EMC Corp. Should Have Drafted a Better Non-Competition Clause
Recognizing that plaintiff EMC Corp. could have better-worded its employment agreement, the U.S. Court of Appeals for the First Circuit affirmed the denial of EMC’s motion to enjoin a former employee under the agreement. EMC Corp. v. Arturi, Case No. 11-1001 (1st Cir., Aug. 26, 2011) (Souter, J.).
In 2007, Christopher Blotto signed an employment agreement containing a one-year non-competition clause with EMC, a business and technology consulting firm. Blotto left EMC two years later, on December 4, 2009. Among other reasons, Plaintiff EMC sued because Blotto and other former employees formed a competing business. On November 8, 2010, EMC moved to enjoin Blotto from competing with it, soliciting EMC’s customers and employees and possessing and using EMC’s confidential business information. On December 15, 2010, over a year after Blotto left EMC, the district court denied the first two motions and granted the motion barring Blotto’s use of confidential business information. EMC appealed the denial of the motion to no avail. The district court and the First Circuit were bound by the precedent of the Supreme Judicial Court of Massachusetts, which precludes the equitable enforcement of an expired non-competition clause, even when the reason the clause was not previously enforced is because of the time spent for the legal process. The policy underlying this “frosty climate” for enforcement arises from the imbalance in bargaining power between an employer and employee—this imbalance demands construing an employment agreement against the employer and limiting the availability of equitable enforcement accordingly.
The court rebutted EMC’s argument that Blotto should be precluded from escaping the non-competition clause with two points. First, although an injunction was unavailable to EMC, it could nevertheless obtain relief by proving a breach of contract and damages therefrom. Second, because Massachusetts precedent was clearly in effect at the time Blotto signed the employment agreement, EMC was forewarned and could have drafted the non-competition clause to toll its term of restriction during litigation. The court disregarded the five unreported Massachusetts Superior Court cases EMC cited as examples of equitably extending enforcement of a non-competition clause beyond the terminal date of the restriction. In fact, the court questioned the harmony of those cases with the clear precedent of the state’s highest court.
Practice Note: When drafting a non-competition clause and its term of restriction under the laws of Massachusetts, ensure that the period of restriction is tolled during any litigation that may delay the enforcement of such a clause.