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Employer’s Aggressive Tactics Allow Court to Deny Enforcement of Restrictive Covenant

By Trevor R. Brice - Skoler, Abbott & Presser, P.C.

August 25, 2022

Imagine that you have an employee that is leaving your company that has signed a non-competition and non-solicitation agreement. Now, let us imagine that same employee starts a business that not only directly competes with your business, but is taking clients from your business from the contacts he or she developed there. You move to enforce the non-competition agreement through a cease and desist letter. The former employee goes on the offensive and files a lawsuit against you for interfering with the new business. You move to dismiss. The motion should probably be granted right? Not necessarily.

The Standard

All non-competition agreements in Massachusetts that were entered into on or after October 1, 2018 are subject to the Massachusetts Noncompetition Agreement Act (“MNAA”). The MNAA added specific requirements for employers looking to make an enforceable non-competition agreement: 1) it has to be in writing and signed by both the employer and employee and state that the employee has a right to consult counsel; 2) it must be given to a new hire with their formal offer of employment or at least 10 days before they start and, if the agreement is with an existing employee, it must be given to them at least 10 days before it takes effect; 3) the consideration for the agreement must be agreed upon and recited in the agreement and, if the agreement is entered into with an existing employee, the consideration must be “fair and reasonable” and something other than the continuation of employment, 4) the agreement must be no broader than necessary to protect legitimate business interests of the employer, which are trade secrets, confidential information and employer goodwill, 5) the restriction on competing employment may not last for longer than 12 months from cessation of employment, 6) the restriction must be reasonable in geographic reach, 7) the restricted activities must be reasonable in scope, and 8) the agreement must be consistent with public policy. Unless all of these requirements are met, a non-competition agreement is unenforceable. However, non-solicitation agreements – which typically prohibit former employees from trying to poach their former employer’s customers or other employees – are not covered under the MNAA.

Plaintiff Proactively Files Suit Against Former Employer Looking to Enforce Non-Competition Agreement

In Macaroco v. Vanity Lab, LLC, the Plaintiff worked for the Defendants as an aesthetician and was subject to a non-solicitation and non-competition agreement that she entered into after she started her employment.  The agreement prevented the Plaintiff from practicing the aesthetician trade for one year if she were to leave the Defendants’ Company. The Plaintiff was terminated, and the day after she was terminated, she established her own business performing aesthetician services.

One week later, the Defendants sent the Plaintiff a cease and desist letter that demanded the Plaintiff not practice her trade as a new business. The Defendants also sent copies of this cease and desist letter to the Plaintiff’s clients, and also informed them of her allegedly poor performance. The Plaintiff, sensing that the Defendants would file suit against her, proactively filed suit against them first, claiming tortious interference with advantageous business relations, commercial disparagement, violation of Massachusetts General Law chapter 93A (“93A”) and negligent and intentional infliction of emotional distress. The Defendants moved to dismiss.

Overly Aggressive Enforcement Efforts Backfire Against Former Employer

To defeat the Defendants’ motion, the Plaintiff only needed to plead facts sufficient to make one or more of her claims plausible.  The Court dismissed her emotional distress claims, but allowed a large part of her case to go forward, denying the motion as to her claims for tortious interference with advantageous business relations, commercial disparagement and violation of chapter 93A.

The Court did not address the non-competition agreement head-on in its ruling, but accepted for purposes of the motion the Plaintiff’s allegations that the agreement was unenforceable because it was not supported by consideration independent of the continuation of her employment, was not necessary to protect the Defendants’ trade secrets or confidential information, was unsigned by the Defendants, the Defendants did not give her adequate notice, etc.  If any one of these were true, the agreement would be invalid under the MNAA and provide no defense to the Defendants if their enforcement efforts crossed a legal line.  And the Court concluded that the Plaintiff had alleged enough facts to make her claims of interference, disparagement and unfair and deceptive trade practices plausible.

The Court allowed the Plaintiff’s tortious interference claim to proceed based on the fact that the Defendants had contacted her customers in an effort to enforce the non-competition agreement.  Due to this proactive step, the Court ruled that a jury could conclude that the Defendants intentionally interfered with the Plaintiff’s business relationships.

The Court then addressed the commercial disparagement claim. The Plaintiff alleged that the Defendants were “defaming her in text messages and phone calls.” In particular, she claimed that the Defendants texted and called her clients to talk about the quality of her services in a negative light. The Court agreed that this claim was “thin”, as there were few allegations that derogatory statements were made by the Defendants to third parties that caused the Plaintiff damage. However, the Court agreed that these allegations were just enough to make the Plaintiff’s disparagement claim plausible.

Finally, the Court agreed that Plaintiff’s 93A claim was plausible. Chapter 93A requires that a business engage in “unfair or deceptive practices in the conduct of any trade or commerce.” 93A normally does not apply to the employer-employee relationship per prior Massachusetts rulings. However, due to the Defendants’ proactive contact with the Plaintiff’s clients in regard to the non-competition agreement, the Plaintiff was able to plausibly allege a 93A claim in relation to conduct outside of their prior employment relationship.

Overall, the Court did not seem happy with the Defendants for sending the cease and desist letter to the Plaintiff’s clients and talking poorly about her job performance. If the Defendants had stopped at sending the Plaintiff a cease and desist letter, the letter would have been covered under litigation privilege. However, when the Defendants involved the Plaintiff’s clients as third parties in an effort to enforce the non-competition agreement, and also allegedly made negative statements about her skill as an aesthetician, they went a step too far.

Takeaways

There are ways to try to self-enforce restrictive covenants that are not overreaching. A cease and desist letter is a common tactic if less formal communications are ineffective.  In this case, however, the Defendants allegedly sent a copy of their cease-and-desist letter to their former employee’s new clients and also allegedly criticized her professional skill and abilities.  This step clearly did not sit well with the Court, and supported the Plaintiff’s various claims of unlawful harm to her business. Had the Defendants not involved the Plaintiff’s clients, they may still have lost the battle over the enforceability of the non-competition agreement, but they would not also be defending themselves against potential liability for their own alleged misdeeds. The lesson for employers?  Consult with experienced employment counsel about the enforceability of any non-competition agreement before you take steps to pursue enforcement, consider incremental enforcement efforts that don’t involve unsolicited performance critiques, and keep in mind that actions you take toward a former employee may be considered conduct outside the scope of the employment relationship for purposes of Chapter 93A, so be wary of involving your former employee’s new clients in your efforts.

There are ways to try to self-enforce restrictive covenants that are not overreaching. A cease and desist letter is a common tactic if less formal communications are ineffective.  In this case, however, the Defendants allegedly sent a copy of their cease-and-desist letter to their former employee’s new clients and also allegedly criticized her professional skill and abilities.  This step clearly did not sit well with the Court, and supported the Plaintiff’s various claims of unlawful harm to her business. Had the Defendants not involved the Plaintiff’s clients, they may still have lost the battle over the enforceability of the non-competition agreement, but they would not also be defending themselves against potential liability for their own alleged misdeeds. The lesson for employers?  Consult with experienced employment counsel about the enforceability of any non-competition agreement before you take steps to pursue enforcement, consider incremental enforcement efforts that don’t involve unsolicited performance critiques, and keep in mind that actions you take toward a former employee may be considered conduct outside the scope of the employment relationship for purposes of Chapter 93A, so be wary of involving your former employee’s new clients in your efforts.

www.skoler-abbott.com

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