If an employee signs a noncompete, non-solicitation, or non-disclosure agreement with his employer, and then gets promoted, makes more money, and has more responsibilities, is the agreement still enforceable? At least one Massachusetts judge says no. See Rent-a-PC, Inc. v. March, C.A. No. 13-10978-GAO (D. Mass. May 28, 2013).
In the Rent-a-PC case, the plaintiff Rent-a-PC, a company that provides short-term rentals of electronic equipment, sued three of its former employees and asked for a preliminary injunction to enforce noncompete, non-solicitation, and non-disclosure agreements the employees signed with Rent-a-PC after all three employees quit and were hired by Rent-a-PC’s competitor, CCR Solutions, Inc. Judge George O’Toole denied an injunction against two of the employees because their jobs at Rent-a-PC had “materially changed” after they signed their agreements, making those agreements unenforceable, and denied an injunction against the third employee because there was no evidence that he breached his agreement. The first employee, Robert March, signed an offer letter with noncompete and non-disclosure provisions when he was hired by Rent-a-PC. He was then promoted four times, and with each promotion, his responsibilities and compensation changed. In fact, it was “undisputed that March’s final position at [Rent-a-PC] was significantly different from his first position in terms of scope, authority, duties, and pay.” Because “[e]ach time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship[,] a new restrictive covenant must be signed,” and because March never signed a new agreement after his promotions, Judge O’Toole concluded that March’s noncompete and non-disclosure agreement was likely unenforceable. The second employee, Aaron Cole, first worked for another company, All Service Computer Rental, Inc. (“ASCR”), signed a noncompete, non-solicitation, and non-disclosure agreement with ASCR, and then Rent-a-PC bought ASCR. While he was working for Rent-a-PC, Cole’s “duties, authority, and compensation may have changed substantially,” even though his title did not change. What is more, because Cole signed the agreement with ASCR and not Rent-a-PC, he intended for the noncompete, non-solicitation, and non-disclosure restrictions to apply only with respect to ASCR, a much smaller company than Rent-a-PC. So Judge O’Toole determined Cole’s agreement was likely unforceable as well. Finally, the third employee, Ronald Schmitz, signed an agreement with non-solicitation and non-disclosure provisions with Rent-a-PC, but because some employees bargained not to sign agreements with non-solicitation provisions, the court ruled it probably would be unfair to enforce that provision against Schmitz. In any case, there was insufficient evidence that Schmitz violated the agreement for the court to issue a preliminary injunction.
This case shows once again why including a “material change” clause in noncompete, non-solicitation, and non-disclosure agreements is a good idea. Such a clause basically says that the agreement remains in force even if the employee’s job changes, and shows the court that the parties thought about the “material change” issue and intended that the agreement should remain in effect. Armed with this clause, the employer has a powerful argument for the agreement to be enforced as written.