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Defending A Non-Compete

On Behalf of | May 21, 2009 | Employment Law

Under New Hampshire and Massachusetts law, employment non-compete agreements are narrowly construed to protect only the legitimate business interests of the employer. If an employee who has signed a non-compete agreement leaves his job and goes to work for a competitor, the former employer may choose to sue. The employer can seek either strictly damages caused by the alleged violation of the non-compete agreement or also seek a preliminary and then final injunction ruling from a judge prohibiting the employee from competing with the former employer.

The likelihood of the employer being able to obtain such an injunction is largely based upon the employee’s conduct and the terms of the agreement. By way of example, if the employee, upon leaving to work for another employer, downloaded the customer list and contact information and the employee uses that customer list in competition with his former employer, it is likely the judge hearing the case will have little tolerance for the employee’s misconduct and grant an injunction. On the other hand, if the employee took no confidential information from the employer and the employee’s new job does not involve him doing work with his former customers, an injunction would be less likely. If the employee had, in fact, taken one or more customers, yet it can be proven to the judge that those customers would not have stayed with the former employer after the employee left irrespective of whether the former employee accepted their business, it is possible the judge may not grant an injunction. This is because an injunction would be designed to protect the employer from irreparable harm. If the loss of a customer resulted merely from the employee leaving his previous employer, the judge will generally consider that reality when deciding whether to grant an injunction.

It is also quite conceivable that a judge may narrowly construe a non-competition agreement and only enforce non-solicitation provisions, stating that the employee will not, during the post-employment restrictive period, solicit or accept business from customers with whom he did business.

As for the employer’s damage claim against the employee for the competition, the issues are often liability, causation, and damages. As to liability, as noted above, the non-competition provision when narrowly construed may not have been violated. As to causation, the employer must prove that the damage from revenue lost from a business relationship would not have occurred other than as a result of the former employee’s violation of the non-compete. If the business relationship would have ended merely because the employee had left the employ of the former employer, that is not enough. Lastly, as to damage, a financial review of the employer would generally have to occur to determine what the actual net profit would have resulted from that lost business after deduction of variable costs such as sales commissions.

In conclusion, if it appears that a former employee may be sued for violation of a non-compete agreement, the employer should contact an experienced employment counsel to protect his/her legal rights and business interests.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].