Recent First Circuit Decision By Justice Souter Provides an Important Lesson on the Drafting of Effective Non-Compete and Other Post-Employment Covenants
In a short but interesting opinion by Justice Souter, sitting by designation, the First Circuit Court of Appeals held that, under Massachusetts law, the court may not enter an injunction enforcing a non-compete or other restrictive covenant which expired during the course of litigation, at least where the contract does not expressly provide for tolling of the covenant during litigation. The case, EMC Corp. v. Arturi, arose out of EMC Corporation’s attempt to obtain a preliminary injunction against a former employee, Christopher Blotto, enforcing among other things, non-competition and non-solicitation covenants. The District Court had enjoined Blotto from using confidential information, but declined to issue an injunction enforcing one-year non-competition and non-solicitation covenants because the one-year period had passed before any injunction could be issued.
Justice Souter said the Court was bound by its earlier decision in A-Copy, Inc. v Michaelson, which, in turn, had relied on All Stainless, Inc. v. Colby and other Massachusetts cases. In A-Copy (subscription required), the First Circuit reversed the issuance of an injunction where the one year time period of the non-compete provision had run its course by the time the injunction was issued, due to the fact that the district court had taken 14-months to rule on the motion for injunction. In All Stainless, Massachusetts’ highest court ruled that the trial court had erroneously denied an injunction, but said that it was then too late for the appeals court to do so because, by then, the two year covenant had expired.
In short, as reinforced by the decision in the EMC case, under Massachusetts law post-employment covenants generally will begin to run upon termination of employment and are not “equitably tolled” during litigation. However, in dicta, Justice Souter suggests a way around this dilemma that all practitioners and employers should heed: “EMC could have contracted, as the district judge noted, for tolling the term of the restriction during litigation, or for a period of restriction to commence upon preliminary finding of breach.” While not binding, Justice Souter’s dicta underscores the potential value of including in employment agreements with non-compete and other post-employment restrictions language which tolls the running of the restriction in certain circumstances, such as while litigation is pending, or while the employee is engaged in conduct violating the covenant.
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