By Jennifer A. Rymarski, Partner, and Stefan Sjoberg, Law Clerk
In a case brought in the Suffolk Business Litigation Session (“BLS”), the Court denied an employer’s motion for a preliminary injunction to enjoin a former employee and his new employer from competing or soliciting the former employer’s vendors and customers.
The defendant employee began working for the former employer in 2009. His role was in sales, marketing and purchasing. In 2015, the employee and another, entered into discussions with the owners of the employer with an interest in purchasing the business. During the course of negotiations the parties signed a non-disclosure agreement. In April of 2016, negotiations fell through and the employee submitted his resignation letter. All confidential information shared by the employer was returned. On the employee’s last day of employment, he sent an e-mail “blast” to his contacts (dealers and vendors) using the employer’s computer. In his message, he thanked the recipients for their business, announced he was leaving, stated he held the employer in high regard, and stated that the planned to remain in the industry.
Additionally, prior to his departure, the employee used the employer’s computer to forward to himself, an invitation to a trade show as well as a pricing list from a vendor, and a test of his new e-mail address. Approximately one month after his last day, the employee incorporated his business. The employer wrote to the former employee indicating that he was in direct violation of the non-disclosure agreement and another agreement, a proprietary rights agreement—with a forged signature of the employee. In the fall of 2016, the former employee’s new entity began doing business, including sending emails to potential customers. The employer filed suit and sought an injunction. In order to prevail on a motion for injunction, a plaintiff must show: (1) it has a substantial likelihood of success on the merits; (2) there is a substantial threat that the Plaintiff will suffer irreparable injury if the injunction/order is not granted; (3) the threatened injury to the plaintiff outweighs any harm to the defendants. Packaging Indus. Group Inc. v. Cheney, 380 Mass. 609, 616-17 (1980). It remains well-established in Massachusetts that an employer may enforce the terms of a restrictive covenant against a former employee when it demonstrates that it is: (1) necessary to protect a legitimate interest of the employer; (2) supported by consideration; (3) reasonably limited in scope, under all the circumstances; and (4) is otherwise consonant with public policy. Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85 (1979). Legitimate protected business interest include trade secrets, confidential data, goodwill and customer relationships. Kroger v. Stop & Shop Cos., 13 Mass.App.Ct. 310, 317, rev. denied, 386 Mass. 1102 (1982).
In the BLS case, the employer failed to carry its burden for a number of reasons. First, the court found that the employer had not made an adequate showing that the employee signed an agreement that contained a non-compete clause. Second, the employer had not carried its burden of establishing the former employee’s wrongful use of “confidential information.” The court was not convinced that the contact list of customers constitutes as a trade secret. Finally, the court commented that the employer knew about the employee’s plans since last June and July, 2015, and took no steps to restrain the former employee from July 2016 until it filed this action in April 2017.
As a cautionary tale to employers, if your business has information that is confidential, proprietary or that would otherwise comprise a trade secret, a written agreement containing a definition of “confidential information” is a wise recommendation for key employees. An employer should not necessarily rely on an employee handbook for the creation of a binding agreement to prohibit competition or solicitation. “If an employer wishes to restrict the post-employment competitive activities of a key employee, it may seek that goal through a non-competition agreement.” Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 172 (1991). An employer should also not sit passively while it has active knowledge of activities that it seeks to protect.