Employment Law Bulletin
Tables Turned on Aggressive Employer in Non-Compete Litigation
By Daniel J. Blake, Esq.
In litigation, fortune does not always favor the bold.
Many employers seek to protect their business interests by entering into non-compete agreements with key employees such as executives, scientists and salespeople. Non-compete agreements impose post-employment restrictions on such employees, typically prohibiting them from competing with the employer or soliciting the employer’s customers or employees. Non-compete agreements also usually prohibit employees from using or disclosing the employer’s trade secrets or confidential business information, although employers sometimes place such confidentiality restrictions in a separate agreement. Massachusetts courts will generally enforce a non-compete agreement if the employer can satisfy the court that it was properly entered into, that it is necessary to protect the employer’s legitimate business interests, and that the restrictions on the former employee are reasonable in scope and duration.
In many instances, an employer who suspects that a former employee is violating a non-compete agreement will write, or ask counsel to write, a “cease and desist” letter to the former employee and, occasionally, to the former employee’s new employer as well. These letters usually provide notice that the former employer may choose to take legal action if the perceived transgressions are not satisfactorily explained or remedied. Less frequently, the employer will go straight to court and seek an injunction that prohibits the former employee from engaging in conduct that allegedly violates the parties’ agreement.
Non-compete litigation is not for the faint of heart. It is intense and fast-paced. The parties usually find themselves before a judge quickly, armed with the best evidence that they can develop in a short amount of time. As with any other type of litigation, the outcome is never certain. Consider the case of Brooks Automation, Inc. v. Blue Shift Technologies, Inc., and Peter van der Meulen, recently decided in the Business Litigation Section of the Suffolk County Superior Court.
As part of a separation agreement, Peter van der Meulen agreed not to compete for a period of one year with his former employer, Brooks Automation. He had also signed an agreement not to disclose Brooks Automation’s confidential business information. Subsequent to van der Meulen’s departure, Brooks Automation became concerned because it could not close a deal to sell its semiconductor wafer manufacturing technology to a prospective customer, a large manufacturer of computer chip manufacturing equipment. Brooks Automation then learned that the potential customer was negotiating with Blue Shift Technologies, an entity recently formed by van der Meulen.
Despite a provision in the separation agreement requiring it to make “good-faith attempts” to resolve any dispute, Brooks Automation struck quickly, filing a lawsuit alleging that van der Meulen had violated the terms of his confidentiality and non-compete agreements. Brooks Automation also alleged that van der Meulen and his new company had wrongfully interfered with Brooks Automation’s prospective contract with the equipment manufacturer. Blue Shift and van der Meulen denied these allegations and asked the court to hold an expedited trial. Blue Shift argued successfully to the court that time was of the essence because, as a start-up company, its ability to close any deals with prospective customers and attract investors would be dramatically affected by the claims pending against it. In other words, Blue Shift argued, if the case were litigated on the usual timetable, Brooks Automation could effectively accomplish its purpose of neutralizing Blue Shift as a competitor, whether or not it ultimately succeeded in its lawsuit.
Blue Shift quickly went on the offensive by filing a counterclaim against Brooks Automation. In its counterclaim, Blue Shift alleged that Brooks Automation had wrongfully interfered with Blue Shift’s contractual relationship with the same equipment manufacturer by filing the lawsuit and then informing the equipment manufacturer about it before Blue Shift itself had even received notice.
The jury found that van der Meulen had not violated the terms of his non-compete restrictions and that he and his new company had not wrongfully interfered with Brooks Automation’s relationship with the equipment manufacturer. The case did not, however, end there. The jury went on to find on the counterclaim that Brooks Automation was liable to the start-up Blue Shift for interfering with its developing contractual relationship with the equipment manufacturer. The jury awarded Blue Shift, the original defendant in the case, over $200,000.
Following the jury verdict, the court found that Brooks Automation had acted with reckless disregard as to whether there was any reasonable factual support for its lawsuit and further found that its actions were motivated by the desire to interfere with Blue Shift’s developing contractual relationship with the equipment manufacturer. Applying the Commonwealth’s Consumer Protection Law, Chapter 93A, the court tripled the damages against Brooks Automation and found it responsible for Blue Shift’s attorneys’ fees. In doing so, the court recognized that Brooks Automation had harmed Blue Shift by causing it to expend time, effort and financial resources in defense of a frivolous lawsuit at the critical start-up phase of Blue Shift’s existence. The court also made clear that the judgment amount, totaling over $600,000 was intended to send a message to any corporation that contemplated using a frivolous lawsuit to injure a vulnerable competitor that “it will pay dearly for its misuse of the judicial process.”
All companies want to protect their business interests and, in particular, relationships with “their” customers. Non-compete agreements are a useful tool by which to do so, but, as the Brooks Automation case demonstrates, a company should only resort to litigation to enforce those agreements where reasonable factual and legal support for a case exists. Otherwise, use of the legal system may result in a loss greater than the company would face competing in the marketplace.
Dan Blake is Counsel to the firm, and a member of the Employment Law Practice Group. He works primarily in the firm’s Boston office. You can contact Dan at (617) 368-2504 or [email protected]. The coordinator of the Employment Law Practice Group is Mary Jo Kennedy. You may contact Mary Jo at (413) 272-6242 or [email protected].