On October 1, 2018, the Non-Competition Agreement Act went into effect in Massachusetts. While this new law provided employers and employees specific guidance with respect to noncompetition agreements, it did not apply to other restrictive agreements, including non-solicitation agreements, nondisclosure or confidentiality agreements, or invention assignment agreements. Additionally, it did not apply to noncompetition agreements made in connection with the sale of a business entity, where the party restricted by the agreement is a significant owner (member/partner) who will receive significant consideration from the sale.
On January 14, 2020, the Supreme Judicial Court issued a ruling on one of these other restrictive agreements in Automile Holdings, LLC v. McGovern, 483 Mass. 797 (2020). In this case, the Court was asked to determine the legality of an “anti-raiding” restrictive covenant entered into between an automotive dealership group and a former executive and minority owner. The restrictive covenant at issue prohibited this former executive from hiring employees firm his former company for a period of six months.
“Such a restrictive covenant is only reasonable, and thus enforceable, if it is (1) necessary to protect a legitimate business interest, (2) reasonably limited in time and space, and (3) consonant with the public interest.” The Court noted, however, because this covenant arose in the context of the sale of a business and not an employment agreement, “[c]oncern about the restricted individual and the probability of unequal bargaining power between an employer and an employee recedes.” Thus, “restrictive covenants entered into as part of a sale of a business are examined less critically than those entered into as part of an employment agreement.”
After determining that the anti-raiding provision at issue was more appropriately deemed to arise within the sale of a business and not the employment context, and thus subject to less scrutiny, the Court concluded that the provision “was necessary to protect a legitimate business interest.”
Before entering into any restrictive agreements before, during or after your employment, it is important to understand the effects that these agreements may have on your future ability to start your own business. Contact us if you would like legal advice.