This decision by a federal judge in Massachusetts enforcing a non-competition agreement is notable for at least two reasons: (1) it presents yet another example of a court in Massachusetts rejecting an argument that California law should govern a non-compete dispute, and (2) it contains an interesting discussion of the hiring company’s substantial but unsuccessful effort to avoid the noncompete by taking steps to ensure that the new employee protected the confidential information of his previous employer.
The case, Aspect Software, Inc. v. Gary Barnett, involved an executive vice-president and chief technology officer at a technology company who left to take on a similar role at a clearly competitive company. The plaintiff and former employer, Aspect, is a Massachusetts-based company. While employment by Aspect, the defendant employee, Barnett, was based in Tennessee and Massachusetts. The new employer, Avaya, is based in California. Just before joining Avaya, Barnett moved his residence to California.
Not surprisingly, the non-compete at issue contained a choice of law provision dictating that Massachusetts law would apply to any dispute between the parties. Notwithstanding that provision, Barnett and Avaya argued that California law – which prohibits non-competition agreements except in very limited instances not applicable here – should apply to the dispute. Judge Denise Casper (who happens to be the newest judge on the U.S. District Court in Boston) rejected that argument. Citing well-established principles that a choice of law provision should be overridden only where another state’s interest in the dispute is greater than the agreed-upon state’s interest, Judge Casper found that California’s interest was either weaker than or at best equal to Massachusetts’ interest. In particular, she found that California’s interest in pursuing its policy against non-competes would not materially outweigh Massachusetts’ interest in ensuring that its contracts are enforced. She therefore applied Massachusetts law to the substantive question of whether the non-compete should be enforced.
On that fundamental issue, the most interesting aspect of the analysis (in my view) relates to the unusually careful attempt by Barnett and his new employer to ensure that Barnett would not use or disclose any of Aspect’s confidential information in his new position. One can infer that they decided that taking these steps would improve their chances in court in the event that Aspect sought to enforce the noncompete. It was undisputed that Barnett turned off his company issued Blackberry immediately after tendering his resignation, left his laptop in his office, boxed all of his Aspect property and made arrangements for Aspect to retrieve the boxes. There was no allegation that he retained any of that information or used it in his new position. In addition, Avaya included language in its employment offer and separately in Barnett’s employment agreement making very clear that Barnett was not to use or disclose any Aspect information in his new position. On top of that, Barnett’s new boss at Avaya sent him an email that provided a list of “ground rules” that Barnett was expected to follow in order to ensure that Aspect’s trade secrets and other information were not used by Barnett in his new role.
Despite these efforts, Judge Casper sided with Aspect and granted it the requested preliminary injunction. The judge acknowledged the “scrupulousness” of Barnett’s and Avaya’s efforts and credited the “sincerity” of their intent. Yet, she found that given the extent of Barnett’s experience at Aspect and the similarity between his positions at Aspect and at Avaya, it was difficult to conceive how all of the information stored in Barnett’s memory could be set aside as he applied himself to a competitor’s business. Thus, summing up the analysis, Judge Casper stated, “even taking into account Barnett’s and Avaya’s commendable efforts to protect the integrity of Aspect’s trade secrets, Aspect has carried its burden of establishing a significant risk of irreparable harm.” She therefore granted the injunction stopping Barnett’s work at Avaya.
The take-away? Even the most proactive and careful hiring efforts will not avoid enforcement of a noncompete if all of the required legal factors line up in favor of the former employer.