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Archive for the ‘Restrictive Covenants’ Category

“Non Compete Confusion” Massachusetts Lawyers Weekly quotes David Belfort

Posted on: March 15th, 2017 by admin

2013-david-b-photo-150x150B&B Partner David Belfort was called upon for comment and quoted extensively in a recent Massachusetts Lawyers Weekly (“MLW”) article discussing enforcement of employee non-compete agreements.  The front page article entitled “Company acquisition leads to non-compete confusion” was published in the March 9, 2017, edition of MLW and focused on the implications on the enforcement of a restrictive covenant first in the case of an assignment and then as to statutory merger of the employer.

Two recent successive rulings by the Massachusetts Superior Court Business Litigation Session (NetScout Systems, Inc. v. Hohenstein) demonstrate that an employee non-compete agreement will only be as strong as the structural formation and modifications of the employer corporation.    In these two opinions, Judge Kenneth Salinger explained that an “assignment” of rights to a new entity, from one company to another, is treated less deferentially in enforcement of non-competition terms than a statutory merger, where a subsidiary of the original employer stands in the same legal shoes as the original employer.

In an initial ruling on a motion for preliminary injunction, the Court denied enforcement of a non-compete provision which included an assignment provision that included the company’s subsidiaries and affiliates, but did not specifically include its assignees in the definition of the company employer. Moving for reconsideration, the acquiring company was able to present new evidence that it was, in fact, a legal successor to the original company employer.   Despite the fact that the Court then found the non-compete to be enforceable, Judge Salinger concluded that the non-compete restrictions were too geographically broad.  As such, the non-compete could only be applied to the geographic area in which the employee formerly worked and he was free to continue working in a new region.

In this case the non-compete provision ultimately did not make a practical difference to the employee’s ability to work because the judge only prohibited him from working in his former region, which was outside of the territory he handled at his new employer.  Nonetheless, Attorney Belfort explained to MLW that these rulings provide a “cautionary tale” and illustrate the importance of careful drafting and review of non competition agreements.  Attorney Belfort also stressed that, while these cases may provide a road map for enforcement to legal professionals, employees who have not sought legal counsel are often pressured to sign non-compete agreements “largely in the dark.”  In consideration of the complexity of non-compete agreements and their enforcement, Attorney Belfort added that this is an area of the law that screams out for legislative intervention.

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Be sure to read the full article at:  http://masslawyersweekly.com/2017/03/09/company-acquisition-leads-to-non-compete-confusion

BENNETT & BELFORT WELCOMES ATTORNEY CRAIG LEVEY TO FIRM

Posted on: June 13th, 2016 by admin

 

 

Levey Craig (2)

Bennett & Belfort, P.C. is pleased to announce that Attorney Craig Levey has joined the firm.  Mr. Levey focuses his practice on employment and business matters, representing both individuals and companies.  He litigates claims of discrimination, sexual harassment, retaliation, and wage & hour disputes, as well as partnership and fiduciary duty issues.  Mr. Levey also drafts, reviews, and negotiates non-competition, non-solicitation, and severance agreements, and routinely counsels companies on all facets of the employer-employee relationship, including the drafting and implementation of company policies, procedures, and employee handbooks.

Mr. Levey has experience in a wide variety of cases in Federal, Superior, and District courts, and before administrative tribunals, including the Massachusetts Commission Against Discrimination, Department of Unemployment Assistance, and the Division of Administrative Law Appeals.

Commenting on the move, Mr. Levey said, “Bennett & Belfort offers a creative and collaborative environment to work, which is the perfect platform for me to grow my practice.  I am excited to join such a strong and determined team of attorneys, and I look forward to continuing the firm’s tradition of delivering top-notch service to its clients.”

Mr. Levey is a former associate attorney at Looney & Grossman, LLP and Davis, Malm & D’Agostine, P.C. in Boston.

Bennett and Belfort, P.C. Partner, Todd Bennett, Quoted in Boston.com and in The Sunday Boston Globe

Posted on: October 30th, 2013 by admin No Comments

Bennett-photo-10-2013-1On October 30, 2013, Bennett and Belfort, P.C. partner, Todd Bennett, was quoted in an article entitled, “What to be Concerned About When Leaving a Company,” which appeared in the “Job Doc” section of Boston.com. The article was written by Elaine Varelas, of Keystone Partners, and focuses on the importance of having a severance agreement comprehensively reviewed, particularly when a restrictive covenant, such as a non-compete provision or a non-solicitation provision, is involved. The link to the article is here and the article will also appear in the November 3, 2013 edition of the Sunday Boston Globe

 

 

 

 

 

 

DOES THE LOSS OF ADMITTING PRIVILEGES VIOLATE THE PROHIBITION ON PHYSICIAN NON-COMPETES?

Posted on: July 18th, 2012 by admin No Comments

Under Massachusetts law, public policy dictates that physician non-compete agreements (and other restrictive covenants) should not interfere with a patient’s ability to select a physician of their choice.  Accordingly, non-compete agreements that restrict a doctors’ ability to practice medicine are unenforceable.   The relevant law is Massachusetts General Laws (M.G.L.), Chapter 112, Section 12X.

