Tag Archives: trade secrets

he Business Litigation Session of the Massachusetts Superior Court recently dismissed a noncompete case against a California employee on the basis of forum non conveniens, notwithstanding a Massachusetts forum selection clause and a Massachusetts choice-of-law provision in the defendant’s employment agreement. The case is titled Oxford Global Resources, LLC v. Hernandez, and it was issued on June 9, 2017.

This decision calls into question the enforceability of forum selection and choice-of-law provisions in employment agreements with California employees. The decision also characterizes employment agreements (especially with low-level employees) as “contracts of adhesion” that may be subject to more careful judicial scrutiny. Finally, as discussed below, the Hernandez opinion takes a dim view of what constitutes an employer’s “confidential information,” highlighting existing tension in Massachusetts case law.

Background

efendant Jeremy Hernandez was a California resident who was recruited, hired, and employed by Plaintiff Oxford Global Resources, LLC, in California. Hernandez’s employment with Oxford was conditioned on his signing a “protective covenants agreement,” which contained confidentiality, noncompete, and nonsolicitation obligations, as well as a Massachusetts choice-of-law provision and a Massachusetts forum selection clause. Oxford filed the case claiming that Hernandez breached his agreement when he used Oxford’s confidential information to solicit its clients on behalf of a competitor. Hernandez moved to dismiss the case on the basis of forum non conveniens.

As an initial matter, the Court found that because Hernandez had no meaningful opportunity to negotiate the terms of his employment agreement, it was a contract of adhesion that was subject to careful scrutiny. The Court based its finding on the following facts:

1. Oxford would not have hired Hernandez if he did not sign the agreement.
2. Oxford did not allege or offer any evidence suggesting that the parties negotiated the choice-of-law or forum selection provisions, or that Oxford had even demonstrated a willingness to discuss the issues.
3. Hernandez started as an entry-level employee at $50,000 annual salary.
4. Hernandez possessed no prior industry skill or experience that would have given him bargaining power to negotiate the agreement.

Notably, the Court did not give any weight to “boilerplate language” in the agreement stating that Hernandez had read the agreement and had the opportunity to have his own lawyer review it.

The Court next found that enforcing the agreement’s Massachusetts choice-of-law provision would result in “substantial injustice” to Hernandez. Because Hernandez was a California resident who was recruited, hired, and employed there, California law (generally voiding noncompetes) would otherwise govern the dispute absent a choice-of-law provision. The court ruled that enforcing the provision would deny Hernandez the protections of California law and subject him to a noncompete.

Although some California courts recognize a trade secret exception that permits the enforcement of agreements that are “necessary to protect the employer’s trade secrets,” the Court nevertheless found that the agreement, which provided that Hernandez could not compete against Oxford using its trade secret information, was not enforceable because it defined confidential information so broadly as to include the identities of Oxford’s customers, prospective customers, and consultants. The Court stated:

The non-competition restriction that Oxford seeks to enforce therefore goes far beyond what is permitted under California law or, for that matter, under Massachusetts law.

An employee is free to carry away his own memory of customers’ names, needs, and habits and use that information, even to serve or to solicit business from those very customers. Such “remembered information” is not confidential because the information itself, as distinguished from an employer’s compilation of such information into a list or database, is known to the customers and thus not kept secret by the employer. 

The Court concluded that:

Since the mere identity of customers is not confidential, the Agreement that Oxford seeks to enforce is the kind of non-competition agreement that is void under California law. Accordingly, the Court held that the choice-of-law provision was not enforceable.

Finding that it was evident that Oxford sought to include a Massachusetts forum selection clause in order to avoid the application of California law, the Court also held that the forum selection clause was not enforceable under California law.

Ultimately, the Court dismissed the case on grounds of forum non conveniens, finding that it would be unfair to compel Hernandez to defend in Massachusetts and that California had a stronger interest in the case.

Import of the Hernandez Decision

ernandez not only underscores the difficulty of enforcing restrictive covenants against California residents, but also generally calls into question the validity of choice-of-law and forum selection clauses, especially where the employee has had no meaningful opportunity to negotiate the terms of his employment agreement.

Notably, in characterizing the employment agreement as a “contract of adhesion,” the Court in Hernandez gave no weight to the affirmative representations in the agreement (stating that the employee had read and had opportunity to have his attorney review the agreement). Historically, the Superior Court has given varying degrees of weight to these types of affirmative representations.

Moreover, Hernandez adds to the argument that (in some instances) employees are permitted to use their employer’s confidential information concerning client names, needs, and habits, as long as that information is “remembered” rather than compiled into a list or database. In this respect, Hernandez highlights the tension that exists in Massachusetts case law regarding confidential information that is stored in an employee’s memory.

Given the evolving case law on these issues, businesses seeking to protect their confidential information should consult with their attorneys before drafting or enforcing these types of agreements.

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Hannah T. Joseph, the author of this article, is a lawyer in the firm’s litigation practice, whose work in intellectual property has been recognized by, among others, the Boston Bar Association (where she serves as Co-Chair of the Boston Bar Association’s Intellectual Property Committee). Thank you to Monika Zarski for contributing to this article.

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 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.