Source: https://www.faircompetitionlaw.com/2020/04/09/new-first-circuit-noncompete-case-sheds-no-light-on-massachusetts-noncompetition-agreement-act/
Timestamp: 2020-05-27 15:19:50
Document Index: 602545479

Matched Legal Cases: ['§ 24', '§ 187', '§ 187', '§ 187', '§ 71', '§ 24']

New First Circuit Noncompete Case Sheds No Light on Massachusetts Noncompetition Agreement Act – Fair Competition Law
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The First Circuit’s long-awaited decision in NuVasive v. Day has finally arrived!
And, it’s a big nothing burger: nothing new about the new Massachusetts Noncompetition Agreement Act, G.L. c. 149, § 24L (the “MNCA,” as the court calls it).
But, that’s not surprising.
The case was really an appeal of a preliminary injunction issued in the Massachusetts District Court enforcing a nonsolicitation agreement. And, although the case also involves a noncompete agreement, the agreement was executed before October 1, 2018, i.e., before the effective date of the MNCA.
Accordingly, as expected, the decision tells us nothing new about the new law – except what it does not apply to. Specifically, it does not apply to noncompetes entered into prior to its enactment, nor does it apply to nonsolicitation agreements. (None of this should be news.)
Hopes had been raised because, as you may recall, the District Court (Judge Casper) had observed in dicta that, even if the new law applied, the agreement would have been supported by adequate consideration. For a discussion about that statement, see Erika Hahn’s and my article, “Consideration happens, but not during garden leave,”and our predecessor article, “The new noncompete law: compromise happens.”
But, that issue was not addressed by the First Circuit.
So, what does the decision give us? It is a First Circuit decision in a nonsolicitation, preliminary injunction case, after all!
The case provides a new cite (not a new standard) for the the preliminary injunction standard in the First Circuit, a new cite (not a new standard) for the applicable standard of review, and new some guidance on choice of law.
As to choice of law, the decision discusses (and finds inapplicable) two exceptions to the “usual” rule “that the choice-of-law provision in an employment contract should be enforced. See Oxford Glob. Res., LLC v. Hernandez, 106 N.E.3d 556, 564 (Mass. 2018).”
The first exception it considered “prevents a choice-of-law provision in an employment contract from being enforced when such a provision chooses the law of a state that ‘has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice.’ Oxford Glob. Res., 106 N.E.3d at 564 (quoting Restatement (Second) of Conflict of Laws § 187(2) (1971)).” But, the court rejects application of that section,
because Delaware is NuVasive’s place of incorporation and NuVasive is the plaintiff. See id. (citing to the Restatement); Restatement (Second) of Conflict of Laws § 187(2) cmt. f (1971) (recognizing the validity of choice-of-law provisions where “the state of [the chosen law] is that where performance by one of the parties is to take place or where one of the parties is domiciled or has his principal place of business”); see also Cream of Wheat Co. v. Grand Forks Cty., 253 U.S. 325, 328 (1920) (explaining that a company is domiciled in the state where “it was incorporated under the laws of that state”).
The second exception considered by the court “prevents a choice-of-law provision in an employment contract from being enforced when the ‘application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state [in the determination of the particular issue],’ and the law of the state with the greater interest would otherwise apply ‘in the absence of an effective choice of law by the parties.’ Oxford Glob. Res., 106 N.E.3d at 564 (alterations in original) (quoting Restatement (Second) of Conflict of Laws § 187(2) (1971)).”
Assuming for argument sake that Massachusetts had a materially greater interest than Delaware, the court nevertheless rejected application of the exception because “Day . . . failed to show that application of Delaware law in this case would be contrary to ‘a fundamental policy’ of Massachusetts. Id.” Day’s failure was in two respects:
First, Day argued that the new MNCA “represents a fundamental Massachusetts policy that would be violated by the application of Delaware law here, insofar as Delaware law would allow NuVasive to enforce the . . . nonsolicitation clause against Day . . . .” The court rejected this argument for the following two reasons:
one, because “the MNCA ‘only applies to employee noncompetition agreements entered into on or after October 1, 2018,’ Automile Holdings, LLC v. McGovern, 136 N.E.3d 1207, 1217 n.15 (Mass. 2020); see St. 2018 Mass., ch. 228, § 71 (‘Section 24L of chapter 149 of the General Laws may be referred to as the Massachusetts Noncompetition Agreement Act and shall apply to employee noncompetition agreements entered into on or after October 1, 2018.’), and Day signed the [agreement] nearly a year earlier, on January 6, 2018”; and
two, because “‘[b]y its terms, the [MNCA] does not apply to nonsolicitation agreements.’ Automile Holdings, 136 N.E.3d at 1217 n.15; see Mass. Gen. Laws ch. 149, § 24L (excluding ‘covenants not to solicit or hire employees of the employer’) and ‘covenants not to solicit or transact business with customers, clients, or vendors of the employer’ from the definition of ‘noncompetition agreement’).”
Second, Day argued that his nonsolicitation agreement was void under Massachusetts’ material change doctrine, which Day contended constituted a fundamental Massachusetts policy. The court rejected the argument that the agreement was void, expressly not reaching (or resolving) the question of whether the material change is in fact a fundamental Massachusetts policy.
As a threshold issue, sadly, the court did not discuss, much less analyze, whether the material change doctrine applies to nonsolicitation agreements, as opposed to just noncompete agreements. While lower court decisions have applied the doctrine to such agreements, see, e.g., Lycos, Inc. v. Jackson, 2004 WL 2341335, at *9 (Mass. Super. Ct. Aug. 25, 2004) (Houston, J.) (“Each time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.”); Patriot Energy Group, Inc. v. Kiley, No. 13- 04177BLS1, 2014 WL 880880, at *7 (Mass. Super. Ct. Feb. 26, 2014) (Kaplan, J.) (“A non-solicitation agreement or covenant not to compete may be deemed void if there are material changes in the employment relationship between an employee and the employer.”); Akibia, Inc. v. Hood, No. 12- 0294F, 2012 WL 10094508, at *7 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.) (“a non-solicitation agreement or covenant not to compete may be deemed void if there are material changes in the employment relationship between the employee and his or her employer”); Rent-A-PC, Inc. v. March, No. 13- 10978-GAO, 2013 WL 2394982, at *2–3 (D. Mass. May 28, 2013) (O’Toole, J.) (various restrictive covenants were held void under the material change doctrine), I am unaware of an appellate court so holding (expressly, anyway).
As to the merits, the key facts are as follows: Day had a restrictive covenant agreement with NuVasive that he signed while working there. Day then left NuVasive and formed a company to distribute for NuVasive. Several months later, Day terminated the distribution relationship.
Day’s argument was, essentially, that a material change in his relationship was occasioned by the termination of the distribution relationship.
Not surprisingly, the First Circuit rejected that argument, observing that “Day has not identified any precedent that indicates that such a ‘termination’ – at least when it has been occasioned, as it was in this case, by an employee’s own choice to terminate that employment – is a qualifying ‘change’ under Massachusetts’ ‘material change’ doctrine.”
So, while we have some limited new guidance generally, we’ll have to continue to wait for the elusive precedent on the “new” Massachusetts Noncompetition Agreement Act.
It will come soon, I’m sure!
Hat tip to Mike Chinitz for letting me know the decision was out.