Massachusetts Noncompete Law : Massachusetts Noncompete Lawyer & Attorney : Foley Hoag Law Firm : Non-competition Agreements, Labor & Employment

This week’s ruling in the ongoing Howie Carr saga, despite the current media splash, essentially maintains the status quo in the case. At issue was Carr’s emergency motion for reconsideration of an earlier order -- described here -- refusing to invalidate the exercise by Carr’s long-time employer -- Entercom -- of a right of first refusal. The effect of that ruling was to continue Carr’s employment with an employer he wishes to leave and to place him at risk of significant damages if he refuses to return to his job and/or tries to take another job.

In the motion for reconsideration, Carr’s lawyers argued that Judge van Gestel was mistaken in finding that Carr’s employment agreement was extended by virtue of Entercom’s exercise of the right of first refusal. In this week’s decision, Judge van Gestel did not disguise his impatience with Carr’s arguments, especially taking issue with his assertion that the judge misread portions of the agreement at issue. And he repeated the fundamental holding of the previous ruling: that a right of first refusal exercised prior to the termination of an agreement that has the effect of extending the term of the agreement is substantively different than a noncompete. (If it were a noncompete, it would run afoul of a Massachusetts statute prohibiting noncompetes in the broadcasting industry.)

Again, the Court stated that Carr should have to live with the choice he made to negotiate an offer from another radio station and inform his employer of that offer while his existing agreement was still in place. Had Carr waited until the agreement expired, the judge found, he would not be in his current predicament. And, the judge again rejected Carr’s argument that this result subjects him to “lifetime employment” with Entercom.

Carr is indicating that he will pursue an emergency appeal of the decision. 

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A discussion in a BusinessWeek article this week on the telecom giant Sprint’s search for a new CEO raises an interesting question:  have U.S. businesses gone too far in binding their most senior executives to non-compete and other restrictive agreements?  In discussing the Sprint board’s search to replace its current CEO in the wake of poor company performance, the article reports that Sprint has “cast its line overseas not only to broaden the pool of strong candidates but to avoid the snare of noncompete contracts often held by executives who have worked at other U.S. telecoms.”  The article notes that landing its current CEO from competitor BellSouth was problematic because of a non-compete clause in his contract. 

As has been discussed in this blog and elsewhere, in many states, including Massachusetts, a C-level executive often presents the best case for enforcement of a noncompete.  Judges tend to regard such individuals as both sufficiently compensated and sophisticated to knowingly restrict their post-employment career opportunities.  What’s more, courts typically find that companies have a better argument that their confidential information and good will are placed in jeopardy when their most senior people move to competitors.  So, from a practical legal standpoint, the movement of a very senior telecom executive within the telecom industry is going to raise, as BusinessWeek put it in the case of Sprint, “red flags.” Perhaps it is not surprising that such an entity would look to other markets -- such as Europe, where noncompetes are less common and less enforceable -- to find qualified individuals to fill a very senior role in the U.S. 

The fact that a significant U.S. company would need to look overseas to find a qualified candidate unfettered by a noncompete might strike some as an indication that noncompetes are a problem.  Of course, in many quarters there will be little sympathy for a current or recently-unemployed CEO whose career options are temporarily limited by a noncompete:  such individuals typically leave their jobs with generous packages rendering their time on the sidelines financially palatable.  But, the phenomenon described in the BusinessWeek article does point to the larger question of whether such restraints unduly hamper the ability of businesses to compete.  Certainly companies possess compelling arguments that senior executives are precisely the people who are properly subject to post-employment restraints, as they know a great deal about the strategic plans of the companies they have led. 

This blog cannot answer the fundamental question posed here.  There can be no doubt, however, that these trends point to the fact that noncompetition agreements are playing a central role in fundamental business decisions being made by companies large and small.

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While it remains quite difficult to predict whether a Massachusetts judge will enforce any given restrictive covenant in a particular case, close observers of recent Massachusetts noncompete decisions would note that judges increasingly are reluctant to enforce post-employment restrictions against "the little guy" -- as contrasted with senior, highly-compensated managers.  A recent insurance-industry dispute exemplifies this trend.  In Banc of America Corporate Insurance Agency, LLC v. Verille, Banc of America’s corporate insurance agency sought an injunction enforcing a client non-solicitation restriction against a former employee, Mr. Verille, who was described as a "Producer" and who took a similar position with a competitor.  Central to the injunction request was evidence that the employee’s new company was involved in providing services to two of the clients previously serviced by the employee.  Verille did not dispute that his new company was providing competitive services to those clients and did not dispute that he had spoken with those clients at the time of his departure.  He denied, however, that he had ever solicited those clients to shift to his new company and asserted that they independently decided to move upon learning of his departure.  Judge Thomas Connors found that Banc of America’s allegation of solicitation was undermined by affidavits from the clients at issue stating that Verille had not solicited them. 

However, Judge Connors found that the agreement at issue prohibited not only solicitation but also apparently barred Verille from servicing such clients on behalf of a third party, in this case his new employer.  Nevertheless, the court accepted Verille’s argument that the restriction should not be enforced, for several reasons.  First, the court concluded that there was some question whether Banc of America could articulate a good will interest with respect to the clients at issue, suggesting that the good will in this instance belonged either to its predecessor, Fleet Bank’s insurance company, or Verille himself.  In addition, Judge Connors concluded that Banc of America’s claim of irreparable harm was not compelling.  On this issue, Judge Connors described Banc of America as "a major corporation with a significant client base," which brought the case based on the loss of "just three clients, a number later whittled down to two."  Under the circumstances, the judge concluded, Banc of America’s legal recourse was only a claim for money damages, rather than an injunction that would affect Virelle’s "ability to pursue a livelihood."

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