Massachusetts Judge Nixes Financial Services Noncompete

Employers in Massachusetts generally can take comfort in a well-established legal principle that gives judges discretion to enforce a noncompete provision “to the extent that it is reasonable.”  Courts regularly use this concept to modify the duration and/or scope (substantive and geographic) of noncompete provisions to make them “reasonable” based on the particular facts of a case. 

A recent Massachusetts Superior Court decision reminds employers that this concept has its limits.  A court will not enforce a noncompete if it believes it to be so overbroad or unclear that the individual could not have known what post-employment activities were not permitted.  In Edwards v. Athena Capital Advisors, Inc., a young professional at an investment management firm focused on high net worth families signed an agreement stating that for one year after termination he would “not perform any services, either as a consultant, employee, owner, investor or otherwise, with or for any foreseeable business, product or service of the Company.”  The employee left Athena and went to work in the private wealth management division of Goldman Sachs, a much larger firm.  Judge D. Lloyd McDonald found that “although the one year period was reasonable, the breadth and comprehensiveness of the non-compete clause. . . renders it unreasonable.”  He further found that the scope of prohibited activities was “extremely broad and vague, particularly given the comprehensive nature of services and products offered by firms such as the plaintiff Athena.”  Accordingly, the judge concluded that as drafted the provision’s purpose was to restrain ordinary competition, and he enjoined its enforcement.  (Interestingly, the case was brought by the departing employee, who sought an order enjoining enforcement of the noncompete.)

This case underscores a fundamental point:  companies that are serious about noncompete restrictions need to give careful thought to drafting such provisions so that their employees — and ultimately courts — have a clear understanding from the words of the agreement of what specific activities are restricted following employment termination.

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