New England Biz Law Update
A 2018 Massachusetts state statute that prohibits certain noncompete agreements rendered invalid a provision requiring a former employee to forfeit severance payments for violating a non-solicitation clause originally included in an employment contract executed in 2017, a trial court judge has ruled.
Plaintiff Susan Miele sued her former employer, Foundation Medicine, Inc., in November 2021, seeking payment of approximately $300,000 in severance benefits due under a so-called “Transition Agreement” executed in February 2020 when the defendant informed her that she was being terminated. In executing the transition agreement, the plaintiff “reaffirmed” restrictive covenants in an agreement she signed at the time of her hiring in 2017.
The defendant filed a counterclaim alleging that by virtue of the plaintiff’s violation of a “no-hiring” clause, the employer had no duty to pay her the amounts due because she had solicited certain of her former co-workers to move to new employers. Moreover, the defendant contended that, under a forfeiture provision in the transition agreement, the plaintiff was obligated to pay back the $1.2 million in severance benefits the company had already paid her.
The plaintiff filed a motion for judgment on the pleadings. According to the plaintiff, the transition agreement violated the Massachusetts Noncompetition Agreement Act, which went into effect in 2018.
Judge David A. Deakin granted the plaintiff’s motion to dismiss the defendant’s counterclaim, rejecting the employer’s argument that, rather than a “new” agreement, the transition agreement merely reaffirmed the 2017 noncompete agreement, to which the MNAA did not apply retroactively. Moreover, Deakin rejected the defendant’s argument that the MNAA did not apply because the express language of the statute excludes from its scope covenants not to solicit employees of the employer.
In so ruling, the judge relied on language in the MNAA that prohibits “forfeiture for competition agreements.”
“[I]t seems to me that it is overwhelmingly likely that the Legislature did not intend the definition of ‘competitive activities’ in the Act’s definition of ‘forfeiture for competition agreements’ to be co-extensive with the types of agreements excluded from the definition of ‘noncompetition agreements,’” Deakin wrote. “It makes more sense — given the purpose of the Act to regulate restrictive covenants in employment contracts — to construe the Act as exempting from its scope several types of agreements unless those agreements provide for forfeiture in the event of a violation.”
While dismissing the defendant’s counterclaim, the judge denied the parties’ cross-motions for summary judgment on the remaining claims in the case.
Regarding the plaintiff’s argument that undisputed material facts demonstrated that she did not breach the non-solicitation terms of the transition agreement, Deakin wrote, “Miele’s conversations with her former colleagues about joining her [at her new employer Ginko Bioworks] while they were still employed at FMI — and her efforts at Ginko to facilitate their hiring — almost certainly would be construed by a jury as ‘solicit[ing], entic[ing] or attempt[ing] to persuade any other employee or consultant of [FMI] … to leave the services of [FMI].”
