Massachusetts: Non-Solicitation Agreement with Forfeiture Clause Not Subject to Noncompetition Law
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APPLIES TO All Employers with Employees in MA |
EFFECTIVE June 13, 2025 |
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Discussion
In Miele v. Foundation Medicine, the Massachusetts Supreme Judicial Court ruled non-solicitation agreements with forfeiture provisions are not subject to the state’s strict noncompetition law. Here, an executive for the defendant company signed a restrictive covenant agreement which included a non-solicitation clause barring recruiting of company employees for one year after separation from employment. When leaving the company, the plaintiff employee then signed a transition agreement which also added a forfeiture of $1 million in benefits for breach of the non-solicitation agreement. Within the one-year limitation period, the executive was accused of recruiting several employees from the employer who demanded repayment of the forfeiture amount and stopped transition payments. The executive sued for breach of the transition agreement.
Although a lower court ruled in the executive’s favor that the forfeiture clause was subject to the state’s noncompetition law, the Supreme Judicial Court reversed the ruling. The court also viewed the case in light of the Massachusetts Noncompetition Agreement Act (MNAA), which specifically excludes non-solicitation agreements from its definition of noncompetition agreement. The forfeiture clause was part of the non-solicitation agreement, so the MNAA did not apply.
The court’s ruling was especially significant in that it clarified that non-solicitation agreements are not subject to the MNAA even if they include a forfeiture clause. This is consistent with the MNAA’s specific exclusion of non-solicitation agreements and other restrictive covenants that are specifically not non-competition agreements. Employers should still consult with legal counsel when drafting non-solicitation agreements, since a poorly drafted non-solicitation agreement could contain provisions which run afoul of the MNAA.
Action Items
- Review non-solicitation agreements and other restrictive covenants with legal counsel.
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