When challenging a non-compete agreement in Massachusetts, practitioners should consider: (1) what, if any, effect the Massachusetts Noncompetition Agreement Act (“MNCA”) has on the agreement and (2) whether the material change doctrine invalidates the agreement at issue. Although the landscape is still evolving, the First Circuit recently considered both of these issues in NuVasive v. Day, providing some limited guidance.

Background

The MNCA, applicable to non-compete agreements executed on or after October 1, 2018, articulates certain requirements that must be met for a non-competition agreement to be enforceable in Massachusetts. See G.L. c. 149, § 24L. Just by way of example, the MNCA mandates that a non-compete agreement: (1) be in writing; (2) advise the employee of their right to counsel; and (3) include a “garden leave” clause or provide “other mutually-agreed upon consideration”. Id. Further, and relevant to the NuVasive decision, the MNCA prohibits using a choice of law provision to sidestep these requirements. Id. 

From 2008 to 2019, NuVasive, Inc. (“NuVasive”) or affiliates of NuVasive employed Timothy Day. Of importance in this case, NuVasive rehired Day on January 1, 2018, at which time he signed a propriety information, inventions assignment, arbitration and restrictive covenant agreement (the “PIIA”). The PIIA included a non-competition clause and a non-solicitation clause, as well as a Delaware choice of law provision. In January 2019, Day left NuVasive to work at his own company, Rival Medical LLC (“Rival Medical”), which was affiliated with NuVasive as an exclusive distributor. In April 2019, Day dissolved Rival Medical and severed his relationship with NuVasive. Shortly thereafter, Day began working for one of NuVasive’s competitors.

NuVasive subsequently sued Day for breach of contract and filed a motion for a preliminary injunction to enforce the terms of the PIIA, specifically, the non-competition and non-solicitation clauses. The District Court held that the choice of law provision of the PIIA was enforceable, Delaware law applied and NuVasive met the standard required for a preliminary injunction regarding the non-solicitation provision (although it denied injunctive relief as to the non-compete clause). Day appealed to the First Circuit, arguing that Massachusetts law applied, and the non-solicitation clause was not enforceable. 

First Circuit Decision

Notwithstanding the general rule in Massachusetts that choice of law provisions are enforceable and the PIIA included a choice of law provision applying Delaware law, Day argued that two exceptions applied: (1) Delaware had “no substantial relationship to the parties of the transaction and there is no other reasonable basis for the parties’ choice” and (2) Massachusetts had a materially greater interest than Delaware in the matter, its laws would apply absent the choice of law provision, and application of Delaware law conflicted with two fundamental public policies in Massachusetts. NuVasive, 954 F.3d at 443-44.

In short order, the First Circuit struck down Day’s first argument that Delaware had “no substantial relationship to the parties” finding that this exception “plainly” does not apply because Delaware is the place of incorporation for the plaintiff, NuVasive. Id. at 443. 

Similarly, the First Circuit was not persuaded by Day’s argument that the MNCA and the material change doctrine are fundamental public policies in Massachusetts, the application of which was contrary to Delaware law. Declining to determine whether or not the MNCA or material change doctrine are fundamental public policies in Massachusetts, the First Circuit upheld the District Court’s finding that neither were applicable in the present case. 

Day argued that the choice of law provision was not enforceable because it was contrary to Massachusetts’ public policy against enforcing choice of law provisions that contrast with the MNCA. The First Circuit did not agree, holding that the MNCA was irrelevant in this case because the PIIA was executed almost a year before the MNCA was enacted and because it does not apply to non-solicitation agreements. NuVasive, 954 F.3d at 444.

Likewise, the court held that the material change doctrine was inapplicable. The material change doctrine applies when “there are material changes in the employment relationship between an employee and employer.” Id. The First Circuit acknowledged that although Day remained affiliated with NuVasive, it was undisputed that he voluntarily terminated his employment with NuVasive in January 2019. Noting that the “precise scope of the ‘material change’ doctrine” remains unclear, the First Circuit held that it does not extend to circumstances where an employee voluntarily chooses to terminate the employment relationship, such as the circumstances in this case. Id. at 445. Ultimately, the First Circuit upheld the District Court decision and injunction enforcing the Delaware choice of law clause and non-solicitation provision of the PIIA. Id. at 440.

Takeaways

Although there was some anticipation for the First Circuit’s decision in NuVasive because it is one of the first cases to discuss the MNCA, the decision does not provide a lot of clarification as to the interpretation of the new law. Instead, the decision suggests that if there is no legal basis not to enforce a choice of law provision, it is enforceable. Additionally, the decision confirms that non-solicitation agreements are not covered by the MNCA and sets some limitation on the scope of what constitutes a “material change” under the material change doctrine. Other than that, NuVasive leaves open the door for subsequent litigants to argue that the MNCA and/or the material change doctrine are fundamental public policies in Massachusetts that may affect the enforceability of choice of law provisions in Massachusetts non-compete agreements under different circumstances.