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Court: Just Because Non-Compete Says It Doesn't Make it So


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5/9/2017
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Strangely, and for reasons that defy my understanding, many employers I've encountered over the last several years have had great trouble coming to grips with the following concept:

Just because you paid your lawyer good money to draft a non-compete, doesn't mean a court will find it "airtight," or that it's enforceable.

And that's precisely the lesson provided by this recent case coming from a Massachusetts trial court, ABM Industry Groups, LLC v. Palmarozzo, et al., that was handed down just over one month ago.

Why Palmarozzo Left ABM

ABM is a large public company that provides janitorial and building maintenance services at larger facilities and projects, that generates roughly $5 billion in annual revenues. Defendant Palmarozzo, who was a branch manager with ABM, left to become a general manager with Compass Facility Services, Inc., a much smaller company that generates around $ 15 million in annual revenues, which, unlike ABM, provides janitorial services at significantly smaller facilities. At Compass, Palmarozzo has no role whatsoever with regard to sales.

Why ABM Sought a TRO Against Its Former Employee

In this case, there was no real dispute (at least any that I can glean from reading the decision) that the non-compete provision of Palmarozzo's employment agreement barred him from working for a competitor.

Seems straightforward, no?

Not insofar as the Court was concerned.

Why the Court Denied ABM's Request for an Injunction - Despite the Clear Language of the Non-Compete Provision in the Employment Contract

The issue that bothered the Court was whether ABM had a legitimate business reason for making sure that its former employee couldn't go find a better-paying job in the same industry - especially considering he wasn't taking a sales position that would directly compete with ABM.

To that end, the Court's reasoning could hardly be clearer [and here I would draw your attention to the highlighted portion of the opinion]:

"An employee’s agreement not to compete with his or her employer by soliciting away customers or potential customers may be enforced under Massachusetts law only to the extent necessary to protect the employer’s legitimate business interests—which include guarding against the release or use of trade secrets or other confidential information, or other harm to the employer’s goodwill, but do not include merely avoiding lawful competition—and to the extent it is reasonable in scope in terms of the activities it restricts, the geographic limitations it imposes on those activities, and the length of time it is in effect. See New England Canteen Services, Inc. v. Ashley, 372 Mass. 671, 673-676 (1977); All Stainless, 364 Mass. at 778-780. ...

"Protection of the employer from ordinary competition … is not a legitimate business interest,” however, “and a covenant not to compete designed solely for that purpose will not be enforced.” Marine Contractors, Inc. v. Hurley, 365 Mass. 280, 287-288 (1974); accord, e.g., Boulanger v. Dunkin’ Donuts, Inc., 442 Mass. 635, 641 (2004), cert. denied, 544 U.S. 922 (2005) [Emphasis supplied].

The Takeaway

While there is certainly no guarantee that another court would take the same view as the ABM court did, employers would be well advised to consider this approach a most realistic possibility, and, therefore, plan their employee retention strategies accordingly.



Category: Non-Compete & Employment Agreements

Jonathan Cooper
Employment Litigation and School Negligence Lawyer

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