Miele v. Foundation Medicine, Inc.
(Massachusetts Supreme Judicial Court)
NELF filed an amicus brief in this case, in response to the Court’s amicus announcement:
Whether the Massachusetts Noncompetition Agreement Act, G. L. c. 149, § 24L, applies to a non-solicitation agreement incorporated into a termination agreement, where the termination agreement includes a forfeiture provision in the event that the employee breaches the non-solicitation agreement.
The Massachusetts Noncompetition Agreement Act, G. L. c. 149, § 24L, largely codifies the Massachusetts Supreme Judicial Court’s multi-part reasonableness test for enforcing a post-employment noncompetition agreement, while adding some statutory requirements of its own. Notably, the Act excludes nonsolicitation agreements from its scope (with respect to either employees or customers). The issue is whether the Act applies to a “forfeiture for solicitation” agreement, in which the employee agrees to forfeit post-termination compensation if she solicits other employees to leave. The Superior Court concluded that the Act applies to the disputed forfeiture for solicitation agreement, and that the agreement was unenforceable because it did not comply with all of the Act’s requirements. Therefore, the court required the employer to pay the former employee $1.5 million in severance pay that was conditioned on the employee’s agreement not to solicit employees, even though the employee had encouraged other employees to leave the employer and join her at her new job.
In its amicus brief, NELF argues that the Act does not apply to a forfeiture for solicitation agreement. Primarily, the Act excludes nonsolicitation agreements from the definition of a noncompetition agreement. “Noncompetition agreements . . . do not include: (i) covenants not to solicit or hire employees of the employer[.]” G. L. c. 149, § 24L(a)(6th ¶). Moreover, a forfeiture for solicitation agreement is the functional equivalent of a nonsolicitation agreement. Both agreements impose an “inhibitory effect” on the employee for engaging in the same underlying activity, due to the risk of either losing substantial compensation or facing a lawsuit for breach of contract. “We . . . see no reason to treat differently a forfeiture for competition clause [from a noncompetition agreement]. Each can have an inhibitory effect on present and former employees, in much the same way[.]” Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 147 n.7 (1979) (subjecting forfeiture for competition agreement to same reasonableness test applicable to noncompetition agreements) (emphasis added).
The Cheney Court’s equation of noncompetition agreements with forfeiture for competition agreements should do the same for nonsolicitation agreements and forfeiture for solicitation agreements. “[The] same principles apply to both noncompetition and nonsolicitation provisions.” Automile Holdings, LLC v. McGovern, 483 Mass. 797, 808 (2020) (cleaned up). No doubt the Legislature drafted the Act with an awareness of this well-established precedent. “The Legislature is presumed to be aware of the prior state of the law as explicated by the decisions of this court[.]” Matter of Impounded Case, 493 Mass. 470, 473 (2024) (cleaned up). Therefore, the Act’s exclusion of nonsolicitation agreements should apply to forfeiture for solicitation agreements.
NELF also argues that the Superior Court erred when it interpreted the statutory phrase, “competitive activities,” which appears in the Act’s definition of a forfeiture for competition agreement, G. L. c. 149, § 24L(a)(4th ¶), to include the soliciting or hiring of employees. Based on its erroneous interpretation of that key phrase, the court concluded that a forfeiture for competition agreement includes a forfeiture for solicitation agreement, and that both types of agreement are included in the Act’s definition of a noncompetition agreement.
The lower court erred from the outset when it interpreted “competitive activities” in isolation from its companion phrase, “activities competitive with his or her employer,” which appears in the Act’s definition of a noncompetition agreement that follows. “We do not interpret words in a statute in isolation; rather, we must look to the statutory scheme as a whole so as to produce an internal consistency within the statute.” Vita v. New England Baptist Hosp., 494 Mass. 824, 834 (2024) (emphasis added). To achieve internal consistency within the Act, the lower court should have tied its interpretation of “competitive activities,” in the Act’s definition of a forfeiture for competition agreement, to the Act’s exclusion of the “solicit[ing] or hir[ing] [of] the employees of the employer” from those “activities competitive with his or her employer,” in the definition of a noncompetition agreement. “Where the same statutory term is used more than once, the term should be given a consistent meaning throughout.” Williams v. Bd. of Appeals of Norwell, 490 Mass. 684, 694 (2022) (emphasis added).
In particular, the Act defines a noncompetition agreement as an agreement “under which the employee . . . agrees that he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended.” G. L. c. 149, § 24L(a)(6th ¶) (emphasis added). Since that definition excludes “covenants not to solicit or hire employees of the employer,” id., the only reasonable inference to draw is that an employee’s soliciting or hiring of other employees is not an “activit[y] competitive with his or her employer.”
Accordingly, the soliciting or hiring of other employees should also fall outside the virtually identical statutory phrase, “competitive activities,” which defines a forfeiture for competition agreement. This means that the definition of a forfeiture for competition agreement should be interpreted to exclude forfeiture for solicitation agreements, just as the definition of a noncompetition agreement expressly excludes nonsolicitation agreements.
However, the Superior Court failed to engage with Act’s relevant text in this way. As a result, the court failed to harmonize the twin phrases, “competitive activities” and “activities competitive with [one’s] employer.” In so doing, the court failed to see that the Act should be interpreted to exclude forfeiture for solicitation agreements.
In its misinterpretation of “competitive activities,” the Superior Court also failed to recognize that the Act codifies the Cheney Court’s long-established principle that a forfeiture for competition agreement is equivalent to a noncompetition agreement, and that both agreements focus on an employee’s efforts to work for a competitor. In particular, Cheney instructs that a noncompetition agreement’s purpose is to “restrain[] employees from seeking employment with competitors.” Cheney, 377 Mass. at 147 n.7 (emphasis added). Indeed, the Court’s close scrutiny of noncompetition agreements arises “[o]ut of [a] concern for an individual’s ability to earn a living[.]” Automile Holdings, LLC v. McGovern, 483 Mass. 797, 808 (2020). See also Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 636 (2004) (noncompetition agreement barred franchisee “from owning or working for a competing business”).
Under this clear precedent, a former employee engages in competitive activity when she seeks work with a competing business, or when she establishes a competing business of her own. This has nothing to do with the soliciting or hiring of the employer’s employees, or with the employer’s concomitant interest in preventing a former employee from depleting its workforce by encouraging employees to leave. Unlike a noncompetition agreement, a forfeiture for solicitation agreement protects the employer’s investment of time and money in the hiring and training of its employees. An employer “undoubtedly has a legitimate interest in retaining its employees whose training represents a business investment of time and expense.” Club Props., Inc. v. Atlanta Offs.-Perimeter, Inc., 348 S.E.2d 919, 921 (Ga. App. 1986).