We Have Another Piece of the Consideration Puzzle under the Mass Noncompete Act

On Thursday, July 15, 2021, United States District Court Judge Hillman issued what I believe is the first (readily available, anyway) non-dicta, substantive decision on the Massachusetts Noncompetition Agreement Act (the MNAA). Specifically, in KPM Analytics North America Corporation v. Blue Sun Scientific, LLC (C.A. No. 4:21-cv-10572-TSH), Judge Hillman dismissed a claim based on a nonconforming noncompete.

The court identified two ways in which the agreement failed to comply with the MNAA: (1) it failed to include notice of the right to consult with counsel and (2) it failed to satisfy the consideration requirements of the statute, an issue that has to date caused significant confusion. See, e.g.Consideration under the New Massachusetts Noncompete Law: Compromise Happens and Massachusetts Noncompete: Consideration Happens, But Not During Garden Leave.

As to the former, the noncompete omitted any reference to counsel. As to the latter, the noncompete provided, “In consideration for his/her employment by the Company . . . .”

The court’s analysis is as follows:

As KPM appeared to concede at the hearing, Ossowski’s Agreement violates the Massachusetts Noncompetition Agreement Act, M. G. L. c. 149, § 24L. The Act sets out eight requirements for a noncompetition agreement to be legally binding: Ossowski’s Agreement violates the first and seventh conditions. The first requirement mandates that the agreement “expressly state that the employee has the right to consult with counsel prior to signing.” Id. § 24L(b)(i). The seventh requirement mandates that the agreement be supported by “a garden leave clause or other mutually-agreed upon consideration between the employer and the employee.” Id. § 24L(b)(vii). Ossowski’s agreement does not expressly state that Mr. Ossowski has the right to consult with counsel prior to signing, and it does not contain a garden leave clause or another mutually agreed upon form of consideration. Id.

With the court’s decision, we have confirmation that express notice of the right to consult with counsel is a material term that must be included. (This is no surprise.)

More importantly, the decision provides another piece of the puzzle of how to interpret the MNAA’s consideration requirement. Based on this decision, the “other mutually agreed upon consideration” option will not be satisfied with a simple statement that “employment by the Company” is the consideration. Something more will be required. What more is still a very open question.

As a quick refresher, the other piece of the puzzle provided by a judicial option is Judge Casper’s comment (in dicta) in Nuvasive, Inc. v. Day, 2019 WL2287709, at *4 (D. Mass. May 29, 2019). There, Judge Casper observed that a noncompete with following statement would satisfy the new law:  “In consideration of my engagement by the Company, the compensation I . . . receive from the Company (including for example monetary compensation, Company goodwill, confidential information, restricted stock units and/or specialized training) . . . .”

We will keep you posted as more pieces of the puzzle are filled in.


*Thank you to Erika Hahn for finding Judge Hillmans decision so quickly!