Massachusetts Employer Not Allowed To Enforce Non-Compete Against Its California Employee
Michelle M. De Oliveira
On September 7, 2018, the Supreme Judicial Court of Massachusetts (“SJC”) issued a decision in Oxford Global Resources, LLC v. Hernandez, holding that a Massachusetts employer could not enforce a confidentiality, non-competition, and non-solicitation agreement against a former California employee. Despite the explicit language in the agreement that it was governed by Massachusetts law and that disputes were to be brought in a Massachusetts court—the SJC declined to enforce it against a California employee.
This case highlights the challenges employers face when hiring employees to work in states other than the state in which the employer is located.
Oxford Global Resources, LLC, the plaintiff company headquartered in Massachusetts, is a recruiting and staffing company that places consultants who have specialized technical experience with corporate and individual clients. Its account managers, among other things, supervise relationships with Oxford’s clients and client managers. Oxford has 24 offices world-wide.
In May 2013, Oxford hired Hernandez into an entry-level account manager position in its California office. At the time of hire, Hernandez signed a confidentiality, non-solicitation, and non-competition agreement. The agreement contained a choice of law provision providing that it was to be “governed by the laws of Massachusetts” and contained a forum selection clause providing that disputes arising under the agreement were to be addressed in a Massachusetts court.
Three years into his employment with Oxford, Hernandez resigned and began working for an Oxford competitor in California. Hernandez allegedly breached the agreement by, among other things, soliciting Oxford’s clients.
Litigation ensued. Oxford filed suit in Massachusetts Superior Court, and Hernandez moved to dismiss the complaint, arguing that the agreement’s forum non conveniens clause was “inoperative” and that the case should be tried in California. In response, Oxford argued that the agreement was enforceable; it was governed by Massachusetts law; and that the claims were to be litigated in a Massachusetts court.
Oxford lost that battle before the trial judge, who dismissed its complaint under the doctrine of forum non conveniens. Under this doctrine, a court can refuse to hear a case if it determines that there is a more appropriate forum in which the dispute should be heard.
On appeal, the SJC upheld the trial judge’s dismissal of the complaint. In considering whether the agreement’s choice of law provision was enforceable, the SJC declined to enforce it, finding that a choice of law provision will only be enforced in Massachusetts if it does not violate public policy. Here, enforcing the agreement would violate California’s public policy favoring competition and employee mobility. California, unlike Massachusetts, disfavors—and prohibits—noncompetes.
As to Hernandez’s forum non conveniens argument—despite the explicit forum selection clause in the agreement—the SJC held that the trial judge did not abuse his discretion in deciding that the case should be dismissed so that it could be heard in a California court. The SJC agreed with the trial judge that “everything relevant to this case happened in California.” Specifically, the witnesses were in California; Hernandez’s employment was in California; the evidence was in California or stored electronically; and Hernandez’s breach was in California. Moreover, California has a greater interest, as compared to Massachusetts, in deciding whether Hernandez was in breach of the agreement. Indeed, Hernandez was a California resident and the alleged harm to Oxford’s business operations was also in California.
This decision will present significant challenges to employers who want to enforce noncompetition agreements against a California employee specifically, and out-of-state employees generally. Although this case does not impact or consider the newly enacted Massachusetts non-complete legislation, it appears to mirror the purpose of the newly enacted legislation by regulating the use and enforcement of noncompetes in the private sector.
The timing of this decision is also ripe for a reminder that the newly enacted Massachusetts noncompete legislation will take effect on October 1, 2018. Massachusetts employers are encouraged to revisit their existing noncompetes; and seek advice of counsel when drafting noncompetes as of October 1, 2018.