Recently, the Supreme Judicial Court of Massachusetts took a case about the intersection of non-solicitation agreements and non-compete clauses under the Massachusetts Noncompetition Agreement Act. In the ruling, the Supreme Judicial Court made it clear that the Act did not apply to non-solicitation agreements, even if such an agreement included a forfeiture provision.

What Happened in the Case

The facts of the case, Miele v. Foundation Medicine, Inc., are simple: The company hired an employee, who signed an employment contract that included a non-compete clause and a non-solicitation clause. When she left the company, she signed a severance agreement that included these clauses and, in exchange for an executive severance package, a forfeiture clause that allowed the company to stop the severance payments and claw back what had been paid in the event of a breach of the agreement within one year.

The worker was hired by one of the company's competitors and then allegedly tried recruiting several of her former employer's current workers to join her. The company stopped paying her severance benefits and they sued each other, with the worker claiming that the non-solicitation clause could not be enforced because of the Massachusetts Noncompetition Agreement Act.

The trial judge partially agreed and ruled that, even though the Act expressly excludes non-solicitation agreements from its scope, the forfeiture provision for breaching the non-solicitation clause created penalties for competing against the prior employer, which triggered the Act's provisions.

SJC: Act Does Not Apply to Any Non-Solicitation Agreements

The Supreme Judicial Court disagreed with the trial court's ruling. Its rationale was straightforward: Under the Act, there are non-compete agreements, which explicitly do not include non-solicitation agreements, and there are “forfeiture for competition agreements,” which are a subset of non-compete agreements. Because “forfeiture for competition agreements” are contained within the broader concept of “non-competition agreements,” and because non-competes do not include non-solicitation agreements, it followed that the Act does not cover non-solicitation provisions, even if forfeiture is a penalty for breaching the contract.

What This Means for Massachusetts Businesses and Workers

Given that the Massachusetts Noncompetition Agreement Act specifically states that “Noncompetition agreements… do not include covenants not to solicit or hire employees of the employer,” the court's ruling is not a surprise. However, it is still important to set the boundaries of this limitation in stone, as this provides clarification for companies in the state that want to protect their interests.

For Massachusetts workers, the ruling is a loss, but not a significant one. The Act still limits when your former employer can keep you from competing against it, just so long as you are not actively soliciting its clients or employees.

Massachusetts Business and Employment Lawyers at the Katz Law Group

The business and employment lawyers at the Katz Law Group have been handling non-compete and non-solicitation issues for both workers and corporations in central Massachusetts for four decades. Contact them online or call them at (508) 480-8202 to understand your rights and protect your interests.