In recent years, the medical industry has become dominated by large health care organizations that have purchased hospitals, clinics, and medical practices that were previously independently owned and operated.  These entities have merged into jointly-managed “hospital groups.”  Sometimes, these hospital groups have an affiliated medical practice (many times the affiliated medical practice has a name other than the name of the hospital.  For example, a hospital known as “Greater Boston Regional Medical Center” may have an affiliation with a medical practice known as, “Financial District Pediatrics.”)  Although such hospital affiliated medical practices are separate entities in a legal sense, for all practical purposes they are extensions of the hospital group.

Hospital groups (and affiliated medical practices) typically compete with private medical practices, and offer patients integrated health care options and economies of scale.

In many cases, a medical practice’s ability to admit patients to a particular hospital (“hospital privileges”) is an attractive quality for potential patients, particularly where a hospital is well-known and has a good reputation.  Typically, hospital privileges are approved by a committee of hospital staff physicians, in accordance with the hospital’s by-laws and regulations.

Interestingly, hospital groups often require their physician employees to sign a provision in their employment contracts providing that upon termination, the physician agrees to resign his/her hospital privileges.  In such cases, when the physician leaves the employ of the hospital group, the physician has to go through the entire application process from the beginning. Many times, the hospital privilege approval committee is made up of other physicians who work at a hospital affiliated medical practice.

Requiring a doctor to resign her/his hospital privileges simply because s/he separated her/his employment from the hospital group, appears to be aimed at deterring physicians from joining a private medical practice that might compete with the hospital group and/or to prevent competition with the new, private medical practice group.  This might well be viewed by the courts as the functional equivalent of an illegal/unenforceable non-compete agreement, in violation of Massachusetts law.

If a physician left the hospital group to practice at a competitive private medical group-and both the physician and the private medical practice otherwise meet the hospital’s regulations to obtain/retain privileges- the physician could arguably be denied hospital privileges (and be prohibited from admitting her/his patients to the hospital) for the sole reason that s/he is no longer an employee of the hospital group, thus effectively preventing private medical practices from competing with the hospital group.

In Parikh v. Franklin Medical Center, 940 F.Supp. 395, D. Mass (1996), Judge Ponsor ruled that a clause requiring a physician (an anesthesiologist) to resign his staff privileges at a hospital in the event of termination (of the partnership between the practice and the physician) violated M.G.L. c. 112, Section 12x, the Massachusetts law prohibiting the imposition of restrictive covenants upon physicians.  The Parikh case involved a convoluted fact pattern and complicated legal issues beyond the scope of this blog.  Nevertheless, one of the legal issues in that case involved whether or not a physician partnership agreement that required one of the physicians to both a) surrender 10% of his partnership income if he practiced medicine outside of a particular geographical location; and b) resign his hospital privileges in the event he left the medical practice.  The Court held that these restrictive covenants violated M.G.L. Chapter 112, Section 12X. Id.

Hospital Groups may respond to the Parikh case in a number of ways, including the following: a) there is a legitimate business interest in requiring the physician to surrender his/her hospital privileges; b) the physician can always re-apply for his/her privileges, thus eliminating any anti-competitive aspect of the contractual restriction; and c) hospital privileges, by definition, are discretionary and based on the practices’ long term relationship and affiliation with a hospital.  Id.

On the other hand, if there is truly no anti-competitive motive for requiring a physician to resign her/his hospital privileges when s/he moves from a hospital group to a private medical practice, then consider the following: if both the physician and the private medical practice otherwise meet the qualifications to obtain (or retain) hospital privileges once the physician separates from the hospital group, then one might question why the hospital privileges cannot simply be transferred to the physician at her/his new medical practice vs. forcing the physician to resign and re-apply.

As with all non-compete matters, enforcement by the courts is highly fact-specific.  Oftentimes a minor difference in a particular fact pattern may change a court’s decision regarding whether or not a restrictive covenant is enforceable.  In any case, Massachusetts courts may once again be confronted with the issue of whether forcing an otherwise qualified physician to resign her/his hospital privileges for the sole reason that s/he leaves the employ of the hospital group, violates M.G.L. Chapter 112, Section 12X.

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.

Hairdresser’s New Job Cut Short by Non-Compete

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

We discussed the general standards for enforcing non-compete agreements in a prior blog post. A recent decision from the Plymouth Superior Court highlights the fact-specific nature of the analysis in evaluating the enforceability of a non-compete agreement, and reinforces the risk to employees who carelessly enter such agreements with an employer.

The Defendant, Daniel McKinnon, took a hair stylist position with the Plaintiff, Zona Salon straight out of cosmetology school. At the time of his hiring, McKinnon signed an agreement that, for twelve months following the end of his employment, he would not directly or indirectly compete with Zona in its ‘market area’ of Norwell, Hingham, Hanover, Cohasset, Scituate, Rockland, and Pembroke. He also agreed, among other things, not to solicit business from any client of Zona.

