems before they reach the court house.

 

Jack K. Merrill, Esq.