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New Employment Agreement Renders Old Non-Compete Agreement Unenforceable

A non-compete agreement can be used by an employer to limit its employee from leaving to work for a competitor or to start a new business in the same industry.  To be enforceable, such agreements must be for a reasonable period of time and extend only to those places where the employee may compete with the employer.  Due to their restrictive nature, courts scrutinize non-compete agreements carefully.  Reasonable non-competes will only be enforced if they are necessary to protect the employer’s good will, confidential information or trade secrets. Recent efforts to legislatively limit non-competition agreements have not been successful in Massachusetts.

A recent decision from the U.S. District Court in Massachusetts underscores a legal hurdle that employers face in attempting to enforce non-compete agreements.   In Meschino v. Frazier Industrial Company, the court considered an employee’s application of a defense known as the “material change” doctrine.  This doctrine states that an otherwise valid non-compete agreement may become unenforceable over time if the employee’s job status significantly changes.  For example, a non-compete signed by a salesperson may no longer be considered fair or enforceable years later after the salesperson becomes a manager.  The rationale is that a non-compete becomes more restrictive as the employee’s job status broadens in scope.

In Meschino, an employee signed a non-compete agreement in 2005 and, years later, entered into a comprehensive employment contract that did not include a non-compete provision.  The contract stated that it contained “the terms” of employment.  The employer assumed that the separate, older non-compete was still valid, and sued its employee after he left to join a competitor.  The employee argued that the old non-compete became unenforceable upon execution of the new contract that did not incorporate or reference it.  The court agreed with the employee and refused to enforce the non-compete.  This decision demonstrates that the material change doctrine may apply not just to new job functions, but also to modifications to an employee’s contract.

This case highlights one of the defenses an employee may assert in high-stakes non-compete litigation.  If you are an employee who is faced with a restrictive non-compete, be sure you have on your side an employment litigator who understands these defenses and has the experience necessary to protect your rights.  Our attorneys have successfully defended employees faced with unreasonable non-compete agreements.

An employer who wishes to impose fair post-employment restrictions should consult with an experienced attorney to ensure that they are enforceable.  Moreover, as Meschino demonstrates, actions taken after entering into a non-compete can have the unintended effect of invalidating it.  Therefore it is important for businesses to periodically review their employment agreements and policies in order to avoid unexpected results such as the one in Meschino.  Our attorneys understand this complex area of law and can assist your business in crafting enforceable agreements.

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