Feb 22 2017

The Consideration of Reasonableness in Geographic Scope in Non-Compete Agreements

Despite recent debates about the benefits and detriments with respect to non-competition agreements, it still remains in Massachusetts that an employer may enforce the terms of a restrictive covenant against a former employee when the employer demonstrates that it is: (1) necessary to protect a legitimate interest of the employer; (2) supported by consideration; (3) reasonably limited in geographic and temporal scope; and (4) is otherwise consonant with public policy. Legitimate protected business interest include trade secrets, confidential data, goodwill, and customer relationships. The protection of these legitimate business interests is particularly important in the field of Information Technology (“IT”).

Last summer in a Suffolk Superior Court case, the court granted a preliminary injunction against a former employee who signed a non-competition and non-disclosure agreement that restricted him from working for a direct competitor in the highly-competitive IT industry for one year. The 2013 agreement also stated, in part, that on termination the employee was prohibited from working with a competitor for one year at any location in the world.

The employee began with the company in 2013 as a Regional Sales Director and was responsible for developing business in five states in the Midwest region of the U.S. By the end of the third quarter in 2013, he was responsible for eighteen states, and in 2014 he was promoted to Director of Midwest Sales (which included Midwest, Central, Plains and Texas of the US as well as Central Canada). In June, 2014, he resigned and began to work for a direct and primary competitor as an Area Director, Central United States Sales.

To succeed on its motion for preliminary injunction to enforce the agreement, the employer needed to show that: (1) it has a substantial likelihood of success on the merits of the case; (2) there is a substantial threat that the employer will suffer irreparable injury if the injunction/order is not granted; (3) the threatened injury to the employer outweighs any harm to the Defendants. Further, there must be a lack of friction between the injunction and the public interest.

Despite the employee’s title and geographic area reflected therein, in his role, the employee learned highly confidential information and commercially sensitive information and he also hired, recruited, and trained others, and had access to information used for accounts. He had access to proprietary information, market strategies, intelligence, pricing, product development and product and pricing structure. The court noted, “Protecting the confidentiality of such information is essential for a start-up company…launching innovative products, to be able to compete in the market against larger, more established companies…”

The Suffolk Superior court determined that the 2013 agreement was reasonable in both time (one year) and geographic scope because, in part, the market for the employer’s product is worldwide. As such, continued examination of the geographic scope of a restrictive covenant is an essential part of the court’s analysis. The case specifically recognized and appreciated the circumstances in the competitive high-tech industry, but it begs the question of how geographic scope restrictions of this breadth will apply to small or mid-sized businesses as well as other industries. With modern technology that can easily serve and expand these businesses or industries to a global marketplace—as well as the technology that permits employees from conducting business on laptops, cell phones, tablets and other devices from remote locations—will “any location in the world” become the new standard for geographic scope?

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