The Massachusetts Superior Court recently held in Now Business Intelligence, Inc. v. Donahue that a temporary reassignment during a business slowdown, consisting of the addition of certain non-billable duties, does not constitute a material change invalidating a non-compete agreement. The dispute centered on Now Business Intelligence, Inc.'s ("NBI") ability to hold its former employee, Sean Donahue ("Donahue"), liable for breach of his covenant not to compete.
NBI had hired Donahue as a software consultant and required him to execute an employment agreement including restrictive covenants before beginning work. For eleven months, Donahue worked on-site for an NBI client on a large-scale project. When the project ended, Donahue was relocated to NBI's corporate office. While at the corporate office, he began attending client pitches to answer technical questions. After a year in the corporate office, NBI asked Donahue to execute a new employment agreement containing restrictive covenants. Rather than sign the agreement, Donahue resigned and began providing services for NBI clients through a newly formed entity.
Upon learning of Donahue's violation of his covenants not to compete, NBI filed suit. In an attempt to avoid liability at the summary judgment stage, Donahue relied upon the Massachusetts Supreme Judicial Court's ("SJC") seminal decision in F.A. Bartlett Tree Expert Co. v. Barrington, ("Bartlett Tree") for the proposition that his non-compete was unenforceable due to a material change in his job after he executed his agreement. As this blog has previously covered, Massachusetts' unique material change doctrine was first espoused by the SJC in Bartlett Tree, where the Commonwealth's highest court held that material changes to an employee's compensation and sales territory "strongly suggest that the parties had abandoned their old arrangement and entered into a new relationship," and, therefore, the employee's non-compete agreement "was inoperative when the defendant terminated his employment with the plaintiff."
Notwithstanding Bartlett Tree, the Superior Court held that the material change doctrine did not void Donahue's agreement because there was no change to his job title or rate of pay, he was neither promoted nor demoted, and his specialized consulting services remained the focus of his job. While the court acknowledged that NBI did have Donahue participate in some non-billable work, like client pitches, it was insufficient to establish a material change under Bartlett Tree. As the Superior Court noted, in order to invoke the material change doctrine, the change in job must be of such magnitude that it "'show[ed] a clear new employment contract—and that the [original employment] contract was abandoned and rescinded by mutual consent.'" The court determined that Donahue had made no such showing, and thus found in NBI's favor on its breach of contract claim against Donahue.
This decision affirms that in order to invalidate a restrictive covenant based on Massachusetts' material change doctrine, minor changes in an employee's job duties are insufficient to find that the parties abandoned their prior relationship, such that a new agreement is required. This is particularly beneficial for employers who may not wish to jump through the additional hoops required for new non-competes in the wake of Massachusetts' 2018 law. Nonetheless, employers should carefully consider whether asking an employee to execute a new agreement is prudent where his or her duties have changed substantially.
Originally published by Seyfarth Shaw, July 2020
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