Challenging Post-Employment Restrictions: New Guidance from the Supreme Judicial Court
On October 1, 2018, the Massachusetts Non-Competition Act, MGL c. 149, sec. 21, went into effect. Without a doubt, the Act provided a much-needed leveling of the playing field for employees whose employers and prospective employers were using over-reaching restrictions to gain an unfair advantage in competition and compensation. For example, the Act prohibits the enforcement of non-competition agreements against employees who are terminated without cause or laid off and, in most circumstances, limits enforceable non-competition restrictions to no more than one year.
However, as Massachusetts employees soon came to realize, the Act is limited to non-competition restrictions and does not cover other anti-competitive restrictions which may be just as harmful. Such restrictions include non-solicitation of customers or co-workers, the latter of which is also known as a “non-raiding restriction.”
On January 14, 2020, in Automile Holdings, LLC v. McGovern, 483 Mass. 797 (2020), the Supreme Judicial Court, Massachusetts’ highest court, issued a decision regarding such a restriction, which upheld the enforceability of the restriction as one arising in the course of the sale of a business, but rejecting the lower court’s extension of the restriction as an equitable remedy for breach. The Court reminded the lower courts (and employers) that, “[a]s a matter of public policy, we strongly disfavor restrictive covenants.”
The Court reiterated the public policy of Massachusetts: “We have long recognized a public interest in the ability of individuals to be able to carry on their trade freely … Out of this concern for an individual’s ability to earn a living, covenants restraining competition are only enforceable to the extent that they are reasonable.” The Court reaffirmed that the public policy against anti-competitive restrictions applied not only to those labeled “non-competes,” and that an anti-competitive restriction “is only reasonable, and thus enforceable, if it is (1) necessary to protect a legitimate business interest, (2) reasonably limited in time and space, and (3) consonant with the public interest.”
Regarding whether a restriction is “reasonable” and enforceable, the Court pointed out that the context in which the restriction arose – in employment versus in the sale of a business – “is relevant to the parties’ relative bargaining power, the hardship to the promisor of abiding by the terms of the restrictive covenant, and thus the over-all reasonableness of the restriction.”
As the Court noted, “such post-employment restraints are often the product of unequal bargaining power,” and are entered into without advice of counsel – all of which the Court considered relevant in evaluating reasonableness and, ultimately, enforceability.
If your post-employment opportunities are limited by a restrictive covenant – a pre-October 1, 2018 non-compete, non-solicit or non-raiding clause – you may want to have your rights and options re-evaluated by legal counsel in light of this recent Supreme Court decision.