Top Massachusetts Court Clarifies That Non-Solicitation Covenants Fall Outside the State’s Non-Compete Law

In a closely watched decision, the Massachusetts Supreme Judicial Court in Miele v. Foundation Medicine, Inc. clarified that the Massachusetts Noncompetition Agreement Act (MNAA) (G.L. c. 149, § 24L) does not apply to non-solicitation covenants—even when those non-solicitation covenants are tied to forfeiture provisions.  This ruling provides clarity for Massachusetts employers seeking to enforce these types of covenants without triggering the procedural requirements of the MNAA.

The case involved an employee who entered into a separation agreement upon her departure, which (i) required her to reaffirm her obligations under an earlier-executed non-solicitation agreement; and (ii) included a forfeiture clause requiring repayment of her severance benefits if she breached any of its terms.  After soliciting certain of her former coworkers, her former employer stopped her remaining severance payments and demanded she repay all previously paid amounts. 

The employee sued claiming that the inclusion of the forfeiture clause in her separation agreement meant that the non-solicitation agreement was subject to the MNAA as a “forfeiture for competition agreement,” and therefore was void because it did not follow the MNAA’s strict requirements.  The Supreme Judicial Court – Massachusetts’ highest court – disagreed.  It noted that while forfeiture-for-competition agreements are defined as a subset of noncompetition agreements, the MNAA expressly excludes non-solicitation covenants from its scope. Accordingly, the mere inclusion of a forfeiture clause tied back to a non-solicitation provision did not bring it within the MNAA’s reach.

Practical Implications for Employers

This decision reinforces two important principles:

• Non-solicitation covenants remain enforceable outside the MNAA framework.  While courts will still apply scrutiny to non-solicitation covenants as a form of restrictive covenant, the specific statutory requirements of the MNAA are not part of the enforceability analysis.  Employers should ensure that the language of a non-solicitation covenant is not overly broad so that it could be construed as a de facto non-competition agreement subject to the MNAA.
• Forfeiture provisions tied to non-solicitation breaches are valid and do not convert the agreement into a noncompetition clause.  This holding opens up the potential for crafting a wider variety of remedies to protect employers against such breaches.

While not expressly analyzed in the Miele decision, employers should be aware of the other requirements and exceptions to the MNAA:

• MNAA Statutory Requirements.  The MNAA contains certain clear-cut requirements, including, that the noncompetition agreement be: 
  • signed by both parties;
  • provide at least 10 business days to review;
  • expressly state the employee has the right to consult counsel prior to signing; and
  • be supported by garden leave (i.e., ½ salary payments following termination), or “mutually agreed upon consideration” if entered into in connection with commencement of employment, as well as “fair and reasonable consideration independent from the continuation of employment” if entered into after commencement of employment but not in connection with a separation.
• Utilizing the “Separation Agreement” Exception to MNAA.  In addition to specifically carving out non-solicitation agreements from the scope of the MNAA, the MNAA also provides an exception for “noncompetition agreements made in connection with the cessation of or separation from employment if the employee is expressly given seven business days to rescind acceptance.”  Employers entering into new restrictive covenants or reaffirming existing covenants at the time of an employee’s separation that contain non-competition provisions should provide seven (7) business days for the employee to rescind acceptance to meet this exclusion from the MNAA’s requirements. 

The Miele decision provides a roadmap for employers to protect their workforce and business interests while potentially avoiding the procedural hurdles of the MNAA. For questions about drafting or enforcing restrictive covenants, please contact a member of Mintz’s Employment Practice.

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