New Massachusetts Superior Court Noncompete Decision Discusses the “Material Change” Defense and Shows the Benefit to Employers of Having a “Material Change” Clause in Noncompete Agreements

            Last month, Judge Edward P. Leibensperger of the Massachusetts Superior Court in Middlesex County decided a case in which he issued a preliminary injunction to enforce a non-competition and non-solicitation agreement and rejected several defenses offered by the defendant employee, including that the employee’s employment had “materially changed” to void the agreement.  Although Judge Leibensperger discusses many interesting issues in the decision, including whether the employer’s president had orally agreed not to enforce the agreement, whether to enforce the agreement would cause the employee harm, and the scope and enforceability of non-solicitation clauses, I focus here on the “material change” portion of the opinion and the lesson it provides for employers.  See A.R.S. Services v. Morse, C.A. No. 2013-00910 (Mass. Super.) (Middlesex County).             

            The facts relevant to the “material change” defense in and of themselves are interesting.  The defendant Daniel Morse was hired by plaintiff A.R.S. Services in 2004 to work in the field of “disaster restoration,” which deals with the cleanup and restoration of properties after fire, smoke, water, mold, or biohazard damage.  A.R.S. has offices in Massachusetts, New Hampshire, Rhode Island, and Connecticut, and got its business from insurance adjusters who referred people with insurance to it.  When he was hired, Morse signed an agreement that included a non-competition clause that prohibited him from working in the disaster-restoration business within 50 miles of any A.R.S. office for one year after he left A.R.S.  The agreement also included two non-solicitation clauses that prohibited Morse, for two years after he left A.R.S., from (1) soliciting or providing products or services competitive with those of A.R.S. to any customer or prospective customer of A.R.S. (i.e., customers and prospective customers of A.R.S. at the time Morse worked there), and (2) soliciting A.R.S.’s customers, clients, subcontractors, or vendors.  Further, the agreement stated that it remained in force notwithstanding any change in Morse’s employment responsibilities at A.R.S.  During his employment, Morse was promoted to general manager from branch manager, and then became director of operations in 2011, what Morse believed was a demotion.  In that role, he reported to the general manager, but from 2008 until he left A.R.S. in 2012, though there were variations in how much he made, Morse was one of the five highest-compensated A.R.S. employees. 

            Morse left A.R.S. in late 2012 and the next month was hired by 24 Restore, another company in the disaster restoration business.  24 Restore knew that Morse had signed the agreement with A.R.S.  That same month, Morse met with a consultant to A.R.S. and an insurance property loss manager who referred business to A.R.S. though a third-party administrator.  He asked both for referrals.  After A.R.S. demanded that Morse stop violating the agreement in a letter, Morse began working only in Maine for Restore 24.  Nonetheless, A.R.S. sued Morse and Restore 24 and requested a preliminary injunction.

            Morse’s leading argument was that his employment relationship with A.R.S. materially changed after he signed the agreement, meaning that the agreement should not be enforced because A.R.S. did not have him sign a new agreement in exchange for this new employment relationship.  Yet Judge Leibensperger rejected this argument because the agreement stated that it remained in force regardless of “any change in [Morse’s] duties, responsibilities, position or title with [ARS].”  And Judge Leibensperger concluded that, although Morse became director of operations in 2011 after being general manager, any change in his responsibilities was not material because “both roles required Morse to be involved in ARS’ disaster restoration projects and to promote ARS’ brand by attending industry seminars and maintaining his industry relationships.”  What is more, although his base salary went down by 4% in 2011 and 2012 from what it was in 2010, he remained one of the five highest-compensated employees at A.R.S.  Interestingly, Judge Leibensperger discussed in a footnote a Superior Court case from October 2012 that voided a non-competition agreement because of a material change in the defendant’s employment, even though the agreement in that case stated that a material change in the employee’s employment would not void the agreement.  See Akibia, Inc. v. Hood, C.A. No. 2012-02974F (Mass. Super.) (Suffolk County).  He noted that a single justice of the Appeals Court had affirmed that court’s decision in part because no existing appellate case in Massachusetts had addressed such circumstances.  See Akibia, Inc. v. Hood, 2012-J-0390 (Mass. App.) (Sullivan, J., single justice). 

            The lesson from this case is that employers should include “material change” clauses in their non-competition and non-solicitation agreements stating that the agreement remains in force regardless of any changes in the employee’s position at the company.  This does not guarantee that a court will abide by those terms, as the Akibia case that Judge Leibensperger discussed demonstrates, but it at least shows that the parties thought about the issue and reached agreement.  This may tip the scales in favor of the employer in an otherwise balanced case.

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