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The Future of Noncompete Litigation in Massachusetts

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On September 7, 2018, the Chief Justice of Massachusetts’ highest court issued an opinion consequential for Massachusetts employers with out-of-state employees (Oxford Glob. Res., LLC v. Hernandez). In declaring a Massachusetts noncompete void as against California public policy, Oxford signals to Massachusetts employers that, in certain circumstances, the dual interests of out-of-state employees and limiting competition may be mutually exclusive.

In Oxford, a Massachusetts-based recruiting and staffing company (Oxford Global) hired an entry-level account manager (Hernandez) for one of its California offices. Upon his hiring, Hernandez signed a noncompete. In the noncompete, the parties agreed that Massachusetts (as opposed to California) law would apply. After several years with Oxford Global, Hernandez left to join a competitor, violating the noncompete. Oxford Global sued Hernandez to enforce the noncompete. The Superior Court judge declared the noncompete void as against California public policy and dismissed Oxford Global’s case.

Chief Justice Gants upheld the Superior Court Judge’s ruling, agreeing that “the application of Massachusetts substantive law would violate the fundamental public policy of California favoring open competition and employee mobility.” Oxford, 480 Mass. at 463. In other words, between California and Massachusetts law, the Massachusetts Supreme Judicial Court chose California law because it is more employee friendly (the judge was permitted to do so as a result of the court’s “choice of law” analysis, through which it concluded that absent the contractual choice of law provision, because California had a “significant relationship” to the contract, California law would otherwise apply).

Oxford’s Impact on Employers

Oxford’s impact on Massachusetts employers is two-fold. First, Oxford signals that Massachusetts courts are willing to ignore choice-of-law provisions in noncompetes with out-of-state employees. When given a choice, Massachusetts courts may choose the law of the state that is more employee friendly. For employers (who increasingly utilize remote, out-of-state employees who rarely have a significant relationship to Massachusetts other than being employed by a Massachusetts company), this means that they must be cognizant not only of Massachusetts’ noncompete law, but also of the law of the state of their out-of-state employees.

Second, although Massachusetts’ new noncompete law (G.L. ch. 149, § 24L) states that it applies only to noncompetes entered into on or after October 1, 2018, Massachusetts courts may consider the new law a reflection of Massachusetts’ evolved noncompete public policy and impose the new law’s requirements on noncompetes entered into before October 1, 2018. This may be particularly impactful when seeking emergency injunctive relief, as the new noncompete law maintains specific requirements for enforcement, including “garden leave” compensation, limits on geography and time, valid consideration, and new-employee notice procedures.

What Employers Should Do Right Now

Employers should immediately review, and redraft as necessary, their current noncompete agreements to ensure they conform to the specific statutory requirements detailed in Massachusetts’ new noncompete law (G.L. ch. 149, § 24L). As Oxford signals, Massachusetts courts may soon apply the state’s new noncompete law to previously entered-into noncompetes as a signal of Massachusetts’ evolving noncompete public policy.