Non competition agreements have long been central to protecting intellectual property and confidential information (together “IP”) of a business against unfair competition.  That may change because of a bill being considered by a committee of the Massachusetts legislature.  The text of the bill may be found here

In brief, the bill provides that a covenant not to compete must among other things:

1.   be in writing, signed by the employee and employer, be supported by fair and reasonable consideration and comply with certain procedural requirements,

2.    be necessary to protect trade secrets, confidential information or goodwill of an employer,

3.    be of a reasonable duration, and with one exception, not exceeding one year after the employee’s termination (6 months is presumptively reasonable),

4.    be reasonable in geographic scope,

5.    be reasonable in scope of prescribed activities in relation to the protected interests, and

6.    be “consonant with public policy.”

In the event that the agreement does not meet 2-6 above, it must be capable of being reformed by a court to meet those requirements.

If certain conditions are not met, the court must award the employee attorneys’ fees if it declines to enforce a material restriction or substantially reforms it. On the other hand, a court  may, if certain conditions are met, award the employer attorneys’ fees in connection with enforcement of the restriction.

The bill, however, does not include in the above, among other things, covenants not to solicit employees, or transact business with customers, of the employer.  These are important exceptions.

In addition, whether or not the bill becomes law, non competition agreements should not be the sole means of protection of a company’s IP.  Non-disclosure and trade secret agreements are also protective.  This is best illustrated by a recent case.  An ex-employer was trying to stop an ex-employee from duplicating its products in a company the ex-employee had just started. The ex-employer brought suit.  The court found that the ex-employee’s non competition agreement had lapsed.  The court, however, let the case progress on the basis of confidentiality agreements the then employer had required the then employee to sign and on the basis of the ex-employee’s possible appropriation of trade secrets.

When a business seeks to enforce the foregoing agreements, courts look carefully and critically at the agreements and systems the business has taken to protect a company’s IP.  Needless to say, these agreements and systems must be carefully crafted.  Thus the court in the above case, on oral argument, focused upon the systems the employer had put in place to protect its trade secrets.

Boston attorney, Theodore A. Lund, Esq., brought to my attention, an excellent discussion regarding non competition agreements.  This may be found here.

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