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Massachusetts Case Demonstrates Benefit of “Material Change in Employment” Clause in Non-Compete Agreement

Posted in Non-Compete Enforceability, Practice & Procedure

By Erik Weibust and Ryan Malloy

The Massachusetts Superior Court recently rejected a claim by a former employee that his post-employment restrictive covenants were void because his employment had materially changed, relying on a clause in the employee’s agreement providing that the covenants would survive any such changes. 

Plaintiff A.R.S Services, Inc. commenced litigation against its former employee, Daniel Morse, and his current employer, 24 Restore NE, LLC, alleging harm arising out of Morse’s breach of a non-competition and non-solicitation agreement with A.R.S.  On April 5, 2013, Judge Edward Leibensperger of the Massachusetts Superior Court issued a preliminary injunction in favor of A.R.S. and rejected several defenses offered by Morse, including that his employment had “materially changed” such to void the agreement. 

Morse was hired by A.R.S. in 2004 to work in the field of “disaster restoration,” which involves the clean-up and restoration of properties affected by natural disaster and chemical damage.  Prior to joining A.R.S., Morse signed an agreement that included non-solicitation and non-competition provisions that prohibited Morse from working in the disaster restoration business within 50 miles of any A.R.S. office for one year following his termination.  During his employment, Morse changed positions twice, but he was at all times one of the five highest-compensated A.R.S. employees.

In late 2012, Morse left A.R.S. to work for 24 Restore, a company also in the business of disaster restoration.  24 Restore was informed of the non-competition and non-solicitation agreement between Morse and A.R.S.  When A.R.S. demanded that Morse cease breaching the agreement, Morse began working for Restore 24 only in Maine.  Nonetheless, A.R.S. filed the present lawsuit and moved for preliminary injunctive relief. 

In opposition to A.R.S.’ motion, Morse argued that the non-competition and non-solicitation agreement was void because his employment relationship with A.R.S. had materially changed on two occasions after he signed the agreement.  He argued that the agreement would only be enforceable if A.R.S. offered a new agreement in exchange for his changed employment relationship.  Judge Leibensperger rejected Morse’s argument because the agreement expressly provided that “The terms and condition of this Agreement and its enforceability shall continue to apply and be valid notwithstanding any change in [Morse’s] duties, responsibilities, position or title with [A.R.S.]. . . .”   Judge Leibensperfer also determined that, although Morse’s job title changed twice during his employment, he remained one of the five highest-compensated employees at A.R.S., and that any change in his responsibilities was not material because each role “required Morse to be involved in A.R.S.’s disaster restoration projects and to promote A.R.S.’s brand by attending industry seminars and maintaining his industry relationships.”  Based on these facts, the court concluded that A.R.S. had a substantial likelihood of successfully establishing that the agreement is enforceable and that Morse’s change in employment status “did not act to vitiate the bargained for Agreement.” 

Massachusetts case law with respect to the voidability of non-competition agreements because of material change in employment is inconsistent.  Interestingly, Judge Leibensperger discussed but did not distinguish an October 2012 Superior Court case that voided a non-competition agreement because of a material change in the defendant’s employment, even where the agreement stated that a material change in employment would not void the agreement.  See Akibia, Inc. v. Hood, C.A. No. 2012-02974 (Mass. Super. Oct. 9, 2012).  Nevertheless, the recent A.R.S. decision suggests that employers should include “material change” clauses in their employment agreements.