While some in the business community continue to focus on whether the ability to enforce noncompetes in Massachusetts places the state at a competitive disadvantage vis-à-vis Silicon Valley, a recent decision from the Massachusetts Superior Court’s Business Litigation Session — Network Systems Architects Corp. v. Dimitruk — highlights the difficulties departing employees and their future employers can face even in the absence of a contract restricting post-employment activities. These “no-noncompete” scenarios represent a significant litigation growth area. (An article on this subject, co-authored by this writer and Sheila O’Leary, can be found here.)
Absent a restrictive covenant, departing employees and their new employers still can be subjected to litigation involving claims of misappropriation of trade secrets, breach of fiduciary duty, violation of federal and state computer fraud statutes, tortious interference, and violation of state unfair business practices laws. The Network Systems Architects case involved the departure of a director of sales from the plaintiff to a competing venture, Accunet Solutions. The employee apparently was not subject to a noncompetition or nonsolicitation restriction; hence, under Massachusetts law, he generally was permitted to leave for a competitor and, once there, compete for the customers he previously had serviced. However, Mr. Dimitruk and his new employer, Accunet, found themselves defending claims that Dimitruk had misappropriated his former employer’s trade secrets and used them to solicit his former customers on behalf of Accunet. In addition, Network Systems Architects alleged that Dimitruk had, before he resigned, solicited business from his customers on behalf of his future employer. That allegation formed the basis of plaintiff’s claim that Dimitruk breached his fiduciary duty of loyalty. Under Massachusetts law, an employee is free to make plans for subsequent employment, including with a competitor. “What the employee may not do during his employment,” the court stated, “is undermine his employer’s business, such as by diverting his employer’s customers or employees to a competitor, or its resources to uses that serve interests inconsistent with those of his employer.”
The Network Systems Architects decision addressed the parties’ competing motions for summary judgment. The court denied both parties’ motions, finding that there was sufficient evidence for the claims to proceed to trial. Thus, the plaintiff in this “no-noncompete” situation can continue to litigate claims of theft of trade secrets and breach of fiduciary duty against the former employee, and claims of intentional interference and unfair business practices against his new employer.
A lesson to take from a case like this one is that hiring employers need to take a careful, strategic approach to hiring employees from competitors even in the absence of restrictive covenants.
Stay tuned for further developments on this topic.