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Archive for August, 2011

DIRE ECONOMIC TIMES NOT A FACTOR IN ENFORCEMENT OF NON-COMPETE AGREEMENTS

Posted on: August 12th, 2011 by admin No Comments

Courts historically enforce non-compete agreements in personal service contracts provided they are reasonably related to a legitimate business purpose, and are otherwise fair, based on all the circumstances.  Under Massachusetts law, factors to consider in determining whether a non-compete agreement is reasonable are whether the covenant: (1) is supported by consideration; (2) serves a legitimate business interest; (3) is reasonably limited in time, geography and scope; and (4) adequately serves the interests of the public.  All Stainless, Inc. v. Colby, 364 Mass. 773 (1974).

Courts are reluctant to enforce non-compete agreements which they view as impermissible restraints on employment.  Furthermore, restrictive covenants cases usually first present themselves when one party runs to court to seek to enforce a covenant through injunctive relief.  The moving party is asking the court to order the suspension of alleged misconduct that is the perceived violation of a non-competition agreement, which is an equitable, non-financial, remedy.  When parties seek equitable relief, courts are permitted to consider notions of fundamental fairness and the equities involved in making their enforcement determination.  Accordingly, one might expect that courts would consider the depressed job market and great difficulty employees currently face in finding suitable successor work outside their fields of expertise when deciding whether or not to enforce non-competition agreements.  However, a recent decision suggests that the trend is otherwise – and that the ability to find alternative employment is not a significant influence on judges when deciding whether or not to prevent employees from working in their chosen fields when a non-compete agreement is in place.

In Aspect Software, Inc. v. Barnett, a federal district judge granted the employer’s request for a preliminary injunction to prevent Mr. Barnett, their former Executive Vice President and Chief Technology Officer, from continuing his employment with a rival company.  Mr. Barnett’s primary responsibilities with Aspect included managing software development, improving technology standards, and overseeing employee recruitment.  Judge Casper opined that it is “reasonably likely” that Barnett’s knowledge of Aspect’s trade secrets and understanding of the inner workings of Aspect’s software design would result in some form of disclosure to his new employer.  Furthermore, Judge Casper found that despite strong efforts by Barnett to protect Aspect from such disclosures—including Barnett’s monthly confirmations to Aspect that he has not violated his non-compete agreement—the threat of irreparable injury to Aspect was great.

Judge Caspar’s opinion pointed to the language of the non-compete agreement, where Mr. Barnett conceded that the contract did not impose an undue burden on him “due to the fact that he…has general business skills which may be used in industries other than those in which [Aspect] and its affiliates conduct their business and do not deprive [Barnett] of his livelihood.”   Judge Caspar then addressed the court’s “balance of hardships” between Mr. Barnett’s employment and the non-compete agreement, writing, “[e]ven setting this acknowledgement to one side, and taking seriously the disruption a preliminary injunction temporarily precluding Barnett from working for Avaya would cause to Barnett, his family, and (to a lesser extent) Avaya, the Court nonetheless finds that the harm a preliminary injunction would cause to Barnett is outweighed by the significant risk of irreparable harm to Aspect absent an injunction.”  Id. Although Judge Caspar recognized that enforcement of the non-compete could potentially cause Mr. Barnett and his family financial harm, it did not justify the court in disregarding the enforceability of the non-competition agreement Mr. Barnett and Aspect willfully entered into.

The decision in Aspect Software provides a glimpse into the mindset of a judge during this woeful economic period.  It appears that the court’s desire to enforce non-compete agreements based on evidence of an employee’s possessing sensitive knowledge or information, continues to outweigh economic factors and the prevention of an employee’s gainful employment.  There appears to be little evidence that courts will permit employees to breach non-compete agreements even though alternative, non-violative positions are exceptionally hard to come by in these difficult economic times.