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, more than six months after its effective date, we have a second published decision out of the United States District Court for the District of Massachusetts citing the new Massachusetts Noncompetition Agreement Act (“MNCA”), Mass. Gen. Laws ch. 149, § 24L. Like the first published decision, this decision does not directly analyze an agreement that is subject to the Act, but it is still instructive for employers with personnel who may be subject to the MNCA.
In NuVasive, Inc. v. Day, NuVasive sought to enforce two separate restrictive covenants agreements for former employees Timothy Day and Adam Richard. Day’s agreement contained a Delaware choice of law provision, and Richard’s agreement was governed by Massachusetts law. NuVasive filed motions for preliminary injunction against both Richard and Day.
In challenging NuVasive’s motion for preliminary injunction, Day disputed the application of the contract’s Delaware choice of law provision and argued that Massachusetts law should apply instead, as he believed that application of Delaware law was contrary to the fundamental public policy of Massachusetts. Day argued that there are two independent Massachusetts public policies to which the application of Delaware would be contrary: first, the “material change” doctrine (which we’ve blogged about before, for example, here), and second, Massachusetts’ policy against the application of other state’s laws in the context of restrictive covenants, as expressed in the MNCA.
The court first held that the material change doctrine was inapplicable to Day’s agreement because his relationship with NuVasive was severed, as opposed to merely changed (the material change doctrine applies in situations where parties abandon their old relationship and enter into a new relationship, not where the relationship is severed entirely).
Similarly, and perhaps more interestingly, the court held that Day’s argument regarding Massachusetts’ alleged policy against foreign choice-of-law provisions was unavailing, and not just because Day entered into his agreement prior to October 2018. The court held that even if the agreement had been entered into post-October 2018, the application of Delaware law would not have had “the effect of avoiding the requirements” of the MNCA: Day’s agreement was in compliance with the MNCA, notwithstanding the Delaware choice of law, as it was in writing, supported by separate consideration, expressly stated that Day could consult counsel, and did not exceed 12 months from the cessation of employment. And critically, while the court noted that the agreement lacked a “garden leave” provision, it held that its absence was not determinative because the agreement was supported by other mutually agreed-upon consideration, which is a permissible alternative under the MNCA.
This decision is of particular note to practitioners closely watching how courts will analyze a Massachusetts resident’s non-compete agreement entered into after the effective date of the MNCA. Specifically, this decision signals that agreements need not include a Massachusetts choice-of-law provision, and agreements containing extraterritorial choice-of-law provisions will survive scrutiny under the MNCA, so long as they otherwise comport with Massachusetts law. And it confirms that as we have advised our readers, contrary to some sensationalist pieces that came out in the immediate aftermath of the law’s passage, garden leave is not required under the MNCA for a non-compete to be enforceable.
Stay tuned for more reports out of the Bay State as judges continue to interpret the MNCA.