Federal Court Addresses Mass. Non-Compete Law, Speaks to Adequacy of Consideration

Nelson Mullins Riley & Scarborough LLP

Nelson Mullins Riley & Scarborough LLP

[co-author: Daniel Curran]

The United States District Court for the District of Massachusetts issued an opinion in July authored by Judge Timothy S. Hillman in KPM Analytics North America Corp. v. Blue Sun Scientific, LLC, et al. Members of the employment bar were anticipating judicial interpretation of the Massachusetts Noncompetition Agreement Act, G. L. c. 149, §24L, since it took effect in 2018.

The case, which dealt primarily with allegations of trade secret misappropriation, involved claims by KPM against seven former employees for breach of their employment agreements. Only one of the agreements at issue was governed by Massachusetts law and, thus, was the only one to have been deemed unenforceable on the basis of the statute.

The Massachusetts noncompetition statute establishes eight requirements that noncompetition clauses must satisfy to be valid and enforceable. The employment contract at issue in KPM Analytics implicated two such requirements. First, it did not include a clause that expressly stated that the employee had the right to consult with counsel before signing the agreement. Second, the agreement was not “supported by a garden leave clause or other mutually-agreed upon consideration between the employer and the employee.”

While Judge Hillman’s discussion of the employment agreement constituted a small portion of the overall opinion, it carries significant implications for Massachusetts employers. The statute’s requirement that non-competition clauses be supported by “other mutually-agreed upon consideration” is not satisfied if said consideration is limited to the underlying employment. Thus, this case signals that courts are likely to employ a strict interpretation of the statutory language in order to give it its intended effect. If nothing else, this opinion makes clear that noncompetition agreements executed at the outset of the employment relationship must be supported either by a garden leave clause or some independent form of consideration to be enforced in Massachusetts courts.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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