Massachusetts Superior Court Holds Noncompete Agreements Between Parent Companies And Their Subsidiaries' Employees Are Unenforceable

The Massachusetts Superior Court has ruled that noncompete agreements arising out of the employment relationship entered into between a parent company and a subsidiary's employee are not enforceable because the parent company does not fall within the meaning of "employer" under the Massachusetts noncompete statute.

Background

In Anaplan Parent, LP & Another v. Brennan, No. 2584CV02350, Timothy Brennan (Brennan) was employed by Anaplan, Inc. (the Subsidiary) until his resignation in July 2025. The Subsidiary's parent company is Anaplan Parent, LP (the Parent).

Brennan entered into three equity grant agreements with the Parent. Each agreement contained noncompete provisions. After Brennan left his employment with the Subsidiary, he started working for a competitor of the Subsidiary. The Parent and the Subsidiary initiated a lawsuit against Brennan, asserting violations of his noncompete obligations and requested a preliminary injunction to prevent him from working for the competitor.

The Court denied the Parent's and the Subsidiary's request for a preliminary injunction because they could not establish that the contested noncompete provisions were enforceable under the Massachusetts noncompete statute and therefore could not show a likelihood of success on the merits.

Massachusetts Noncompete Statutory Framework

Under the Massachusetts noncompete statute (the Statute), employee noncompete agreements entered into after the commencement of employment are enforceable only if they:

1. Are supported by fair and reasonable consideration independent of continued employment.
2. Provide at least 10 business days' notice.
3. Are in writing.
4. Are signed by both the employer and the employee.
5. Expressly state that the employee has the right to consult with counsel prior to signing.
6. Are no broader than necessary to protect a legitimate business interest of the employer.
7. Include a restricted period of no more than 12 months from the last date of employment (generally).
8. Are reasonable in geographic scope.
9. Are reasonable in the scope of proscribed activities in relation to the interests protected.
10. Are consistent with public policy.

Because the equity grant agreements at issue were entered into by Brennan and the Parent (and not the Subsidiary), the question was whether the Parent could be considered Brennan's "employer" under the Statute. The Court concluded that the answer was "no"—the Parent could not be considered Brennan's employer under the Statute.

Superior Court Concludes Parent Company Is Not an Employer Under the Statute

The Statute does not explicitly define "employer." Thus, to reach its conclusion, the Court relied on the term's plain meaning, definitions in other employment laws, and the common law.

The Court observed that a provision in the Workers' Compensation Act regarding employer immunity was most similar to the Statute. Massachusetts courts construing the Workers' Compensation Act have specifically declined to extend immunity to parent corporations based on the doctrine of corporate separateness. The corporate separateness doctrine requires corporations to be treated as separate entities absent a compelling reason in equity to do otherwise.

The Court further explained that the fact that the Parent had some management and control over the operations of the Subsidiary cannot change this outcome, as the case law is clear: the mere existence of common management and/or shareholders between related corporate entities does not establish a relationship that renders the separate corporations a single employer.

The Court rejected the Parent's and the Subsidiary's argument that its decision would invalidate all similar equity incentive agreements in the Commonwealth. The Statute does not render an entire agreement void simply because a noncompete provision is unenforceable. Moreover, to make a noncompete provision enforceable, the contract needs only to be amended to include the actual employer as a signatory.

The Parent and the Subsidiary have moved to appeal this decision.

Impact on Massachusetts Employers

Massachusetts employers should ensure that any noncompete agreements with employees are compliant with the Statute's requirements, including by confirming that the agreements are between the employee and the employee's actual employer (and not a parent company). If any noncompete agreements do not meet the requirements of the Statute, employers may want to consider amending those agreements to comply with Massachusetts law. However, this recommendation is subject to change based on the ultimate ruling of the appellate court(s).

Note that the Statute does not apply to: a) noncompetition agreements made in connection with the sale of a business entity or substantially all of the operating assets of a business entity or partnership, or otherwise disposing of the ownership interest of a business entity or partnership, or division or subsidiary thereof, when the party restricted by the noncompetition agreement is a significant owner of, or member or partner in, the business entity who will receive significant consideration or benefit from the sale or disposal; and b) noncompetition agreements outside of an employment relationship.

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