Recent Cases Show Emerging Trends in Non-compete AgreementsIt’s no secret that courts are skeptical of non-compete agreements. This is especially true when enforcement will restrain employees from earning a living.
In Massachusetts, the ‘material changes doctrine’ can provide a court with just the right ammunition to shoot down the enforceability of a non-compete agreement. Under that doctrine, a non-compete is unenforceable if the employer-employee relationship has changed significantly since the employee signed the agreement. Several recent cases illustrate how the doctrine works in practice.
Case #1: Rent-A-PC Inc. v. March (D. Mass. May 28, 2013)
Robert March began working for SmartSource as a senior account executive in June 2006. SmartSource provides short-term rentals of audio-visual, computer, and other equipment. March signed a non-compete agreement at the outset of his employment that restricted him from working for competitors of SmartSource for one year after his separation from employment.
March moved up in the company quickly. He advanced to branch sales manager in 2007. He was then promoted to regional sales manager in 2008. March was promoted again in 2010 to regional general manager and one more time in 2012 to regional sales manager. With each promotion, March’s job responsibilities and compensation changed. His final position at SmartSource was significantly different from his first in terms of scope, duties, and pay.
March was fired in October 2012 and joined a direct competitor a month later. SmartSource filed an action against March seeking to enforce the non-compete agreement. The court refused to enforce it, relying on the material changes doctrine. March had signed the non-compete when he started working for SmartSource as an account executive. He was then promoted all the way up to regional sales manager. Conceivably, he might not have been willing to sign a new agreement in connection with any one of his promotions. The court refused to enforce the agreement in this case because March’s duties and compensation had materially changed while he worked at SmartSource.
Case #2: Intepros Inc. v. Athy (Mass. Super. May 5, 2013)
In a similar case, Paul Athy was hired as a branch manager for Intepros, an IT staffing and services company, and signed a non-compete agreement at the outset of his employment. Athy climbed the company ladder all the way up to the chief operating officer position. Intepros did not ask Athy to sign a new agreement in connection with any of his promotions.
Athy left the company in 2012, saying he wanted to coach his son’s football team and possibly create his own company to assist recent college graduates in finding jobs. Athy was not true to his word, and instead he started an IT staffing business similar to Intepros, and brought on a major client whom he had solicited while working for his former employer. Intepros sued, claiming Athy had breached his non-compete agreement. Again, the court refused to enforce the agreement under the material changes doctrine. According to the court, Athy’s employment relationship had changed “dramatically” after he signed the original non-compete agreement because his pay and authority had increased substantially with each promotion.
Case # 3: A.R.S. Services Inc. v. Morse (Mass. Super. Apr. 5, 2013)
This case has similar facts to the two discussed above. Daniel Morse went to work for a competitor after leaving A.R.S. Services. When A.R.S. tried to enforce a non-compete agreement, Morse argued it was unenforceable because he had experienced a significant demotion while working for A.R.S. However, this case had an added wrinkle.
The noncompete stated that it was “valid notwithstanding any change in [Morse’s] duties, responsibilities, position or title with [ARS].” In other words, the agreement clearly said that it was enforceable even if Morse’s job duties changed. The court relied on this language in ruling that the non-compete was enforceable. This case demonstrates that suitable language in the non-compete may avoid the material-changes dilemma.
The lesson from these cases is clear. Employers need to make sure employees sign new and updated non-compete agreements when there are major changes in their duties and responsibilities. If you need assistance revising or enforcing a non-compete agreement, contact experienced labor and employment counsel for assistance.
John Gannon is an attorney at the management-side labor and employment firm Skoler, Abbott & Presser, P.C.; (413) 737-4753; [email protected]; www.linkedin.com/in/johngannonesq.