As we’ve previously written about on this blog, last summer the Massachusetts legislature passed a non-compete reform bill which went into effect on October 1, 2018. Readers of this blog will recall our concerns that the new law is in many ways confusing and may lead to unpredictable results. Now, nearly five months after its effective date, Magistrate Judge Dein of the United States District Court for the District of Massachusetts has issued the first published decision citing the new Massachusetts Noncompetition Agreement Act, Mass. Gen. Laws ch. 149, § 24L—unfortunately, this decision does not analyze an agreement that is subject to the Act, but it does confirm our suspicions that creative practitioners will try to use the new law to attack the enforceability of agreements entered into before the effective date.
In Tannatt v. Varonis Sys., Inc., Dana Tannatt, a Massachusetts resident, sought a declaration that the employment agreement he signed in 2011 containing a non-compete provision was unenforceable and further sought an order enjoining arbitration proceedings that had already been commenced by Varonis in New York. Judge Dein considered Varonis’s motion to dismiss the suit and to compel arbitration in New York pursuant to an arbitration clause in the agreement.
In response to Varonis’s motion, Tannatt argued that notwithstanding the agreement’s New York choice of law, the court should apply Massachusetts law in analyzing the validity of the arbitration provision. Tannatt’s reasoning was that Massachusetts has a strong policy interest in seeing its own law applied to restrictive covenants agreements, as evidenced by the new Act. Judge Dein disagreed, and rejected Tannatt’s argument that the New York choice of law provision would be contrary to a fundamental Massachusetts policy. Despite Tannatt’s claim that New York law would allow Varonis to avoid Massachusetts’s “material change” doctrine (see our posts about this doctrine here and here), the court held that even if that doctrine were to apply to the enforceability of the agreement’s restrictive covenants, it was irrelevant to the threshold issue of the arbitration provision’s validity.
Of particular note to practitioners closely watching how courts will apply the Act to pre-October 2018 agreements, Tannatt also claimed that the application of New York law would violate a fundamental Massachusetts policy because the new legislation “consolidated existing Massachusetts public policy” and “should be deemed to reflect a strong Massachusetts public policy” against enforcement of certain non-competes. Specifically, Tannatt argued that his agreement was not signed by Varonis and did not expressly state that he had a right to consult with counsel prior to signing—both new requirements under the Noncompetition Agreement Act. Judge Dein pointedly noted Tannatt’s failure to cite any support for his claim that these requirements existed prior to the law’s October 2018 effect date and again held that Tannatt’s argument failed to address the threshold issue of whether the arbitration provision was valid. In so doing, she made it clear that “a challenge to the validity of the contract itself is subject to arbitration,” and thus that Tannatt could not sidestep arbitration by challenging the enforceability of the agreement as a whole.
While the court’s decision does not provide much guidance as to how courts will interpret agreements subject to the new law, this case nevertheless reveals that employee-side counsel will likely try to point to the Act to invalidate agreements entered into before its effective date. If Judge Dein’s decision is any indication, those litigators face an uphill battle.