Choice of Massachusetts Law Dooms Successor’s Attempt to Enforce Noncompete

Whether a successor in a corporate transaction may enforce a noncompete between the predecessor entity and its employees remains one of the more undeveloped and uncertain areas of noncompete law in Massachusetts. A few years ago, in Securitas Security Services USA, Inc. v. Jenkins, now-retired Judge Allan van Gestel of the Suffolk County Business Litigation Session issued a significant decision in this area – albeit at the trial court level – holding that a noncompete agreement is not assignable to a successor entity absent an express agreement permitting assignment, either in the terms of the original noncompete agreement or in a subsequent agreement between the company and the employee. Securitas remains one of the very few decisions in this area. Because no definitive decision exists at the appellate level, there are some who continue to believe that under certain circumstances a noncompete can be assigned absent a specific provision permitting such assignment.

This issue arose very recently in another Massachusetts trial court decision involving an added twist: whether the law of New York or Massachusetts should apply to the question of assignability. In Next Generation Vending v. Bruno, the plaintiff, Next Generation Vending, had acquired a Massachusetts-based company, All Seasons, Inc. All Seasons had a noncompete agreement with one of its employees, Brian Bruno. After Next Generation acquired All Seasons, Bruno formed his own company based in New York, resigned from Next Generation and started competing. Next Generation brought an action in Superior Court in Massachusetts claiming, among other things, breach of the noncompete agreement. Bruno moved to dismiss the claim, arguing that the noncompete could not be assigned to Next Generation and therefore could not be enforced, because it lacked an “assignability” clause. Interestingly, Next Generation countered by asserting that the noncompete was governed by New York law, and that under New York law noncompetes are assignable absent contractual provisions stating otherwise.

Superior Court Judge Regina Quinlan found a divergence in the laws of New York and Massachusetts on this issue, observing that under New York law a noncompete need not be expressly assignable in order to be assigned in a corporate transaction. In contrast, citing only the van Gestel decision in Securitas, Judge Quinlan stated that under Massachusetts law a noncompete cannot be enforced in the absence of express consent by the employee. The case hinged, therefore, on whether Judge Quinlan would apply New York or Massachusetts law to the dispute. New Generation Vending argued that the contractual choice of law should be ignored because New York had a greater interest in enforcing Bruno’s noncompete than Massachusetts. Applying traditional conflict of laws analysis, Judge Quinlan rejected that argument, finding that there was no overriding reason why New York’s public policy should trump the parties’ agreement that Massachusetts law would apply. She therefore dismissed the plaintiff’s claim that Bruno breached his contract by competing.

What to make of this? Although there remains a possibility that Securitas some day will be rejected by a Massachusetts appellate court, in the meantime it appears that other trial court judges are going to continue to follow it. This means that companies in Massachusetts (and companies outside of Massachusetts that choose Massachusetts law for their agreements) should be careful to include a specific “assignability” provision in their non-competition and non-solicitation agreements. Where no such provision exists, care must be taken either to obtain consent to assignment at the time a company undergoes a sale or other change of control, or following such sale the successor should obtain new noncompetes with its employees.

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