Employee Non-compete Agreements

In a business world where employees move from company to company with ease, how does a business protect important business data, such as trade secrets, customer lists, or financial transactions? For employees, how does one have sufficient flexibility to use the training gained in an industry to further one’s career.

While non-competition agreements have been used in various forms for decades, their use over the past decade had become customary, especially in industries in which intellectual property is the product or service. Not unexpectedly, they are used regularly in Massachusetts with its overwhelming number of high technology, biotechnology and other intellectual-property rich industries.

The courts have examined and re-examined the validity and enforceability of non-competes and , more than any other area of Massachusetts contract law, there has been real fluidity in the courts’ decisions.

Where agreements are entered into between employers and employees, Massachusetts courts will closely scrutinize the agreements to insure a certain level of fairness. The agreements must pass muster with the courts, in three specific ways. First, the agreement must protect a legitimate business interest and not “ordinary” competition. In other words, should a sheet metal supplier enter into a non-competition agreement with its sales manager, it will not be enforced if the sales manager is prohibited from selling ceramic tile, for instance.

Next, the agreement must be reasonable in terms of geographic territory. What is reasonable depends largely on the specific circumstances. The Massachusetts courts have upheld worldwide restrictions, where the business was both unique and sold to limited number of customers in an international marketplace. On the other hand, two mile restrictions may be held to be unreasonable for a pizza shop, where there may be six or seven other shops within the two mile radius.

Finally, the courts will look to the duration of the agreement. As a general principle, the shorter the duration the more likely it will be found to be reasonable. Typically, assuming all of the other criteria are met, an agreement of one or two years will ordinarily be found to be reasonable.

Non-compete agreements may be signed at the initiation of employment, or during employment. Until recently, the Massachusetts courts have uniformly held that if a non-compete agreement is signed once employment is commenced, there must be some new consideration, such as a bonus. Recent decisions however, have left this theory in doubt. The better practice from the industry view however, is to require the agreement be signed at inception, or to offer some additional payment at the time of signing.

For more information on how the business lawyers of Parker Scheer can help you draft or review a non-competition agreement or, alternatively, how the Parker Scheer business litigation team can increase your success in a non-competition dispute, contact us.

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Contact Parker|Scheer Employment Law Attorneys

For more information on Massachusetts employment law or if you are seeking an employment law attorney or a business lawyer for any other needs, please contact Barry Scheer. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.

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