If you are an employer in a highly competitive industry (and what industry isn’t highly competitive these days?) or if your company owns valuable intellectual property, you may have considered using noncompetition agreements – or maybe you already are. Noncompetition agreements (“noncompetes” to their friends) can make a lot of business sense. After all, if your top engineers walk out the door with the secret formula for making glow-in-the-dark asparagus and go to work for your biggest competitor down the street (the illuminated vegetable industry is vicious), you may want to be able to stop them from using your intellectual property. (You might also have a claim for misappropriation of trade secrets, but a noncompete can give you broader protection.)
So why not have all of your employees sign broad noncompetes that prohibit them from working for competitors after they leave your company? Because under Massachusetts law, noncompetes must be narrowly tailored to be enforceable. An overly broad noncompete would likely be thrown out by a court if you ever tried to enforce it (though Massachusetts courts can also do their own narrowing, if they chose to – but don’t count on it). To be enforceable in Massachusetts, noncompetes (which can be separate documents or included in employment contracts) must at minimum be reasonable, and reasonableness depends largely on how the following three terms are drafted:
· Duration – the amount of time an ex-employee is to be bound by a noncompete after their departure from your employ (Massachusetts courts generally frown on noncompetes with terms of more than a year);
· Geographic Scope – where an ex-employee can and cannot compete (should be limited to the geographic area in which your company is doing business); and
· Justification – the reason why the noncompete is necessary to you, the employer (it can’t just be to stifle competition – you need a legitimate business interest of which there are three – we’ll get to those in a minute).
Whether the duration or the geographic scope of a noncompete is reasonable is largely a fact-based inquiry that requires a detailed look at the specific circumstances at hand (read: judges do pretty much whatever they want with these, but the shorter the duration and the smaller the geographic area, the more likely it is to hold up). In terms of the justification for the noncompete, Massachusetts courts have made it clear that a noncompete will not be enforceable unless its objective is to protect an employer’s legitimate business interests, of which there are three: (1) protecting confidential information, (2) protecting trade secrets, and (3) protecting good will. In other words, if your noncompete is not drafted to protect one or all of these interests, it is probably not enforceable.
Because noncompetes must be reasonable and that reasonableness depends in large part on a variety of factors – many of which are industry-specific and even job-specific – employers should avoid a “one-size fits all” approach when it comes to crafting noncompetes. Indeed, a noncompete deemed reasonable as to one employee may be unreasonable (and therefore unenforceable) as to another.
If you are thinking about using noncompete agreements or are already using them and would like to know how Parker Keough LLP could help you craft enforceable noncompetes (or figure out whether you need them in the first place), please contact us at 617-841-2418 or by clicking the "Contact" link at the top of the page. And please pass the asparagus.