The Supreme Judicial Court ruled today that Massachusetts companies cannot enforce Massachusetts non-compete contract clauses on employees in states that bar non-compete agreements, such as California.
The state's highest court ruled against Oxford Global Resources, a recruiting firm in Beverly that specializes in IT placements, in a lawsuit it filed against a California employee after he left the company and allegedly took with him confidential customer contact info. Oxford sued Jeremy Hernandez in Massachusetts, under a provision in his employment agreement that required any disputes over his post-Oxford career to be settled under Massachusetts law.
The SJC agreed with Hernandez that it was unfair to use Massachusetts law to govern a dispute with an employee in California, where laws protect employees who change jobs and where non-compete clauses are illegal:
We conclude that the Massachusetts choice of law provision in the agreement [which required post-employment disputes to be settled under Massachusetts law] is not enforceable, where California substantive law would apply under our choice of law principles, and where the application of Massachusetts substantive law would violate the fundamental public policy of California favoring open competition and employee mobility. ...
Here, Hernandez interviewed for the position in California, signed the agreement in California, trained in California, and performed all of his job duties in California. The subject matter of the contract -- Hernandez's employment with Oxford -- was located exclusively in California. Moreover, Hernandez allegedly committed a breach of the agreement in California by, among other things, soliciting clients located in California while employed at MindSource in California. Although Oxford is headquartered in Massachusetts and incorporated in Delaware, the only office where Hernandez worked for Oxford is located in California, and the record does not reflect any instance where Hernandez conducted Oxford-related business in Massachusetts. Accordingly, in the absence of a choice of law provision, Massachusetts choice of law principles would apply California substantive law to this dispute because California undoubtedly has the most significant relationship to the agreement and the parties.
The ruling comes three weeks before a new law - enacted earlier this year - goes into effect that will loosen some of the restrictions Massachusetts companies were allowed to place on employees who leave. Under the new law, companies will still be allowed to include them in contracts for many workers- unlike in California - but will have to pay employees 50% of their pay during the period the clauses are in effect after they leave. And the clauses cannot be enforced against employees who are fired or laid off.