Section Review

From left: Andrea Kramer and AiVi Nguyen

With over four years having elapsed since the Massachusetts Noncompetition Agreement Act went into effect, the Complex Commercial Litigation Section decided it was time to look at how the law is working and not working, could be better, and is being interpreted by the courts. To that end, on March 30, 2023, moderators and program co-chairs AiVi Nguyen of Bowditch and Andrea Kramer of Kramer Law joined an esteemed and diverse panel of practitioners — employee-side employment attorney David Brody of Sherin & Lodgen, employer-side employment attorney Carla Reeves of Goulston & Storrs, and in-house attorney Asya Calixto of 3Play Media, Inc., — along with Hon. Ken Salinger of the Business Litigation Session in a lively, practical and thoughtful discussion of what they are seeing, how they are or should be advising clients, and what questions remain open. Though virtual, the program was run as a meeting rather than a webinar, which permitted participants to engage. Overall, there was a lively exchange and interplay among the panelists, with many participants reporting after the program that they wished the program could have gone on another half hour or so.

After a lightning-speed overview of the law by Kramer, Nguyen asked what the panelists are seeing in terms of litigation since the law went into effect. She noted that when the law was passed, the goal was to decrease disputes, though many people predicted that it would provide full employment for some attorneys. Salinger (who always has interesting Zoom backgrounds) reported that he has been seeing “far fewer” cases seeking to enforce noncompetition agreements — from multiple cases each month in the BLS Session four or five years ago, to only one or two during every six-month sitting for the past few years — though he acknowledged that the pandemic and business cycles could have contributed to the reduction. Brody hypothesized that the law played a large role in the reduction because now there are clear guidelines that make some agreements unenforceable, thereby cutting out many noncompliant agreements wholesale, even before employers seek to enforce them. Reeves added that she is seeing many employers putting more thought into whether they actually need noncompetition agreements or whether their goals can be accomplished with other types of agreements. She added that the fact that the law prohibits enforcement against certain types of employees, such as nonexempt employees and employees whose employment is involuntarily terminated, also cuts down on the number of lawsuits. 

Both Reeves and Calixto commented that their experiences suggest that the law has prompted more transparent and open discussions about intentions. Calixto stated that she is seeing more employers have internal conversations about whether to have noncompetition agreements and earlier conversations with prospective and existing employees about the terms and practical ramifications of the agreements. She also added that the garden-leave provision leads to employers letting employees know nearly immediately whether they are going to enforce the agreement (because they either will or will not pay the garden-leave amount), which eliminates the uncertainty and risk for employees. Reeves stated that she is finding more employers not having noncompetition agreements in the first place, rather than choosing not to enforce them. And, she added, transparency and open communications have helped to provide clarification around expectations at the end of the employment.

Brody raised concerns about whether employers are using other methods to accomplish their goals, such as nonsolicit agreements, even when functionally the agreement acts as a noncompetition agreement. As another example, Kramer noted that she has seen purported nonsolicit agreements that prevent the employee from soliciting “prospective customers.” Salinger said that while he has not had to address the issues as a judge, he expects to hear arguments that nonsolicit agreements that include “prospective customers” are beyond the legislative carve-out for nonsolicit agreements, suggesting that he would consider such arguments in the right circumstances. He also reminded everyone that the carve-out does not mean all nonsolicit agreements are enforceable; they are still subject to the common-law rules that have developed.

The question of whether new employment is sufficient to satisfy the statutory requirement of garden leave or “mutually agreed upon consideration” was raised. While considering the issue “interesting” and noting the arguments on both sides, Salinger said he had not yet had a case on that issue. Kramer noted that U.S. District Court Judge Patti Saris has faced the question and answered it in the affirmative in Cynosure LLC v. Reveal Lasers LLC. Reeves stated that she has not found many employers treating new employment as consideration because there is ambiguity and, therefore, “sensitivity and hesitation,” around what is considered to be enough consideration generally. 

There was then continued discussion around the question of what is adequate consideration. Calixto stated that many employers are giving a set amount or benefit rather than negotiating with each employee to ensure consistency and to limit other types of claims later. Reeves acknowledged the uncertainty, though she mentioned that one case held that “specialized training” is enough. She said that she is having discussions with clients about what other consideration to offer, such as stock options, and that there is good reason to “proceed with caution” in determining what constitutes “mutually agreed upon consideration.” Calixto concurred, noting that there has been much discussion among employers about what they are offering and that it is a challenge to figure out what suffices. She added that it is a challenge to find the balance and “nobody wants to be the test case.” Salinger mused that it seems so far no one is seeing a “specifically identifiable peppercorn” be offered as consideration. 

Brody added that while he “welcomes” the case of whether access to trade secrets or specialized knowledge is adequate consideration, many employees find the choice of getting more in advance, thereby strengthening the employer’s hand in the future, or taking less but having more options later a difficult one. Again, Calixto emphasized that open communications and transparency are important, noting that employers learn much about employees through the negotiations process and that employees should be cautious about pushing for too much consideration in the beginning or narrowing the definition of competitors.

The discussion then turned to a case in which Salinger decided that an indefinite furlough constituted the end of an employee’s employment for purposes of beginning the employee’s one-year restrictive period. Salinger cautioned that details matter and his decision did not create a blanket rule that all furloughs constitute end of employment. The one thing that is clear is that just as there is a question of whether a change in employment requires a new noncompetition agreement due to the material change doctrine, there is a question of whether certain furloughs would then require a new agreement — and then the new agreement would have to comply with the 2018 law. The discussion then turned to the material change doctrine, which, of course, predates and survives the 2018 law.

The panel then turned to choice-of-law provisions and the reality that many out-of-state employers have employees working in Massachusetts. Salinger explained that the statutory language regarding choice-of-law provisions is consistent, though in reverse, with the Supreme Judicial Court’s decision in Oxford Global Resource, LLC v. Hernandez.

Speaking of public policy, Brody raised the question of whether the statute’s statements about what is and is not enforceable constitute the public policy of Massachusetts such that judges may refuse to enforce agreements that do not comport with the reasonableness provisions of the statute even if those agreements predate the statute. He noted that Judge Denise Casper engaged on this issue in Nuvasive, Inc. v. Rival Medical, LLC. Calixto made the point that many employers who have employees in numerous states are now using a one-size-fits-all agreement that meets the most stringent requirements so that every employee is governed by the same agreement and the companies do not have to deal with choice of law or questions of enforceability in different states. Reeves stated that she has seen an uptick in inquiries from out-of-state employers, while Kramer noted that she has seen many small out-of-state employers not consider the Massachusetts statute and then find that their agreement is not enforceable.

Overall, the panelists offered different perspectives that greatly informed the discussion, and the MBA Complex Commercial Litigation Section is greatly appreciative of the time and energy they put into sharing their knowledge and experience.