Non-competition Covenants and Protection of Trade Secrets and Other Intellectual Property in Employment Agreements

by Lee Carl Bromberg
Bromberg & Sunstein LLP
Boston, Massachusetts
April 23, 1996

Drafting Termination Documents
MCLE, Inc. 1996

INTRODUCTION

Every business has a strong interest in protecting the assets that make it successful, including good employees, good will, confidential information and intellectual property. There is a corresponding societal interest in providing businesses with legitimate methods for protecting the assets that make them solid contributors to the economy. The departure of an important employee frequently produces anxiety about potential loss or damage to company assets, such as good will or trade secrets or other confidential information. Restrictive covenants in employment agreements provide a means for enhancing the protection of company assets and interests when employees leave. The scope and duration of such restrictive covenants is limited by the countervailing societal interest in free competition, including freedom of employment and the very important issue of permitting the departing employee to earn her livelihood.

EMPLOYER INTERESTS AND CONCERNS

Employer interests and concerns are generally identified by the following headings. When the time comes for an employee to leave, the employer will be concerned to protect itself against loss or damage to the assets listed in items A-E. In addition, the company may correctly feel that a competitor who secures the services of a key departing employee maybe able to engage in "unfairly" enhanced competition. It is painful as well as counterproductive to spend years training an important employee in the details of your industry only to see them leave and become your chief rival. Non-competition agreements provide a means for obtaining reasonable protection against such "unfairly" enhanced competition, by imposing a moratorium period. The non-competition agreement should effectively deter the employee both from considering overtures from rivals and from planning to set up his own competing business. On the other hand, it may be the case that the inventor who created the company's basic technology, or some employee with access to the company's most confidential business and technical information, has become undesirable as a continuing employee. Under these circumstances, the company must retain its ability to discharge undesirable employees while at the same time protecting itself from the inadvertent or intentional dissipation of its assets. Non- competition and other restrictive covenants can under these circumstances add to the protection the company already has under other laws, such as trade secret laws.
1. Good Will.
2. Trade Secrets and Confidential Information.
3. Patentable Inventions and Improvements Thereon.
4. Copyrights.
5. Valued Employees.
6. Reasonable Protection Against "Unfairly" Enhanced Competition.
7. Ability to Discharge Undesirable Employees.
EMPLOYEE INTERESTS AND CONCERNS

Employee interests and concerns may generally be identified under headings A-E below. Freedom of employment is paramount and is also a basic principle of a system of free competition. Security of employment and the economic security it provides will of course keep an employee put where they are attractive, especially where the employment also permits career advancement. These interests are usually sufficient inducement for employees to agree to non-competition agreements and other restrictive covenants. All things being equal, an employee with an inventive or creative bent would prefer to enjoy the economic benefits of the intellectual property he creates. Except in unusual circumstances, however, an employee will usually agree to assign her rights to inventions and other creative works to her employer in exchange for the economic rewards, security and career advancement provided by the employer. The employee with an entrepreneurial turn of mind presents a more difficult case. The desire to be one's own boss runs directly counter to the employer's interest in having the employee sign a covenant not to compete. Hence except for physicians and lawyers, who are exempt from employee covenants not to compete, see, M.G.L. c. 112, sec. 12X and Supreme Judicial Court Rule 3:07, DR2-108(A), respectively, the employee with dreams of going out on his own one day may find himself on the horns of a dilemma.
1. Freedom of Employment.
2. Employment and Economic Security.
3. Enjoy Economic Benefits of Inventions and Other Creative Works.
4. Career Advancement.
5. Plan to Compete.
LEGAL FRAMEWORK

A. Employee Competition with Former Employer.

The general rule is that absent agreement, an employee "may properly plan to go into competition with his employer and may take active steps to do so while still employed." Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 172 (1991). "Such an employee has no general duty to disclose his plans to his employer, and generally he may secretly join other employees in the endeavor without violating any duty to his employer." Id. These principles further the general policy that at will employees should be allowed to change employers freely and competition should be encouraged. Hence an employer who wishes to restrict post-employment competitive activities of a key employee, or to deter plans for such competition, must do so through a non-competition agreement. Id. See All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974).

There are, of course, limitations on what an employee may do in planning to compete with his employer. As the court set forth in Augat, supra, 409 Mass at 172-73:

He may not appropriate his employer's trade secrets. See Eastern Marble Products Corp. v. Roman Marble, Inc., 372 Mass. 835, 838-842 (1977). He may not solicit his employer's customers while still working for his employer ( see Chelsea Indus., Inc. v. Gaffney [389 Mass. 1,] at 11- 12 [as to executive employees]) and he may not carry away certain information, such as lists of customers ( New England Overall Co., Inc. v. Woltmann, 343 Mass. 69, 77 [1961]). Of course such a person may not act for his future interests at the expense of his employer by using the employer's funds or employees for personal gain or by a course of conduct designed to hurt the employer.

