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Companies Must Establish Non-Competition Provisions in Contracts with Employees

Boston is a critical science and technology hub. It is one of the largest centers of startup technology development, feeding off of excellent academic institutions located in the area. That is the reason why a recent decision from the Massachusetts Federal District Court should be of interest not only to companies operating in Massachusetts, but to the technology and science establishments around the country. This decision could delineate a trend in the judicial analysis of non-disclosure vs. non-competition agreements.

In Boston Scientific Corp. v. Lee, it was demonstrated that courts are unwilling to view the breach of a non-disclosure/confidentiality agreement as justification to impose a non-competition restriction on a former employee where no such express restrictive covenant exists. In the case, a Boston Scientific employee had signed an employment agreement undertaking not to disclose proprietary information. The agreement did not include a non-competition provision. When he left Boston Scientific to work for a competitor, he agreed not to disclose any of the Boston Scientific confidential information. While he returned some confidential documents to the company, he retained many more documents on his personal email and Google Drive accounts.

Boston Scientific moved for injunctive relief prohibiting the defendant not only from not disclosing its confidential information to the competitor, but also from working for the competitor. The Massachusetts Federal District Court held that Lee had breached his confidentiality obligations, which entitled Boston Scientific to injunctive relief, prohibiting him from disclosing its proprietary information and ordering him to return all such information in his possession. However, the Court denied Boston Scientific’s request to prevent Lee from working for the competitor. Specifically, the court held that it was disinclined to impose a restrictive covenant where Lee had never agreed to one. Prohibiting the scientist from working at the competitor would, under the circumstances, “unfairly deprive [him] of his livelihood.”

Importantly, the Court rejected Boston Scientific’s inevitable disclosure argument. Under the inevitable disclosure doctrine, an employer is entitled to protection where it is extremely likely – i.e., inevitable – that the former employee will disclose his knowledge of the employer’s confidential information to his new employer in the performance of his duties. The Court held that it was not inevitable that Lee would disclose his knowledge of Boston Scientific proprietary information because (i) Lee’s non-disclosure of Boston Scientific information was a term of his new employment, and (ii) Lee was not developing competing products for the new employer.

This decision clearly demonstrates what we have been counseling our clients for years – when a company desires to restrict its employees or contractors from working for competitors for legitimate business reasons, such restrictions MUST be a part of unambiguous employment or consultant agreements.

George A. GellisCompanies Must Establish Non-Competition Provisions in Contracts with Employees
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