Updated to address the oral argument at the Massachusetts Appeals Court concerning the material change doctrine and potential application of the MNAA.
As indicated in my last post, I am way behind in covering the recent developments in Massachusetts restrictive covenant law (noncompetes, nonsolicits, no-recruits, etc.), trade secret law, and related issues — but I’m catching up as quickly as I can.
Today’s update involves noncompetes, declaratory judgment, overbreadth, janitor rule, and reformation.
Before turning to the update, in light of today’s significance (Veterans Day), I want to take a moment to thank all those who served our country and who are currently serving — thank you for your service!
Now, on to the update…
The update involves a summary judgment decision on appeal to the Massachusetts Appeals Court in Perella v. United Site Services Northeast, Inc., 104 Mass.App.Ct. 1106 (2024), in the portable toilet industry. (I discussed this case briefly before here, but below is a more detailed summary.)
Facts
The facts of the case were pretty straightforward:
[T]he former employee “desires to return to the industry of servicing temporary site services.” She “intend[s] to form [her] own company that would engage in sales of portable sanitary units such as what [she] sold at United Site Services.” Pursuant to the noncompete provision of her employment agreement, she must obtain “prior written consent of the Company and the Company’s parent corporation” before competing with the company or “engag[ing] in the business of leasing, renting, selling or servicing of portable restrooms and sanitation facilities or storage facilities or any other business related thereto, within any county in the States of Massachusetts, Connecticut, Rhode Island, Vermont, New Hampshire, Maine or New York, or in any other state in which the Company conducts business from time to time, or within any other territory in which Employee performs any duties hereunder.” She attempted to get written permission by sending the employer a letter, requesting a reply within fourteen days of receipt, but she received no response.
Declaratory judgment, overbreadth, and janitor rule
The trial court determined that those facts were sufficient to permit the plaintiff to file her declaratory judgment action seeking to invalidate her noncompete and to support a preliminary injunction against the former employer’s enforcement of the noncompete.
The Appeals Court reviewed the trial court’s decision for abuse of discretion, and, finding none, affirmed.
As court explained, a declaratory judgment action requires an actual controversy and standing. “There is an actual controversy because the former employee intends to start a business in clear violation of the noncompete provision, and the employer refused to waive the contractual provision. . . . The former employee was not required to breach the noncompete provision before litigating its enforceability.” Accordingly, finding that the plaintiff had standing because the noncompete prevented her from starting a competing business, the court concluded that a declaratory judgment action was appropriate.
As to reasonableness, the Appeals Court concluded, as follows:
Here, the noncompete provision is not reasonable. It bars the employee from “engag[ing] in the business of leasing, renting, selling or servicing of portable restrooms and sanitation facilities or storage facilities or any other business related thereto” at all for three years in seven named States, as well as “any other state in which the Company conducts business from time to time, or within any other territory in which Employee performs any duties hereunder.” This scope extends far beyond protecting the employer’s legitimate business interests, temporally and geographically.
(Emphasis added.)
Instructively, the agreement also prohibits any engagement in the business — not limited to what the employee was doing or to address only the activities through which the employee would jeopardize the former employer’s trade secrets, confidential information, or other legitimate business interest. Though not specifically identified, such a broad scope would arguably violate the so-called “janitor rule.”
Reformation of noncompete requires a specific proposal
Most significant about the case is how the court treated the authority to reform an overly broad agreement.
Specifically, even though the parties’ agreement expressly allowed a court to narrow the noncompete, the court concluded that it is incumbent on the party seeking to enforce an overly broad noncompete to provide the court with the specific narrowing it is proposing.
Here is how the court reached that conclusion and what it said:
The employer advances no argument that the noncompete provision is enforceable as written. Instead, the employer argues that the motion judge was required to narrow the noncompete provision to its maximal enforceable scope. The employer did not raise this argument in its written opposition to the motion judge. At the motion hearing, the employer briefly suggested in response to the judge’s inquiry that the judge could limit the provision’s duration to “two years, twelve months, [or] eighteen months,” or reduce its geographical scope.
Although the motion judge had the authority to narrow the noncompete provision, see Automile Holdings, LLC v. McGovern, 483 Mass. 797, 808-809 (2020), the employer could not delegate to the judge its duty to present options for the judge’s consideration. To put it another way, the employer cannot argue on appeal that the judge erred by not ruling in a way that the employer did not suggest at the trial court. See ProQuip Ltd. v. Northmark Bank, 103 Mass. App. Ct. 133, 137 n.3 (2023) (“Where this argument was not raised below, it is waived”). The temporal limitations suggested by the employer would be insufficient to make the noncompete provision enforceable, as would the employer’s suggestion that the geographical scope be limited to allow the former employee to work in upstate New York. The motion judge was not required to invent her own geographical limitations unsuggested by the parties.
The court appears to have made this determination under the common law insofar as it cited Automile Holdings, LLC v. McGovern, 483 Mass. 797, 808-09 (2020). However, that is not entirely clear, given some of the points made during oral argument before the Appeals Court (starting at 1:54), most significantly, in connection with the material change discussion.1
Regardless, the common law authority was incorporated into the Massachusetts Noncompetition Agreement Act, G.L. c. 149, § 24L(d) (a “court may, in its discretion, reform or otherwise revise a noncompetition agreement so as to render it valid and enforceable to the extent necessary to protect the applicable legitimate business interests”), and therefore the outcome should be the same irrespective of whether the agreement was pre- or post-MNAA.
That said, this requirement has, to the best of my knowledge, never existed under Massachusetts law — either before or after the MNAA became effective. But please feel free to email me if you are aware of this being required before this case.
It bears noting that the case does not seem to make this a categorical requirement. Rather, it appears to leave to the trial court’s discretion whether to reform an agreement if it deems it appropriate to do so — even without a motion or specific proposal.
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Of course, as always, these types of cases are very fact-specific, and should be understood as such — especially summary decisions in the Massachusetts Appeals Court.
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Firm resources:
We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):
- 50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF) (to be updated for the new exemptions in Illinois and Pennsylvania);
- Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable);
- Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF);
- 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).
- “Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level;
- Trade secret and other legitimate business interest protection plan strategy and checklist; and
- Ten Minute Trade Secret Training Series, currently with three training videos and one “basics” video:
We hope you find all of these resources useful. More are coming.
And please note, we are grateful for all of the input we’ve received over the years. We welcome any suggestions for improvements that you may be willing to share.
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[1] Interestingly, during the discussion about the material change doctrine, Justice DitKoff repeatedly asked Perella’s counsel why — assuming the contract terminated in 2022 under the material change doctrine — the noncompete would go away, rather than starting to run then. While I think there are answers to that question, it was an excellent issue that, given the question, may start showing up in future arguments in other cases.
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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the recent noncompete and trade secret caselaw developments. And thank you to Erik Winton for raising the question about whether the court relied on common law or the MNAA when ruling on the reformation issue; I updated the post to identify the issue and lack of clarity.