Fraudulent Inducement Argument Rejected in Federal Noncompete Case (and the “Inevitable Disclosure” Doctrine is Applied)

In a recent decision from the U.S. District Court for the District of Massachusetts, Judge Denise Casper rejected an argument by the defendant employee in a noncompete case that the employee was “fraudulently induced” by his former employer to sign a noncompete agreement.  The employee argued that the offer letter he received offering him stock options after he began working for the employer only stated that he would be required to sign an agreement with non-solicitation provisions in order to receive the stock options, not a non-competition agreement.  But the agreement that accompanied the letter included non-competition provisions and was titled “Non-Disclosure, IP Assignment and Non-Competition.”  This, combined with the facts that (1) the employee was notified two months earlier that, in order to receive stock options, he would be required to agree to non-competition provisions; and (2) the employee subsequently agreed on three separate occasions to identical non-competition provisions, the court determined that it was highly unlikely that the employee could show he was fraudulently induced to sign the agreement.  The court preliminarily enjoined the employee from working for a competitor of the employer because it was likely that the employee breached the noncompete he had with his former employer.

In fact, in ordering an injunction, Judge Casper applied the “inevitable disclosure” doctrine to determine that the former employer would be “irreparably harmed” if the employee was not prevented from working for the competitor.  This is an issue Judge Casper addressed in another recent case in a different context.  Judge Casper stated that, given the employee’s recent high level of control over his former employer’s business and the close competition between the former employer and the competitor, what the employee knows about his former employer’s business is bound to influence what he does for the competitor.  So if the employee were not enjoined from working for the competitor, he would “inevitably disclose” his former employer’s confidential information to the competitor, to the former employer’s detriment.

This case shows that weak defenses like the argument based on the misstatement in the offer letter will not deter judges from enforcing otherwise proper noncompetes.

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