Employers often request new and existing employees to sign a non-competition agreement covenant not to compete. The “non-compete” typically provides that the employee, upon termination of employment, may not be employed by a competing business for a defined period of time within a defined territory.
While many employees sign these covenants believing that they are not enforceable, the rule in Massachusetts (and in many other states) is that a covenant not to compete will be enforced to the extent it is “reasonably limited in time and space, is necessary to protect a legitimate interest, and is consonant with the public interest.” Even when a covenant not to compete is overly broad, courts in Massachusetts are generally willing to narrow it to a reasonable scope and then enforce it.
The most widely recognized business interests that will support enforcement of a covenant not to compete are protection of a company’s trade secrets or confidential information, and protection of a company’s “goodwill.” A trade secret may consist of “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him [or her] an opportunity to obtain an advantage over competitors who do not know or use it.” Confidential information can also include such information as the names and requirements of customers, where such information is not generally known or easily acquired.
Goodwill, in the context of covenants not to compete, typically refers to a relationship that develops between an employee and the employer’s customers that results in continuing business. Courts typically regard customer goodwill as “belonging” to the employer, particularly if the employee developed the customer relationship while being paid to do so by the employer. In such cases, upon leaving the employer and joining a competitor, the employee is often in a position to “take the customer” with him or her. Enforcement of a covenant not to compete can prevent the employee from appropriating the prior employer’s goodwill for the benefit of a competitor. Many times, when a prior employer seeks protection of its customer goodwill, courts will allow the employee to work for a competitor but prevent the employee for a period of time from soliciting the customers he dealt with for his previous employer.
The outcome in cases involving covenants not to compete can be unpredictable. Each case turns on its own facts, and different judges have different propensities as far as enforcing, or refusing to enforce such agreements. Some of the factors that can come into play when determining the enforceability of a covenant not to compete include whether the covenant is truly necessary to protect a legitimate business interest; whether the employer has breached the employment contract or has engaged in conduct that is inequitable; whether the employer has changed its identity or name, or has been purchased by another business; whether the public interest is against enforcement; and whether the employee’s job responsibilities have evolved over time so as to render the non-compete obsolete.
Attorneys at Casner & Edwards, LLP are experienced in drafting and reviewing covenants not to compete, and in representing both employers and employees in litigation seeking to enforce or to defend against such covenants. If you are interested in speaking to an attorney at Casner & Edwards about such a matter, please contact Doug Mansfield or Steve Perry.