A case recently
decided by the Federal District Court for Massachusetts highlights the danger
of relying on non-compete agreements signed prior to changes in an employee’s
position or employer. In Rent-A-PC, Inc., dba Smartsource Computer
& Audio Visual Rentals v. March, Schmitz, Ciole and CCR Solutions, Inc.
(“Rent-A-PC”), the former employer of
three employees sued to enforce non-compete agreements the employees had signed
when they were initially hired.
Rent-A-PC asked the court to issue an
injunction prohibiting the employees from violating their non-compete
agreements by continuing their employment with a competitor. To be granted an injunction, a party must
prove, among other things, that it is likely to be successful in its underlying
lawsuit to enforce the non-compete agreement.
The court held that Rent-A-PC
had not satisfied that requirement.
Relying
on a series of Massachusetts court decisions, the District Court held that when
an employee’s position or other circumstances change, a non-compete agreement
signed before that change may not be enforceable. Specifically, in Rent-A-PC, one of the employees had received a series of promotions
after he signed the non-compete agreement.
The court denied the plaintiff’s request for an injunction, holding that
the employer was unlikely to prove that the agreement was enforceable.
One
of the other three employees had signed a non-compete agreement with a company
that Rent-A-PC later acquired. The court again denied Rent-A-PC’s request for an injunction noting that, although his
title remained the same, the employee’s duties had changed significantly since
his hire. In addition, however, the
court noted that the employee had signed the non-compete agreement with a
different company, which was smaller than Rent-A-PC. The Court opined that the employee may not
have intended to be bound to a non-compete agreement with the larger Rent-A-PC. While not clear, it is
possible that the second consideration, alone, would have been sufficient to
defeat Rent-A-PC’s request for an
injunction.
WHAT TO DO
The above case
makes it clear that employers who wish to enforce a non-compete (and presumably
also other restrictive covenants such as non-solicitation and confidentiality
agreements) should require employees to sign a new agreement each time their
duties or position change significantly.
Indeed, since a series of small changes will potentially abrogate
restrictive covenants, employers who rely on such agreements may want to review
the files of all employees subject to such agreements on a regular basis to
ensure that the employee’s position has not materially changed since the
agreement was signed.
Second,
employers who acquire other companies should not assume that any restrictive
agreements employees signed with the acquired employer will remain in
effect. We recommend that after any
acquisition, key employees (including salespeople) be required to sign new
confidentiality, non-solicitation and non-compete agreements.