The Massachusetts Supreme Judicial Court (SJC) recently ruled in favor of an employer seeking to enforce a non-solicitation clause in a former employee’s separation agreement. When the employee violated this clause, the employer stopped severance payments and demanded repayment of what had already been paid.

Background

The employee began working for a biotech company in 2017, signing a restrictive covenant agreement that addressed non-compete, non-solicitation, confidentiality, and assignment provisions. When her employment terminated in 2020, she entered into a “transition agreement” with the employer, reaffirming those original restrictions. That transition agreement included a forfeiture clause, stating that if she breached its terms:

• Any unpaid severance would be forfeited, and
• Already-paid benefits would need to be repaid.

The employer had already paid approximately $1.2 million in transition benefits.

In 2021, the employee joined another biotech company as Chief People Officer and hired several former coworkers. The employer ceased payment of transition benefits and demanded repayment of the benefits it had already disbursed.  The employee sued for breach of contract (failure to pay), and the employer countersued, citing her breach of the non-solicitation clause.

The Legal Argument

The employee argued that the Massachusetts Non-Competition Agreement Act (NCAA) (M.G. L. c. 149, § 24L) applied because the non-solicitation clause included a forfeiture provision. She claimed this brought the clause under the law’s scope. The employer disagreed, stating that non-solicitation provisions are explicitly excluded from the NCAA—even if they include forfeiture terms.

The employer appealed a lower court ruling, seeking a determination that the non-solicitation agreement is not within the scope of the NCAA. The sole issue decided by the SJC was as follows:

Does Massachusetts’s Non-competition Agreement Act, which governs covenants containing forfeiture provisions tied to competitive activity, also apply to a non-solicitation covenant when its breach triggers forfeiture of previously paid severance benefits?

The SJC’s Decision

The SJC reviewed the law’s definitions and found that the NCAA defines a “non-competition agreement” as a restriction on engaging in specific competitive activities after employment ends. A “forfeiture for competition agreement” falls under that umbrella—but the law explicitly excludes covenants not to solicit or hire a former employer’s employees.

The court ruled that “because forfeiture for competition agreements are expressly defined as a subset of non-competition agreements, and non-solicitation agreements are explicitly excluded from that category, solicitation cannot be reintroduced through the back door of “competitive activities” without rendering the statute internally contradictory.”  In short, the NCAA does not govern non-solicitation agreements, even when those agreements include forfeiture provisions.

What This Means for Employers

This case is a reminder that although the NCAA limits non-competition agreements, non-solicitation agreements are outside of its scope.  Employers can continue to include these provisions in employment and separation agreements, and they may lawfully tie severance benefits to compliance with such clauses.

However, drafting matters. Agreements should clearly differentiate between non-compete and non-solicitation provisions and use language that aligns with the law’s definitions and exclusions. As always, we encourage employers to seek legal counsel when drafting separation agreements to ensure that the agreement and any restrictive covenants are enforceable.

For Next Steps

AIM Members with questions about non-solicitation provisions or any other HR matters, may contact the AIM HR Helpline at 800-470-6277 or helpline@aimnet.org.