Post-Employment Noncompetes?

You are planning to terminate an employee or you have an employee who is in the process of resigning – or has already resigned. The employee is not subject to a noncompete, or maybe there is some question about the enforceability of his noncompete. Can you bind the employee to a noncompete? In a word (well, two words), quite possibly.

Noncompetition agreements arising from an employment relationship but entered into as or after employment ends are enforceable just like any other noncompetition agreement. As such, they are subject to the same requirements as any other noncompete. But, what makes them a bit different is the extra focus on the fact that there must be an appropriate ancillary transaction of which they are a part. The ancillary transaction requirement can be satisfied by many different types of transactions, including (as is most often the case) a severance agreement.

For those looking for legal support, here are some citations (from my book): Marine Contractors Co. v. Hurley, 365 Mass. 280, 288 (1974) (“Marine’s interest in protecting its accrued good will from possible incursions by Hurley is not weakened by the fact that it negotiated the agreement not to compete at the end of Hurley’s employment rather than at some earlier time.”); Richmond Bros. v. Westinghouse Broad. Co., 357 Mass. 106, 110–11 (1970) (noncompetition agreement signed near conclusion of employment was deemed void not as result of its timing, but, rather, on other grounds); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716–17 (1961) (settlement of embezzlement claim); Majilite Corp. v. Abbott, MICV2008-00222-L2 (Mass. Super. Ct. June 5, 2008) (settlement of breach of fiduciary duty and other claims).

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