After about four years of employment, Zona terminated McKinnon. Approximately one month after McKinnon’s termination, Zona discovered that McKinnon had accepted a hair stylist position in Hingham and that he had solicited one of Zona’s customers. Zona sued to enforce the non-compete agreement and asked the Court to grant a preliminary injunction barring McKinnon from competing with Zona and from soliciting any present or former customer. McKinnon argued that he should not be bound by the non-compete because he had not read all of the papers he signed when he was hired, he was in need of a job at the time and in no position to negotiate the terms, and he was involuntarily terminated.

The Court granted Zona’s motion for a preliminary injunction and precluded McKinnon from continued work in violation of the restrictive covenants. In doing so, the Court emphasized several factors, including the limited nature of the restrictions- which were tailored to specific towns and the restrictions lasted only one year- as well as the irreparable nature of any harm to Zona’s good will that would result from McKinnon’s continued breach of the agreement.

No matter the lack of sophistication, nature of the position or the lack of bargaining power of the employee, Courts may very well enforce reasonably-tailored non-compete agreements, provided that they serve a legitimate business interest. The Zona case demonstrates both the need for employers to draft appropriate, narrowly tailored, agreements and the importance for employees to actively review and negotiate these contracts in advance of signing them.

NON-COMPETE LEGISLATON SHELVED IN MASSACHUSETTS

Posted on: November 8th, 2010 by admin No Comments

There has been significant recent debate regarding whether or not restrictive covenants, such as non-compete agreements between an employer and employee, should be enforceable in Massachusetts.  Proponents of narrowing (or eliminating) the applicability of such covenants point to, among other arguments, the free market benefits of allowing employees to move fluidly between employers.  Those favoring the current application of non-competition restrictions point to a company’s need to protect its investment in human capital.

Although non-compete agreements between an employer and employee are generally unenforceable in some states, such as California, these agreements are permitted in many other states, including Massachusetts.  In Massachusetts, non-compete agreement are generally enforceable if  they are: 1) supported by consideration; 2) reasonable in scope and duration, and 3) serve a legitimate business interest in protecting the employer.  All Stainless, Inc. v. Colby, 364 Mass. 773 (1974), citing National Hearing Aid Centers, Inc. v. Avers,  2 Mass.App.Ct. 285 (1974).

Massachusetts courts will look at several factors in order to determine whether or not a restrictive covenant, such as a non-compete or non-solicitation agreement, seeks to protect a legitimate business interest of a former employer, as opposed to a restraint that is merely anti-competitive in nature.  In deciding whether to enforce restrictive covenants, courts frequently review the nature of the employee’s duties and any unique training he or she may have, the degree of specialization the employee possesses, and the employee’s access to confidential and proprietary information.

Disputes regarding restrictive covenants between an employer and former employee are often resolved early on in litigation by means of preliminary equitable relief, such as a temporary restraining order or injunction.  In such a circumstance, an employer may file suit against the former employee together with a motion for a preliminary injunction, asking the Court to prevent the former employee from being employed by a competitor, or to prevent the former employee from soliciting customers of the former employer.  As one might imagine, these suits are sometimes used as a ‘sword’ to inhibit fair competition, to punish a ‘disloyal’ former employee, to cause a competitor (who may defend their new employee) to spend significant resources on litigation, or as a means of discovery into a competitor’s trade secrets.  When a court grants a motion for a preliminary injunction, preventing a former employee from working (for a competitor), it often induces the enjoined party to settle, even though it is very early in the ‘life’ of the case.  This is because the enjoined employee will likely continue to be prohibited from working for the competitor for the pendency of the litigation, which could potentially last for years.

The Massachusetts Legislature recently considered a bill authored by Representatives, Lori Ehrlich and William Brownsberger, that would have significantly limited the availability of non-compete agreements in Massachusetts.  A few of the highlights of the proposed legislation are as follows:

  • Only non-compete agreements signed during employment would be enforceable unless supported by additional consideration.  If a non-compete agreement were entered into post- employment, additional consideration of at least 10% of annual compensation would be required in order to be enforceable.
  • $75,000.00 annual compensation threshold for enforcement.  Only employees whose average gross income is at least $75,000 would be subjected to enforcement of non-competition agreements.
  • Attorneys’ fees.  A court would be required to award attorney’s fees to an employee in the event that: a) the court declined to enforce a material restriction or reforms a restriction in material respect; or b) if the court determines that the employer acted in bad faith in attempting to enforce the restriction.  On the other hand, an enforcing employer would only be able to recover its attorney’s fees in the event the agreement was enforced “as is,” and the court found that the employee engaged in bad faith conduct.  (to see the full text of the bill, click here)

Recently, this proposed legislation was dropped from consideration.  However, stay tuned – New, re-drafted non-compete-related legislation is bound to resurface in the near future.