You’re Damned if You Don’t … Think Carefully Before Trying to Enforce a Noncompete in Court

Posted: March 15, 2011 in Lawsuits, Noncompetes, Trade Secrets and Proprietary Business Info.

The decision to sue a former salesperson or other employee should not be taken lightly. Otherwise, you can spend tens of thousands of legal fee dollars and get nothing to show for it. A recent case decided by a Massachusetts Superior Court Judge, Scully Signal Co. v. Guay is a case in point.

Guay worked for Scully as a salesman and also signed a noncompete agreement with the company. The noncompete was very specific in that it precluded Guay, when he left Scully, from working for specifically named competing companies for 9 months after he left Scully. A specific noncompete agreement is much more likely to be enforced. (You’re damned if you don’t draft a good one, a topic for another day).

Guay left Scully and he went to work for one of the “competitors” on the list of employers for whom he agreed not to work. Scully sued for a preliminary injunction to bar Guay from the new position. However, in spite of its attorney’s foresight, the Court denied the request for a preliminary injunction.

Why? The Court concluded as a factual matter that the new employer was not an actual competitor of Scully – the two companies had only a very small amount of overlap in the products that they sold. The fact that the noncompete agreement said otherwise was not enough for the Court. Thus, the Court reasoned that Scully would not suffer any “irreparable harm” as a result of Guay’s new job. Without proof of irreparable harm, an employer cannot obtain a preliminary injunction.

This ruling surely came as a shock to Scully, but it reaffirms something fundamental about enforcing noncompete agreements. Such agreements are only enforceable if they protect a legitimate interest of the employer – either customer goodwill or confidential business information. They are not enforceable to restrict ordinary competition or to simply prevent an employee from leaving for other employment. The lesson for employers is to understand that noncompetes are only enforceable in certain circumstances and even the best noncompete will not be enforceable if those circumstances are not met. The other lesson is that the employer’s lawyer should not rely on the noncompete agreement itself as a substitute for actual proof that the new employer is actually a competitor.

The employee’s lawyers did a nice job. They did not simply accept the language of the noncompete agreement, but attacked it directly to show that it was not enforceable. Frankly, many attorneys would not have thought of this. Many attorneys would have simply accepted it as a given that the new employer was a competitor because the agreement said so and would have tried a different route to invalidate the agreement. But you should expect that your opponent will have a crackerjack lawyer on their side. You should not take anything for granted, and you should carefully explain to the Court why your opponent’s new employer is a competitor and, more importantly, explain why you will be harmed by loss of goodwill or disclosure of trade secrets. If you cannot, you probably should not waste your time and money to sue.

Losing the injunction does not mean the employer loses the case, but 90% of the time employer’s end up dropping the case if the injunction is not successful (with good reason, which is beyond the scope of this blog). That appears to be what happened in the Guay case.

By Adam P. Whitney, 617.338.7000.

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Comments
  1. Jay Shepherd says:

    Hey, Adam,

    I just happened upon this. Nice write-up and analysis of the case. Of course, I may be a bit biased; I defended the case. Thanks for the kind words. Good work on the blog.

    Best regards,

    Jay Shepherd

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