Non-compete clause in employment agreement leads to litigation

| Aug 3, 2012 | Contract Disputes

A recent decision by the Appeals Court in Massachusetts highlights the often convoluted issue of non-compete clauses in employment contracts.

The lawsuit

An employee with a Massachusetts company had an employment agreement which contained a non-compete clause. When that employee left the company, another employee (presumably his supervisor) released him from the non-compete provision, meaning that the employee could work for another company that was in competition with the company he left. The supervisor did not obtain the approval of his company prior to releasing the employee from the clause as he believed the clause was not enforceable.

The supervisor, then, left the company as well and the company sued him for releasing the former employee from the non-compete clause without its permission. The trial was decided based on a finding by the judge that the non-compete clause was, in the judge’s opinion, non-enforceable. The judge, however, failed to provide adequate justification for the decision and the decision was appealed and subsequently sent back for a new trial.

The issues in the case have more to do with procedural questions but the years spent in litigation highlight the seriousness of employment contract provisions.

Non-compete clauses in employment agreements

In order for a non-compete clause to be valid, it must:

  • Protect a legitimate business interest of the employer, such as a trade secret or patent.
  • Be reasonable regarding duration, breadth of geography and scope of prohibited employment.
  • Provide something of value to the employee in exchange for his or her promise not to compete.

While a business has the right to protect its interests and assets, an employee has the right to earn a living. When drafting a non-compete provision in an employment agreement, those rights must strike a balance in order for the contract to be enforceable. A company should also specify, in writing, how or by whom the clause may be waived.

Failure to adequately balance the interests of both business and employee prior to creation of an employment agreement exposes both to the risk of a lengthy legal battle.

Source: FindLaw, “Non-Competition Agreements: Overview