Despite the outcome confirming that nonsolicitation agreements and forfeiture for violation of nonsolicitation agreements are not subject to the MNAA, the Miele case remains a cautionary tale for employers when seeking to reaffirm restrictive covenants, a common practice when an employee resigns.

In a much-anticipated decision, Massachusetts’ highest court confirmed that the Massachusetts Noncompetition Agreement Act (MNAA), which restricts the use of noncompetition agreements, does not cover nonsolicitation agreements with a forfeiture provision. The Supreme Judicial Court’s (SJC) decision reversed a lower court’s ruling that had disrupted the long-held understanding that the MNAA categorically excludes nonsolicitation agreements, and it further clarified the scope of the MNAA’s reach.

MNAA Background and Case History

The MNAA imposes significant notice, consideration and other requirements on noncompetition agreements entered into on or after October 1, 2018, and also restricts enforceability of such agreements against certain types of workers and in certain circumstances (like termination without cause). See Mass. Gen. Laws ch. 24L(b)-(c). Under the MNAA, a “noncompetition agreement” is defined as an agreement between an employer and a (current or prospective) employee that prohibits the employee from engaging in “certain specified competitive activities after the employment relationship has ended.” The definition includes “forfeiture for competition agreements,” which, under the statute, are agreements that impose adverse financial consequences on the employee, such as forfeiture of a bonus or stock options, for engaging in competitive activities.

The MNAA’s definition of “noncompetition agreement” also contains exclusions about what is not covered under its purview, including “covenants not to solicit or hire employees of the employer” (sometimes known as “anti-raiding” provisions) and “covenants not to solicit or transact business with customers, clients, or vendors of the employer.” Accordingly, since its enactment, the MNAA was widely interpreted to expressly and categorically exclude nonsolicitation agreements from the statute’s requirements and restrictions on noncompetition agreements.

A trial court judge called that long-held interpretation into question in July 2024 in Miele v. Foundation Medicine, Inc. In that case, the plaintiff employee had entered into a 2017 nonsolicitation agreement with her employer, the defendant, which prevented her from soliciting defendant’s employees for one year after her departure. In 2020, in connection with her separation from employment, she entered into a “transition agreement” with defendant employer, through which she would receive payment of transition benefits for remaining in her position through a certain date. The transition agreement reaffirmed the 2017 nonsolicitation agreement and, additionally, provided that the plaintiff would forfeit the transition benefits for violating the nonsolicitation agreement.

After her employment with the defendant ended, the plaintiff took a new position and immediately began hiring the defendant’s employees. The defendant stopped paying the plaintiff’s transition benefits and demanded repayment of amounts already paid. The plaintiff former employee then sued the defendant former employer for breach of the 2020 transition agreement, arguing that the forfeiture provision could not be enforced because it was a “forfeiture for competition agreement” within the MNAA’s definition of “noncompetition agreement” and not compliant with the MNAA. The defendant former employer counterclaimed against the plaintiff former employee for breach of both the 2017 noncompetition agreement and the 2020 transition agreement for soliciting its employees. For the latter agreement, the trial court sided with the plaintiff former employee, reasoning that the transition agreement’s forfeiture clause imposed financial burdens on the plaintiff and was therefore a “forfeiture for competition” agreement under the MNAA. Notably, the trial court ruled the defendant former employer could still pursue its breach of contract claim for the plaintiff’s violation of the 2017 nonsolicitation agreement—but could not enforce the transition agreement’s forfeiture provision because it did not meet the MNAA’s strict requirements.

The SJC’s Decision

On appeal, the SJC reversed, ruling that, under the MNAA’s plain language, “forfeiture for competition” agreements were a subcategory of “noncompetition agreements” and that, “by necessary implication, forfeiture for competition agreements also exclude nonsolicitation agreements.” The court further explained that the use of a forfeiture mechanism as a remedy for violation of a nonsolicitation agreement did not alter the nature of that agreement or convert it to a noncompetition agreement.

Key Takeaways

Despite the outcome confirming that nonsolicitation agreements and forfeiture for violation of nonsolicitation agreements are not subject to the MNAA, the Miele case remains a cautionary tale for employers when seeking to reaffirm restrictive covenants, a common practice when an employee resigns.

The 2017 nonsolicitation agreement in Miele was “grandfathered in” by the MNAA’s October 1, 2018, effective date and therefore exempt from the MNAA’s burdensome requirements. The trial court, however, viewed the 2020 transition agreement not as a mere reaffirmation, but a separate agreement that fell within the MNAA’s purview. While the SJC ultimately disagreed, employers should ensure that any communication or agreement intended only to confirm an employee’s already-existing restrictive covenants does not inadvertently alter or invalidate them.

For More Information

If you have any questions about this Alert, please contact Bronwyn L. Roberts, Lauren A. Appel, any of the attorneys in our Employment, Labor, Benefits and Immigration, any of the attorneys in our Trade Secrets and Non-Compete Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.