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By: Janet Barringer and Zinnia Khan
The Massachusetts Superior Court’s recent decision in Now Business Intelligence, Inc. v. Sean Donahue, et al., held minor changes in an employee’s job duties will not create a “new employment contract” so as to invalidate or obviate the employee’s existing non-compete agreement with the employer. This decision reveals the best course of action for employers is to require employees to sign new non-competes in connection with substantial job changes. If there is any doubt or ambiguity as to whether a job change is “substantial” or “material,” we recommend consulting with counsel.
The decision in Now Business Intelligence, Inc. v. Sean Donahue, et al., centered on whether the employer, Now Business Intelligence, Inc. (“NBI”), may hold its former employee, Sean Donahue (“Donahue”), liable for breaching a non-compete agreement, thereby interfering with NBI’s business relations or whether the nature of Donahue’s job had transformed since he had first been hired and entered into the non-compete agreement so as to now invalidate the agreement under the “material change” doctrine. NBI maintained its former employee breached the non-compete agreement, thereby violating the Massachusetts Consumer Protection Law (Chapter 93A).
By way of background in a case from more than fifty years ago, F.A. Bartlett Tree Expert Co. v. Barrington, 353 Mass. 585 (1968), Massachusetts law declares the “material change” doctrine may be invoked by a former employee to support that a restrictive covenant in an employment agreement, such as a non-compete clause, is no longer enforceable because substantial changes to the nature of the employee’s job have occurred since the time the employee entered into the employment agreement.
In the recent NBI case, Donahue was a former Project Manager at NBI, a technology-based consulting company placing information technology specialists inside of client companies to assist with, manage or solve their technology issues. Immediately prior to his first day on the job at NBI, Donahue executed a non-compete and confidentiality agreement. During his first year at NBI, Donahue was assigned to assist NBI client Raytheon with its implementation of SharePoint, a proprietary Microsoft technology requiring specialized knowledge to implement and operate.
In or about July 2016, approximately eleven months after he signed his non-compete agreement, Raytheon cut short Donahue’s assignment due to its decision to pause SharePoint implementation. At this stage of Donahue’s employment, Donahue and NBI’s respective accounts of his ensuing job duties began to differ. NBI maintained Donahue was experiencing a slow work period while his job title, key job duties and rate of pay did not change. In contrast, Donahue claimed his position with NBI changed entirely from a Project Manager to a Sales Representative and included new duties such as recruiting customers for NBI and attending sales meetings. In or about August 2017, Donahue voluntarily left NBI to start his own consulting business. When NBI discovered Donahue, after his departure from NBI, provided SharePoint services to NBI’s former clients, including Raytheon, NBI sued Donahue to enforce the non-compete agreement. As a defense to NBI’s claims, Donahue invoked the “material change” doctrine and claimed the changes to his job beginning in July 2016 were material thereby invalidating his non-compete agreement with NBI.
The Superior Court agreed with NBI there were no material changes to Donahue’s job while at NBI which would invalidate his non-compete agreement. The Court noted after his Raytheon assignment concluded, Donahue’s job title at NBI did not change, he was not asked to sign a new non-compete agreement, he was nether promoted nor demoted, his rate of pay remained the same and SharePoint-related tasks remained a significant portion of his billable work. Additionally, the NBI court determined certain changes to Donahue’s regular job duties, such as the need for occasional client pitches, were not a basis for finding the non-compete enforceable under Bartlett Tree. Further, NBI emphasized changes to an employee’s job must be material for the “material change” doctrine to apply, and cited Bartlett Tree as an example. In Bartlett Tree, the employee’s job changed significantly over an eighteen year period, including a promotion, different employment titles, different job duties, changes in remuneration and changes in sales area. These changes, taken together, showed a clear new employment contract and that the original employment contract was “abandoned and rescinded by mutual consent.”
The NBI v. Donahue decision is helpful for employers because it reaffirms only “material” job changes invalidate an existing employment agreement. Even so, employers must remain aware of the “material change” doctrine and the potential it holds for invalidating employment agreements. As a practical matter, it can be burdensome to require employees to enter into a new non-compete each time his or her position changes. Yet, if employees do not sign new agreements following a change in job duties or circumstances that is later deemed to be “material,” then a pre-existing non-compete may be deemed unenforceable.
The best course of action for employers is to require key employees to sign new non-competes in connection with substantial job changes. If there is any doubt or ambiguity as to whether a job change is “substantial” or “material,” we recommend consulting with counsel.
If you have questions or would like more information, please contact Janet Barringer at firstname.lastname@example.org or Zinnia Khan email@example.com.