Late last year, Gov. Deval Patrick announced that he would back efforts to make Massachusetts non-compete agreements unenforceable in employment law.
This could be a major blow to businesses if such a measure is ultimately passed by the state legislature because non-compete agreements protect the enormous investments that companies make in personnel.Other states, like California, have already severely limited the enforceability of non-compete agreements.
Advocates for reform say that the agreements serve only to inhibit competition and stifle individual career growth.
There are many employers who require that all employees or at least those holding certain key positions sign agreements that bar them from working for a competitor for a period of time after the worker leaves their post. Not only do these agreements help firms to retain valuable employees, it also helps to protect confidential and proprietary information belonging to the firm. Workers that are allowed to quickly and fluidly move from one company to the next in the same industry risk disclosure of this sensitive information to competitors.
A good example of what can go wrong in these scenarios was illustrated in the recent case of Baptist Physicians Lexington, Inc. v. The New Lexington Clinic, decided Dec. 19, 2013 by the Supreme Court of Kentucky.
Here, three doctors had once worked for a clinic in Lexington, but left in 2008 to work for a newly-opened facility that been established nearby.The employment agreements held by the doctors allowed that they could leave the clinic with 60 days notice and, subject to certain conditions, they could work for competitors after their departure.
However, the clinic later filed suit against the three doctors, alleging breach of fiduciary duties owed in their capacity as members of the clinic’s board of directors. The allegation was that the doctors, while still serving as the clinic’s directors, used confidential information and recruited personnel at the clinic, for the new practice. The new practice was also named as a defendant, on the grounds that it had allegedly aided and abetted the physicians’ breaches (a form of tortious interference).
The clinic alleged that the doctors remained on the board of directors long enough to glean certain confidential information in order to use that information to further the efforts of the new practice – thereby breaching the fiduciary duty owed to the clinic. This fiduciary duty holds that a director must act in the utmost good faith and further the corporation’s interest or business, and can’t acquire interests that conflict or compete with the corporation he or she serves.
Liability can be claimed if the director’s duties of care and loyalty are breached.
The trial court granted a summary judgment to the doctors and new practice on the grounds that the clinic had failed to cite the applicable state statute and then later argued against that statute’s applicability.
However, the appellate court reversed, saying that these were not grounds enough to nullify the clinic’s argument. The state supreme court later agreed with the appellate court that the trial court had erred in granting a summary judgment, but its reasons for reaching this conclusion were different.
The high court indicated that a summary judgment should be denied unless it appears that one party has no realistic chance of ultimately winning the case. What the high court found was that directors who prepare to compete and subsequently compete with the firm for which they work may well give rise to the common law breach of fiduciary duties. As such, the case was remanded back to the lower court for further proceedings.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Baptist Physicians Lexington, Inc. v. The New Lexington Clinic, PSC, Dec. 19, 2013, Supreme Court of Kentucky
More Blog Entries:
Massachusetts Breach of Contract Claim Filed Against Lab, Worker, July 14, 2013, Boston Employment Contract Lawyer Blog