Phone Call to Employer to Enforce Noncompete Agreement Leads to Lawsuit

February 24, 2020
, , , News, Noncompete agreements

An employer accused of trying to have its former employee fired from her new job faces a lawsuit for defamation and tortious interference.

In Eaton v. Veterans Inc., Laurel Eaton filed suit in the United States District Court for the District of Massachusetts against her former employer, Veterans Inc. In her lawsuit, Ms. Eaton claimed that Veterans called her new employer and asserted that Ms. Eaton’s noncompete agreement with Veterans prevented her employment with the new company.  Ms. Eaton alleged that, during that phone call, Veterans threatened litigation to enforce the noncompete agreement (which Veterans never pursued), and demanded that the new employer fire Ms. Eaton – which it did. Based on these facts, Ms. Eaton claimed that Veterans defamed her and tortiously interfered with her new employment.

In response to Ms. Eaton’s complaint, Veterans moved to dismiss the tortious interference and defamation claims, arguing that its communications to Ms. Eaton’s new employer could not form the basis for liability because they were protected by the litigation privilege, which “extends to communications made preliminary to proposed judicial proceedings if judicial proceedings are contemplated in good faith and under serious consideration.”

On January 16, 2020, the court (Hillman, J.) denied Veterans’ motion to dismiss Ms. Eaton’s complaint. The court accepted as true (as it must at the motion to dismiss stage) Ms. Eaton’s allegations in her Amended Complaint that

(1) Defendant [Veterans] knew or should have known that it lacked any legitimate business reason to enforce the Non-Compete Agreement; (2) Defendant knew or should have known that the Non-Compete Agreement was unenforceable; (3) Defendant knew or should have known that its statements to [the new employer] regarding the enforceability of the Non-Compete Agreement were false; and (4) Defendant made these statements with the malicious intent of getting [Ms. Eaton] fired.

The court concluded that these allegations “create the reasonable inference that Defendant threatened legal action in bad faith and did not seriously consider initiating any judicial proceeding against Plaintiff or” the new employer. Accordingly, the court declined to determine at this early stage whether the litigation privilege applies to Veterans’ statements and denied the motion to dismiss.

The court’s decision highlights a risk of trying to enforce a noncompete agreement. The decision also serves as a reminder that efforts to enforce a noncompete must be tied to legitimate business interests, and that the litigation privilege is not necessarily an impenetrable shield. In light of this decision, practitioners and parties alike should keep in mind the value in analyzing the risks and rewards associated with whether to enforce a noncompete agreement, and how to go about pursuing enforcement.

eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

MA Noncompete Agreement Reform Clears First Major Hurdle

June 30, 2016
, , Noncompete agreements, Resources

State-house.pngOn June 29, 2016, the Massachusetts legislature moved one step closer to reforming noncompete agreements. With 150 votes for the legislation, and no votes against, the Massachusetts House of Representatives passed “An Act relative to the judicial enforcement of noncompetition agreements.”

If this noncompete bill becomes law (it’s not there yet—it would still need to be passed by the Senate and signed by the Governor by the end of July for that to happen), then there will be a dramatic shift in the way employers are permitted to use noncompete agreements in Massachusetts.

Significantly, the House of Representatives’ noncompete bill would:

  • Cap the noncompete period to 12 months from the date of termination;

  • Restrict employers from enforcing noncompetes against nonexempt (hourly) workers, student interns, and employees under 18; and

  • Prevent enforcement of noncompete agreements against employees who have been terminated without cause or laid off.

The 12-month cap can be extended for up to two years in the event the employee breaches a fiduciary duty to the employer or if the employee unlawfully takes the employer’s information or property.

Screen Shot 2014-10-19 at 11.33.00 AMne controversial aspect of the new bill is the so-called “Garden Leave” clause, which would require employers to pay half the salary of employees for the duration of their noncompete period after they leave. But there’s a major caveat to the Garden Leave provision: The bill gives employers the option of providing some “other mutually-agreed upon consideration . . . provided that such consideration is specified in the noncompetition agreement.”

The bill would not affect nonsolicit agreements that bar employees from transacting business with employers’ customers, clients, or vendors. The bill also maintains the status quo for the courts’ ability to modify noncompete agreements by giving judges discretion to reform or otherwise revise a noncompete agreement so as to render it valid and enforceable.

According to the House’s legislation, in order for a noncompete agreement to be valid, new hires must be given prior notice that they will be bound by such an agreement – either with the delivery of the offer of employment or 10 business days before the employee starts work, whichever is earlier. There is also a 10-day notice provision for current employees who are asked to sign new noncompete agreements.

Separate from the noncompete aspects of the bill, if passed, the bill will adopt the Uniform Trade Secrets Act. The impact of that is, as a practical matter, limited.

Russell Beck recently spoke on a panel at the Boston Bar Association’s symposium about the Massachusetts non-compete agreement reform legislation. For up-to-the-minute analysis of legal issues concerning noncompete agreements and trade secrets in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Beck Reed Riden LLPBLF 2014_Silver_Generalis among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law andbusiness litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience. The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. Recently, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Russell Beck’s work in this area is well recognized; it includes:

  • Over sixteen years of working on trade secret, noncompete, and unfair competition matters

  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (5th ed., MCLE, Inc. 2015), used by other lawyers to help them with their noncompete cases

  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law

  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law

  • Founding and administrating the award-winning blog, Fair Competition Law

  • Establishing and administrating the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 750 members around the world

  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2014 Chambers USA Guide, which explained that “Russell Beck of Beck Reed Riden LLP specializes in noncompete litigation and is a trade secrets expert. He comes highly recommended by his peers for his nationwide practice in this niche. ‘He’s fantastic,’ sources say.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging fromFortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.