Non-Compete Agreement Cannot Be Extended By Employer
Thursday, September 29, 2011 at 3:23PM
Jack DiNicola

By Damon M. Seligson, Esq.

In the case of EMC Corporation v. Arturi, et al., the United States Court of Appeals for the First Circuit ruled that an employer could not equitably extend a non-competition agreement with a former employee beyond the agreed-upon duration of the agreement, and instead is left with a damages remedy only.  

            In the underlying case filed in the United States District Court for the District of Massachusetts on the basis of diversity, the plaintiff, EMC Corp., sought, among other things, a preliminary injunction against its former employee, Christopher Blotto, forbidding violation of his employment agreement.  Specifically, EMC sought to enforce the agreement to enjoin Blotto from competing with EMC; from soliciting EMC’s customers and remaining employees; and from possessing and using confidential information gained while employed.  District Court Judge, Frank D. Saylor, IV granted a preliminary injunction as to the confidential information, but not as to competition or solicitation, declining on the ground that the contractual restrictions on these activities limited Blotto’s efforts for one year only, a period that had passed before any injunction could be issued. 

            EMC Corp. appealed to the U.S. Court of Appeals for the First Circuit.  Associate Justice David H. Souter (Ret.) of the Supreme Court of the United States, sitting by designation, wrote the decision.  

            In short, the First Circuit Court of Appeals agreed with Judge Saylor’s decision below.  Judge Souter noted that because the case was venued in federal court of the basis of diversity of jurisdiction, the law of Massachusetts governs.  In All Stainless, Inc. v. Colby, 364 Mass. 773, 308 N.E.2d 481, 485 (1974), the Supreme Judicial Court of Massachusetts stated that, after a non-compete expired, the only relief available to an employer for an employee’s contract breaches is monetary damages.  Accordingly, the First Circuit Court of Appeals denied EMC Corp.’s appeal. 

            Both Justices Saylor and Souter, however, expressly noted that an employer such as EMC Corp., which typically stands in a superior bargaining position relative to an employee, could have “contracted” around the issue.  In Arturi, however, EMC Corp. did not.  Thus, the request to extend the restriction period beyond the agreed-upon twelve months was denied.  

Going forward, the impact of Arturi will likely be that employers will contract around this issue by including a tolling of the term of restriction during litigation, or for a period of restriction to commence upon preliminary finding of breach.     

            A copy of the opinion can be accessed at: http://www.ca1.uscourts.gov/pdf.opinions/11-1001P-01A.pdf

   

Article originally appeared on DiNicola Seligson & Upton (http://dsu-law.com/).
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