(Editor’s Note: This is the second of a two-part column. See part 1 here.)
Certain types of noncompetition agreements are now invalid under the new Massachusetts noncompete law (the Act). This is a double-edged sword for employers, who will now benefit from the ability to hire certain employees and independent contractors who were previously “off limits” due to a restrictive covenant but also now may be prevented from enforcing valuable restrictions against their current workforce.
It is critical for employers in the Northeast to understand which employers and which employees may be affected by the Act.
A noncompetition lawsuit will usually start with the former employer suing the former employee for breach of contract. It’s less likely the employee, or their new employer, files a lawsuit against the former employer asking the court to declare the noncompetition invalid. After suit is filed, the court will have to decide which state’s law to apply. Generally, the contract will state the law to be applied and the court will usually follow the contract unless the law chosen bears no relation to the parties or issues.
Here is the problem for Rhode Island employers: Even those with contracts that state “in the event of a dispute the laws of the state of Rhode Island shall apply,” Rhode Island law may not apply. The Act says a choice of law provision is not effective if, throughout the 30-day period leading up to the termination date, the employee was either a resident of Massachusetts or employed in Massachusetts. If a lawsuit is filed in Massachusetts, a Massachusetts court will likely apply the Act if the employee involved lived or worked in Massachusetts during the specified time. While not explicitly required by the Act, judges may apply the Act to other workers with Massachusetts connections. Given the Act may be taken to reflect a general public policy of Massachusetts, judges may also apply the principles of the Act to noncompetes not explicitly covered by the Act.
That brings us to where the lawsuit will be filed. Like choice of law, choice of forum is often contained in a contract, and choice of forum clauses are frequently upheld unless there is no rational relationship to the chosen forum. The Act directs suits to be filed in Massachusetts. Thus, if an employee or their new employer sues for an injunction in Massachusetts prior to the employer filing suit and fits the criteria of working or living in Massachusetts, a Massachusetts judge likely will not honor an out-of-state forum chosen.
On the other hand, if the employer enforcing the agreement files in Rhode Island, a Rhode Island judge will consider the Act when weighing the interests in deciding choice of forum and choice of law. However, the judge would not likely feel restricted by the Act and thus may choose to hear the suit, apply Rhode Island law and uphold an agreement that would otherwise be invalid under the Act. As a result, who files first may be critical. Unfortunately for Rhode Island employers, the nefarious employee preparing to work for a competitor could move to Massachusetts before resigning and file prior to the employer having time to win the race. The lesson here? Employers in the surrounding states should take the following steps: Expressly choose forums and law outside of Massachusetts, preferably with a real relationship to the employment; make sure agreements have strong provisions that are exempt from the restrictions of the Massachusetts law, such as nonsolicitation, confidentiality and nonpoach provisions; and consider filing a complaint outside of Massachusetts immediately when a dispute arises over a noncompete with a connection to Massachusetts.
Alicia J. Samolis is a partner at Partridge Snow & Hahn LLP and chairs the firm’s Labor & Employment Practice. Matthew L. Mitchell is counsel at Partridge Snow & Hahn in Boston. Michael A. Gamboli is a partner at Partridge Snow & Hahn.