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Employer Loses Non-Compete Enforcement Action

Posted on July 25, 2022

A recent court case highlights the importance of detail as well as the consequences when an employer seeks to enforce a non-compete agreement (NCA) that is built on a flawed foundation. The four-year -old Massachusetts law governing use of NCAs not only limits the use of non-competition agreements but prescribes specific elements necessary for enforcement.

The employee in this case worked as a salesman for an insurance agency. After working there for several years, ownership approached him in 2020 to sign a new employment agreement that contained non-competition, non-solicitation, and confidentiality provisions. The employee signed the agreement the same day it was presented to him, but he was fired by the employer approximately eight months later. The employee now works for a different insurance agency.

The case began when the plaintiff (the former employer) sought to enforce the non-competition provision of the employment agreement that the former employee signed in 2020.

When the employee began to work for another insurance agency and at least one major client followed him there, his former employer sought to enforce the employment agreement. As the judge noted in his opinion rejecting the motion to enforce the noncompete … “By statute, a non-competition agreement entered into with a current employee will be valid and enforceable only if:

  • the employee is given notice of the agreement at least 10 business days before the agreement is to be effective, and
  • the agreement is in writing and signed by both the employer and employee, and
  • it is supported by fair and reasonable consideration independent from the continuation of employment, and
  • it expressly states that the employee has the right to consult with counsel prior to signing.

The NCA in this case failed on at least two counts. It took effect immediately without the employee receiving at least ten days’ advance notice, and the 2020 employment agreement did not expressly state that the employee had the right to confer with an attorney before entering into the non-competition agreement. Either of those two flaws are fatal to any enforcement action.

It appears that the NCA provision of the employment agreement had been put together without the benefit of legal counsel reviewing it. Qualified employment counsel would have been aware of, or easily researched, the existence of the 2018 non-compete law. The judge’s ruling denying enforcement of the NCA makes it crystal clear to employers if they wish to enforce non-competition covenants against their employees, they need to follow the statutorily established rules on how to create, present and implement an enforceable noncompete agreement.

AIM members with questions about this or any other human resources issue may contact the AIM Employer Hotline at 1-800-470-6277.