A case recently decided by the Federal District Court for Massachusetts highlights the danger of relying on non-compete agreements signed prior to changes in an employee’s position or employer.  In Rent-A-PC, Inc., dba Smartsource Computer & Audio Visual Rentals v. March, Schmitz, Ciole and CCR Solutions, Inc. (“Rent-A-PC”), the former employer of three employees sued to enforce non-compete agreements the employees had signed when they were initially hired.

Rent-A-PC asked the court to issue an injunction prohibiting the employees from violating their non-compete agreements by continuing their employment with a competitor.  To be granted an injunction, a party must prove, among other things, that it is likely to be successful in its underlying lawsuit to enforce the non-compete agreement.  The court held that Rent-A-PC had not satisfied that requirement.

Relying on a series of Massachusetts court decisions, the District Court held that when an employee’s position or other circumstances change, a non-compete agreement signed before that change may not be enforceable.  Specifically, in Rent-A-PC, one of the employees had received a series of promotions after he signed the non-compete agreement.  The court denied the plaintiff’s request for an injunction, holding that the employer was unlikely to prove that the agreement was enforceable.

One of the other three employees had signed a non-compete agreement with a company that Rent-A-PClater acquired.  The court again denied Rent-A-PC’s request for an injunction noting that, although his title remained the same, the employee’s duties had changed significantly since his hire.  In addition, however, the court noted that the employee had signed the non-compete agreement with a different company, which was smaller than Rent-A-PC.  The Court opined that the employee may not have intended to be bound to a non-compete agreement with the larger Rent-A-PC. While not clear, it is possible that the second consideration, alone, would have been sufficient to defeat Rent-A-PC’s request for an injunction.

 

WHAT TO DO

The above case makes it clear that employers who wish to enforce a non-compete (and presumably also other restrictive covenants such as non-solicitation and confidentiality agreements) should require employees to sign a new agreement each time their duties or position change significantly.  Indeed, since a series of small changes will potentially abrogate restrictive covenants, employers who rely on such agreements may want to review the files of all employees subject to such agreements on a regular basis to ensure that the employee’s position has not materially changed since the agreement was signed.

Second, employers who acquire other companies should not assume that any restrictive agreements employees signed with the acquired employer will remain in effect.  We recommend that after any acquisition, key employees (including salespeople) be required to sign new confidentiality, non-solicitation and non-compete agreements.