Non Compete Agreements to Protect Employer Goodwill
Protecting Employer Goodwill with Non Compete Agreements in MassachusettsIn Massachusetts, the enforceability of a non compete agreement hinges on its ability to serve a legitimate interest of the employer, whether it was signed before or after the new non compete law took effect on October 1, 2018.
Mere desire to prevent a former employee from competing does not qualify as a legitimate business interest. Instead, a non compete must safeguard either the employer's trade secrets, confidential information, or goodwill. Here, we delve into what goodwill means within the context of a non compete agreement, situations where goodwill may be attributed to the employee rather than the employer, and the importance of reasonable scope and duration in protecting employer goodwill. Defining Employer Goodwill in Support of a Non CompeteGoodwill typically refers to the reputation or brand identity associated with a business. In the realm of employment, the lines between employer and employee goodwill can blur.
Consider a long-time sales representative who has nurtured relationships with customers during their employment. This individual may have a personal rapport with these customers while also being closely associated with the company's reputation. When they depart for a competing role, customers might still associate their positive experiences with the company. Protecting this scenario is one of the key motivations behind businesses having customer-facing employees sign restrictive covenants. Determining When Goodwill Belongs to the EmployeeThe situation becomes more intricate when an employee brings their own customers or prospects to the new job. This often occurs in professional services or industries like insurance with annual renewals. An employee may introduce a "book of business" to their new employer and service these customers alongside the company's existing ones.
In such cases, the employee may argue that the company has no legitimate interest in the preexisting goodwill. If they can demonstrate that they are solely relying on these preexisting relationships, a court might refuse to enforce the non compete. |
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Ensuring The Scope and Duration is Necessary to Safeguard Employer Goodwill
Non competes must always maintain reasonable geographic scope and duration, aligned with the employer's interest in goodwill protection.
Under Massachusetts' new non compete law, the maximum duration is capped at 12 months. However, even this might be considered too long depending on the circumstances. The duration should correspond to the employer's interest. For instance, a year may be suitable for products or services with annual renewals, whereas a shorter sales cycle might warrant a shorter restriction period.
The geographic area must also match the goodwill interest. A nationwide restriction might be reasonable for a salesperson covering a nationwide territory but unreasonable for a local hair salon.
Under Massachusetts' new non compete law, the maximum duration is capped at 12 months. However, even this might be considered too long depending on the circumstances. The duration should correspond to the employer's interest. For instance, a year may be suitable for products or services with annual renewals, whereas a shorter sales cycle might warrant a shorter restriction period.
The geographic area must also match the goodwill interest. A nationwide restriction might be reasonable for a salesperson covering a nationwide territory but unreasonable for a local hair salon.
Non Competes, Employer Goodwill and Independent Contractors
While state law permits non compete enforcement against independent contractors, the nature of this relationship complicates the goodwill argument.
Independent contractors operate independently from the employer and are free to provide services to others. They are also expected to perform services outside the core business of the employer. Proving control over employer goodwill may be challenging in such cases.
Independent contractors operate independently from the employer and are free to provide services to others. They are also expected to perform services outside the core business of the employer. Proving control over employer goodwill may be challenging in such cases.
References to Goodwill in the Employment Agreement
Many non competition agreements reference the employee's access to goodwill. However, it's important to note that courts will independently determine whether a legitimate interest is protected by the non compete based on specific circumstances, rather than boilerplate language in the employment agreement.
Meet Our Employment and Non Compete Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year. She has written a book on employment law: Rules of the Road, What You Need to Know About Employment Laws in Massachusetts, been interviewed by the Massachusetts Superlawyers magazine about non compete agreements, and written an op-ed in the New York Times about the dangers of non competes. Along with the rest of the slnlaw team, she has helped hundreds of clients navigate, negotiate, or defend against their non compete agreements.
Rebecca Rogers: Rebecca is a 2006 graduate of Boston College Law School, and has worked with slnlaw since 2013. She previously worked as an intellectual property litigation attorney for Fish & Richardson in Boston, Massachusetts, and clerked for the Massachusetts Supreme Judicial Court. Rebecca has helped many clients understand and evaluate their non compete agreements and develop strategies for defending against non compete enforcement and negotiating resolution.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna works with employers to develop reasonable and enforceable employee agreements, including non competes. She has also helped employees understand and evaluate their non compete agreements and develop strategies for defending against non compete enforcement and negotiating resolution.
Elijah Bresley: Eli is a 2014 graduate of Seton Hall Law school, and has worked with slnlaw since 2020. He previously worked for a boutique employment law firm outside of Boston, and then for the Labor and Employment department of a large Boston firm. He also spent a year clerking for the judges of the Superior Court in Hartford, Connecticut. Eli has helped clients both evaluate and negotiate their non compete agreements, and defended non compete claims in state and federal courts.
How We Can Help
Protecting your interests requires a nuanced understanding of the law and its application to your unique situation. We have that understanding, and we're here to help. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
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