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Massachusetts Court Enforces Non-Competition Agreement In California

A Massachusetts Superior Court judge recently ruled that a company could enforce a non-competition agreement with a former employee even though the employee was seeking to take a new job in California, which generally prohibits employee non-competition covenants.

Factual Background

The defendant in the case, David Donatelli, was employed by EMC Corporation (“EMC”) as an Executive Vice President and as President of its data-storage division, the company’s core business.  Donatelli worked out of EMC’s Massachusetts headquarters.

In May 2002 (approximately 15 years after joining EMC), Donatelli entered into a written “Key Employee Agreement” with EMC.  As part of this agreement, Donatelli agreed that for a period of 12 months following the termination of his employment with EMC, he would not work in a similar capacity for a competitor of the company.  The agreement provided that it was to be governed by Massachusetts law.

In April 2009, Donatelli notified EMC that he was resigning from the company in order to accept a position in California with Hewlett-Packard Company (“HP”).  His new job would involve responsibility for HP’s data-storage business.  At the same time, Donatelli filed a lawsuit against EMC in a California court, asking that his non-competition agreement be declared unenforceable due to California’s statute barring such covenants and its corresponding policy against them.

The following day, EMC filed its own lawsuit against Donatelli in Massachusetts Superior Court.  EMC asked the court to issue a preliminary injunction upholding Donatelli’s non-competition agreement and precluding him from accepting employment with HP.

The California court denied the initial relief sought by Donatelli (a temporary restraining order prohibiting EMC from enforcing the non-competition covenant), and while further California proceedings were pending, the Massachusetts court issued its ruling against Donatelli.  A dismissal was filed in the California action on August 5, 2009.

Massachusetts Superior Court’s Decision

As noted, the Massachusetts Superior Court ruled that the non-competition covenant was, in fact, enforceable against Donatelli to prevent him from competing against EMC as an officer of HP in California.  In reaching this conclusion, the court rejected Donatelli’s arguments that California law and policy precluded enforcement of his agreement with EMC.

In opposing EMC’s request for an injunction, Donatelli emphasized that he intended to work for HP in California, which prohibits employee non-competition agreements.  Accordingly, Donatelli argued, the Massachusetts Superior Court should refuse to enforce his non-competition covenant, even though the Key Employee Agreement provided that it was to be governed by Massachusetts law, which permits employee non-competition covenants in appropriate circumstances.

In a ruling by Judge Stephen E. Neel, the Massachusetts Superior Court concluded that California’s policy against enforcement of non-competition covenants should not take precedence over Massachusetts law.  In this regard, Judge Neel noted that Donatelli had lived in Massachusetts, that he worked for EMC in Massachusetts, and that he had not yet relocated to California in connection with his planned employment with HP.

In addition, Judge Neel rejected Donatelli’s argument that an injunction should not be issued against him because a California court would not enforce it.  Noting that at the time the Key Employee Agreement was signed, EMC had no reason to expect that Donatelli might later move to California, Judge Neel concluded that an injunction enforcing the non-competition covenant should not be refused “simply because another state may not enforce the injunction should the Massachusetts employee move to that state.”  This, the judge noted, would be unfair to EMC because EMC reasonably expected the covenant to remain enforceable.

Finally, Judge Neel denied Donatelli’s request that all proceedings in the case be placed on hold pending resolution of Donatelli’s own lawsuit against EMC in California.  Judge Neel stated that the so-called “first filed” rule (under which courts may defer to previously filed lawsuits involving the same parties and issues) does not apply to lawsuits filed in two different states’ courts.

A few weeks after releasing this decision, Judge Neel issued a supplemental ruling that Donatelli could go to work for HP so long as he had no involvement in HP’s data-storage business for the one-year duration of the injunction.  While this supplemental decision allowed Donatelli to begin working for HP in a different capacity than he had intended, it did not alter Judge Neel’s earlier ruling that the non-competition covenant was enforceable.

Because the Donatelli decision is a trial-court holding, it will not be binding on other courts in other cases.  Thus, it remains to be seen whether other Massachusetts judges and courts will formally adopt Judge Neel’s conclusions.  The decision, however, is the first clear Massachusetts judicial decision on this issue and thus may prove persuasive in future cases, particularly as Judge Neel sits in the court’s Business Litigation Session, where cases involving non-competition agreements are frequently heard.

For the time being, the decision may dampen the efforts of companies located in California (and other states that are relatively hostile to non-competition agreements) to recruit executives from Massachusetts.  Correspondingly, Massachusetts employers now have a measure of comfort that key employees cannot freely break their non-competition agreements simply by relocating to another state in order to work for a competitor.

Should you have any questions about the implications of the Donatelli decision or non-competition agreements generally, please do not hesitate to contact us.  We regularly assist employers in drafting non-competition agreements and in litigation regarding such agreements.