First Circuit Affirms Injunction Enforcing Non-Solicitation Agreement Against Sales Director, Applies Delaware Choice Of Law Provision Against Massachusetts Resident

Last week, the First Circuit affirmed a preliminary injunction enforcing a one-year non-solicitation agreement against the Massachusetts-based former sales director of a California-based health care company that develops products to treat spinal disease. The sales director resigned from his position with the health care company to found and work for an exclusive distributor for the health care company. A few months later, the sales director dissolved his new company, terminated the distributorship relationship, and joined one of the health care company’s competitors. The health care company sued in Massachusetts federal court and sought a preliminary injunction to enforce one-year non-solicitation and non-compete covenants in the employment agreement with the former sales director. Judge Casper found that the health care company was likely to succeed on the merits of its claim for breach of the non-solicitation provision (but not for the claim for breach of the non-compete provision) and issued an injunction.

The sole issue before the appellate court in NuVasive, Inc. v. Day, No. 19-1611, was whether the District Court should have assessed the likelihood of success on the merits under the law of Delaware, as specified in the parties’ agreement, or Massachusetts, the jurisdiction where the sales director resides and one of his two sales territories. The sales director argued the choice of Delaware law should be disregarded because (1) there was no relationship between the parties and Delaware; and (2) Delaware law would be contrary to the fundamental policy of Massachusetts, a jurisdiction with a greater interest in the resolution of the issue. The First Circuit disposed of the first argument by noting that the health care company is incorporated in Delaware, a sufficient relationship to give effect to a choice of law provision. The First Circuit disposed of the second argument by explaining that, even assuming Massachusetts had a greater interest in resolving the issue, the sales director had not shown any fundamental policy of Massachusetts that would be contradicted by Delaware law. The sales director had argued that enforcement of the non-solicitation agreement would violate the October 2018 Massachusetts Noncompetition Agreement Act. But, as the First Circuit explained, enforcing the non-solicitation provision in the parties’ January 1, 2018 agreement would not violate the Act because the Act does not apply to any agreements signed before October 1, 2018 or to non-solicitation agreements of any date.

The sales director also argued that the non-solicitation provision was void under the “material change” doctrine, which provides that a restrictive covenant can be deemed void if there are subsequent material changes to the employment relationship. The First Circuit rejected this argument, too, noting that the cited cases involved situations where the employee remained employed under different conditions, not situations where the employee was no longer employed and or where it was the employee’s choice to terminate employment.

While there was little surprise in the First Circuit’s affirmation of the injunction, the opinion portends coming battles over choice of law provisions that would effectively avoid the requirements of Massachusetts’ non-compete law. The First Circuit sidestepped the question of whether Massachusetts’ 2018 non-competition law is a “fundamental” policy of the Commonwealth based on the fact that the Act was not applicable to the agreement before the court. Perhaps more significantly, the inapplicability of the Act also meant that the First Circuit did not have to interpret or apply section (e) of the Act, which renders unenforceable any “choice of law provision that would have the effect of avoiding the requirements of” the Act so long as the employee resides or is employed in Massachusetts for at least 30 days immediately preceding termination of employment. (Judge Casper found that the choice of law provision in question did not have the effect of avoiding the requirements of the Act.) The courts will have to wrestle with those questions in coming cases, as more agreements covered by the Act are entered into, breached and litigated.

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