Judge nixes extension of ‘anti-raiding’ provision

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A software company could not enforce language in a former executive’s employment agreement that purported to extend the duration of an anti-raiding provision based on his alleged violation of a non-disparagement clause, a Superior Court judge has decided.

Defendant Scott Wilson left his employer, plaintiff LogicManager, in August 2021 to go work for a non-competitor. His employment agreement had a provision stating that should he breach any of its restrictive covenants, all such covenants would be extended by a year.

When Wilson allegedly sought to recruit two LogicManager employees to join his new company after the one-year anti-raiding provision expired, LogicManager sued him for breach of contract and Chapter 93A violations.

In doing so, it sought to invoke the extension, claiming it was triggered by negative comments it claimed he posted or caused to be posted about the company on the Glassdoor website in violation of his non-disparagement agreement while the restrictions were still in force.

But Judge Michael D. Ricciuti disagreed, applying reasoning from a 2020 Supreme Judicial Court decision, Automile Holdings, LLC v. McGovern.

“[Automile] suggests that in the employment context, an extension of an otherwise agreed-to time frame for a restrictive covenant must be narrow in scope and carefully tailored to address the harm engendered by a violation,” Ricciuti wrote, dismissing LogicManager’s claims. “[The extension provision], however, is exceedingly broad. It contains no limit on the number of extensions that can be imposed. Further, it permits extension of a restrictive covenant even if it has not been violated for the entirety of the agreed-to one year term [in that it] states that any violation of any of the restrictions … justifies an extension of all of the provisions.”

The 12-page decision is LogicManager, Inc. v. Wilson, et al., Lawyers Weekly No. 09-114-23.

Mandate for narrowness

Boston attorneys Donald W. Schroeder, Katherine O. Beattie, Miranda D. Curtis and Sara Higgins represented LogicManager. Joseph M. Downes III and William S. McMahon, also of Boston, were defense counsel for Wilson. None of the lawyers responded to requests for comments.

But Michael J. Lambert of Boston, who litigates restrictive covenant disputes. said the ruling is consistent with controlling case law requiring that restrictive covenants be interpreted narrowly.

“In this case, simple clarifying language in the agreement, such as tying the breach of a particular restriction to the extension of that specific restriction, may have led to an entirely different result,” he said.

Chuck Rodman, an employment lawyer in Newton, said the decision serves as a reminder that employers cannot expect broad, sweeping restrictive covenants and remedial extensions of such covenants to be enforced at the expense of a person’s ability to make a living.

“A court will side with an individual’s right to make a living even at the expense of purportedly reasonable restrictive covenants [that are] arguably necessary for the business’s protection,” Rodman said.

“In this case, simple clarifying language in the agreement, such as tying the breach of a particular restriction to the extension of that specific restriction, may have led to an entirely different result.”

Boston attorney Liam T. O’Connell, who represented the employer in Automile, said he was not surprised the judge declined to enforce the anti-raiding provision in LogicManager.

The SJC made clear in Automile that while anti-raid provisions are enforceable, there is also a distinction between those executed as part of the sale of a business and those executed in the context of an employment relationship, O’Connell said.

“The court will look more critically at the enforceability [of an anti-raiding provision] in the context of an employment relationship,” he said. “There’s a difference in the power dynamic and the rationale behind it.”

With regard to the extension, O’Connell said LogicManager was materially different than Automile.

In Automile, the trial court enforced the extension on his client’s behalf because its former employee violated his anti-raid provision while it was still in force, denying his client the benefit of the bargain.

“In this case, the party that bargained for the anti-raid actually got its full benefit,” he said. “There was no allegation that it was breached during its term, and the only allegation of breach related to non-disparagement.”

Boston attorney John R. Bauer questioned why non-solicitation agreements like the anti-raiding provision in LogicManager should be enforceable at all in the employment context since they are not necessary to protect trade secrets, confidential information or customer goodwill.

“Clearly, appellate guidance on employee non-solicitation provisions in routine employment agreements would be helpful, as would legislative attention,” Bauer said. “I say that fully aware that the state’s noncompete statute is so vague that I suspect employers are afraid to sue to enforce agreements subject to the act, and employees are afraid to take new jobs that might trigger application of the act, and thus it likely has been a failure.”

Russell Beck of Boston said the ruling is significant in that it rejects federal court decisions that allow the employer to appropriate the goodwill of the employee.

Still, he said, determining whether goodwill belongs to an employer or employee can be a complex analysis that appears not to have been warranted by the facts of this case.

“Accordingly, I would caution against reading the court’s narrow, fact-depending holding too broadly,” he said.

Attempted extension

When Wilson joined LogicManager as vice president of finance, he signed a non-competition and non-solicitation agreement that imposed a number of restrictions that would be in force for one year after the termination or cessation of his employment.

Section 1(a) of the agreement, the non-competition provision, prohibited him from engaging in any business or enterprise that competed with LogicManager.

The anti-raiding provision, Section 1(b), prohibited him from soliciting or permitting any organization directly or indirectly under his control to solicit LogicManager employees to leave the company.

Section 1(c), the non-disparagement provision, barred him from disclosing any information that reflected negatively on the company.

Meanwhile Section 2(a) of the agreement stated that if Wilson violated any of the Section 1 provisions, all the provisions would remain in force until a year had passed with no further violations.

Wilson resigned on Aug. 20, 2021, and joined Lux Research, AVC, which LogicManager does not claim to be a competitor.

According to LogicManager, Wilson posted or caused false or disparaging comments to be posted on Glassdoor about the company and its CEO, Steve Minsky, in violation of his non-disparagement agreement. Wilson allegedly did that in January, June and November 2022.

Additionally, LogicManager claimed Wilson solicited two LogicManager employees to leave the company in October 2022 in violation of the anti-raiding provision.

The company filed suit in Superior Court alleging contract and 93A claims.

Wilson brought counterclaims alleging abuse of process and violation of the anti-SLAPP law and Chapter 93A by bringing the suit. He also sought a declaratory judgment that Section 1(b) was no longer enforceable.

Unenforceable provision

Addressing the allegations, Ricciuti noted that because Wilson did not solicit any LogicManager employees within a year after his departure, the plaintiff’s anti-raiding claim could only survive if the terms of Section 2(a), the provision extending the one-year period, were enforceable.

“They are not,” he said.

Pointing to Automile, the judge noted that in the employment context, legitimate business interests that an employer may protect through restrictive covenants include trade secrets, confidential information and goodwill.

Additionally, he said, a restrictive covenant is only enforceable if it is necessary to protect one of those interests, it is reasonably limited in time and space, and it is in the public interest.

“Section 2, which potentially extends the initial one-year restriction in Section 1 in virtual perpetuity, is not reasonably limited in time,” Ricciuti said, emphasizing that it not only contained no limit on how many extensions could be imposed, but the breach of any of them allowed for all to be extended — even those that were not violated during their one-year term.

In fact, the judge continued, Wilson fully complied with the one-year anti-raiding provision.

Meanwhile, Ricciuti found that LogicManager could not show that enforcement of the anti-raiding provision in connection with the departures of the two employees at issue served any legitimate business purpose.

“LogicManager argues that [prior federal case law] plausibly suggests enforceability because the loss of talent and goodwill of employees is a legitimate business interest,” he said, quoting Robert Half Int’l, Inc. v. Simon, a 2020 Superior Court decision. “But, with respect to the federal bench, these cases misapprehend Massachusetts law. … LogicManager cannot seek to enforce an anti-raiding provision solely to prevent employees from seeking employment with another employer, like Lux Research, that does not compete with it, and bring with them whatever goodwill rightfully belongs to them.”