A recent Massachusetts Superior Court case reinforced the importance of an employer honoring its contractual obligations with employees if it hopes to enforce a noncompete agreement. The facts involved a company that sold its assets to a new owner. The new owner changed the employee’s compensation structure by reducing the employee’s salary and instituting a new compensation structure by which the employee could possibly earn as much or more money under a bonus structure. The Court agreed with former employee that the new employer could not enforce the noncompete agreement, which the employee had signed before the company was sold, finding that the new owner’s change to the employee’s salary was “a material change” in the employment relationship which voided the preexisting noncompete agreement.
This case underscores the importance of a purchaser of a business understanding that if it wishes to maintain noncompete agreements with the employees of the company it purchased, it cannot make a material change to the employment relationship or should negotiate new noncompete agreements with the employees. All employers should understand that if they make other changes in the employment relationship, a review of existing noncompete agreements should be conducted and new noncompete agreements should be considered. For example, when an employee receives a promotion, a new noncompete agreement should be considered. If you have questions regarding noncompetition agreements or any other matter, please do not hesitate to contact one of our employment or business lawyers.