Massachusetts Employers: Do You Need To Reissue Your Non-Compete Agreements?

Arent Fox
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Arent Fox

Non-compete agreements have recently come under attack across the country, both at the state and federal levels. Massachusetts passed legislation in 2018 that imposed additional requirements on employers in order for their non-compete agreements to be enforceable, including additional consideration and limits on scope. 
 

But Massachusetts employers should remember not to lose sight of the basics. Two recent opinions remind Massachusetts employers of the importance of issuing new agreements in the event of a material change in duties or any gap in employment.

First, in Russomano v. Novo Nordisk Inc., the First Circuit held that an employee’s one-year non-compete period began to run on the effective termination date specified in the company’s letter to its employee eliminating his position, regardless of the fact that the company subsequently re-hired him the very next day. 960 F.3d 48 (1st Cir. 2020). Russomano had been laid off in 2018 by a letter that specified an August 5, 2018 termination date, and encouraged him to apply for open positions. Russomano did apply to open positions and was rehired into a different role starting August 6, 2018. He was not required to sign a new non-compete at that time. Russomano resigned from the new role in January 2020 and began work for a new employer shortly thereafter. Novo Nordisk argued that Russomano was not laid off in 2018, but was instead transferred to a new role beginning the Monday after his termination date the Friday before.

In affirming the lower court’s decision, the First Circuit noted that the language in the termination letter was unambiguous – Russomano’s employment in the role to which the non-compete was subject ended. As such, the non-compete restriction began to run on the date employment in that role terminated and had expired.

Next, in Bradley v. Bradford & Bigelow, Inc., the Business Litigation Session of Suffolk Superior Court granted an employee’s motion for a preliminary injunction stopping his former employer from enforcing a non-compete against him because the employee had undergone material changes to his employment conditions, including significantly increased compensation and responsibility. No. 2084CV02504BLS1, 2020 WL 8182797, at *1 (Mass. Super. Nov. 13, 2020). Bradley signed a non-compete agreement in 2015 when he became a Business Development Manager. In 2017, Bradley was promoted to Vice President of Sales, Business Development, and Marketing, but he was not required to sign a new agreement in connection with the promotion.

The court noted “The Massachusetts Supreme Judicial Court long ago held that material changes in the relationship between an employer and employee, including substantial modifications to the employee's position, responsibilities, and compensation, “strongly suggest that the parties had abandoned their old [employment] arrangement and entered into a new relationship.” As such, the 2015 noncompete agreement was unenforceable.

Practically, employers may be able to work around the material change issue by including language in their form non-compete agreement making it clear that the restrictions continue to apply regardless of any change in duties, big or small. But without such language, new agreements are necessary if employers want to protect their legitimate business interests through the use of noncompetes. Moreover, employers must remember that any new non-compete agreement entered into after October 1, 2018, must comply with the strict requirements of the Massachusetts Noncompete Act. Though employers may hope to avoid these requirements by relying on legacy agreements, such an approach could prove fatal in the face of a material change or gap in an employee’s duties.

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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