Spring 2012: Enforceability of Non-Compete Denied Due to Changed Circumstances

In this ever increasing competitive business marketplace, in order to protect intellectual property, customer relationships and good will, more and more employers are requiring their employees to enter into non-competition, non-solicitation and non-disclosure agreements. In most instances, these standard agreements are signed at the time of hire, placed in the employee’s personnel file and remain untouched throughout the employment relationship, and only resurface when the employee leaves. A recent decision by the Massachusetts Superior Court in holding that employee non-compete agreements were void due to changed circumstances in the employment relationship, serves as a reminder that employers must continue to be proactive in monitoring their agreements in order to have a legitimate chance in seeking to enforce restrictive covenants against a former employee.

In Grace Hunt IT Solutions, LLC v. SIS Software, LLC et al., the Massachusetts Superior Court denied the enforceability of non-compete agreements that were signed prior to the entry into an asset purchase agreement under which the plaintiff became the successor and assignee of the defendants’ original employer. Following Grace Hunt IT Solutions acquisition of the assets of their former employer, three employees were presented with new offers of employment and new non-compete agreements. While the employees signed the offer letters, they did not sign new non-compete agreements. Subsequently, the employees were contacted by a competing company and eventually resigned and went to work for the new employer. Grace Hunt brought an action seeking to enforce the terms of the departing employees’ non-compete agreements.

In denying the employer’s request for a preliminary injunction, the Court found that, under Massachusetts law, non-compete agreements can be rendered void and unenforceable when there is a “material change” in the employment relationship. Based upon its findings of a material change in the employment relationship, the Court found the non-compete agreements to be unenforceable.