In the Augat case itself, it was held that an employee general manager who, while still employed, secretly solicited key managerial employees to leave their employment to join the general manager in a competitive enterprise, violated his duty to maintain adequate managerial personnel and therefore breached his duty of loyalty to his present employer.

Nonetheless, the general rule is clear that employees may compete with their former employer and may make substantial planning efforts for their competitive enterprise while still employed. Augat, supra; Meehan v, Shaughnessy, 404 Mass. 419, 435 (1989). Hence it is essential for an employer who wishes to restrict post-employment competitive activities of a key employee to obtain a non-competition agreement.

B. Non-Competition Covenant.

Under Massachusetts law an employee non-competition agreement will be enforced if it is necessary to protect the employer's legitimate business interests and "is reasonably limited in time and space and is consonant with the public interest." Novelty Bias Binding Co. v. Chevron, 342 Mass. 714, 716 (1961); quoted with approval in Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 647 (1976); Marine Contractors Co., Inc. v. Hurley, 365 Mass. 280 (1974). Such post-employment restraints on competition, however, "must be scrutinized carefully to see that they go no further than necessary to protect an employer's legitimate interests, such as trade secrets or confidential customer information." Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496 (1986). Massachusetts courts will not hesitate to limit their enforcement of a non-competition agreement, in duration, geographic area, or scope to that which is reasonable. See, e.g., All Stainless, Inc.at 779-80 (two-year non-competition covenant upheld but geographic area limited to sales territory serviced by former salesman).

Non-competition covenants arising out of the sale of a business will be enforced more liberally than such covenants arising out of the employer/employee relationship. Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496 (1986). In many situations, the case may involve both an employer/employee relationship and a sale of a business dimension. Further complications may be created by fiduciary obligations arising as between shareholders in a close corporation, partners and the like.

C. Non-Solicitation Covenant.

A non-solicitation covenant, which prohibits a former employee from soliciting customers of his former employer, is in effect a narrower form of non-competition agreement, and is comparably treated by the courts. See, e.g., Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496 (1986).

D. Trade Secrets, Confidential Information, and

Nondisclosure Agreements. An employee who acquires trade secrets and other confidential information of his employer has a duty to maintain that information in confidence and may not use it or disclose it. The obligation to maintain the confidentiality of employer trade secrets arises out of the employer/employee relationship and does not expire upon termination of employment even in the absence of a non-disclosure agreement. See, e.g., Eastern Marble Products Corp. v. Roman Marble, Inc., 372 Mass. 835, 838-842 (1977); Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 839 (1972). Thus, "although an employee may carry away and use general skill or knowledge acquired during the course of his employment, he may be enjoined from using or disclosing confidential information so acquired." New England Overall Co.343 Mass. at 75.

Massachusetts also imposes tort liability by statute for misappropriation of "any trade secret, regardless of value," and authorizes an increase in "damages up to double the amount found." G.L. c. 93, sec. 42. The statute somewhat awkwardly incorporates by reference the definition of "trade secret" found in the larceny statute, G.L. c. 266, sec. 30(4):

anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.

G.L. c. 93, sec. 42A makes explicit provision for injunctive relief to restrain the unlawful taking or use of "a trade secret, regardless of value."

The recently finalized Restatement (3d) of Unfair Competition (1995) provides the following definition of trade secret in Section 39:

A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.

In Section 42 of the Restatement, it is provided that:

An employee or former employee who uses or discloses a trade secret owned by the employer or former employer in breach of a duty of confidence is subject to liability for appropriation of the trade secret under the rule stated in Section 40.

Hence the obligation of a former employee to maintain the confidentiality of his former employer's trade secrets is well recognized. Nonetheless, cautious employers employ the belt and suspenders approach of providing a non-disclosure covenant in their employment agreements with key employees.

Under certain circumstances, an employer may be able to obtain injunctive relief akin to an enforcement of a non-competition covenant, where the former employee's new job responsibilities make use or disclosure of the prior employer's trade secrets inevitable. In the recent case of PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), for example, the marketing manager for PepsiCo's sports drink products was preliminarily enjoined from assuming the position of marketing manager for sports drink products at rival Quaker, on the ground that performance of the new job would inevitably involve the use or disclosure of confidential pricing, marketing and distribution strategies of PepsiCo. The Seventh Circuit affirmed a preliminary injunction through the period covered by PepsiCo's sensitive plans (approximately seven months). Similarly, Massachusetts courts have entered "production injunctions" preventing employees from participating in the production of a product when they possess trade secrets of a former employer concerning that product. Eastern Marble, 372 Mass. at 839; See also, General Electric Co. v. Sung, 843 F.Supp. 776 (D.Mass. 1994).

E. Patents and Shop Rights; Improvements and Trailer Clauses.

An express agreement requiring an employee to transfer to his employer any rights to inventions developed by the employee is the safest course. However, where an employee was hired to invent, it will be implied as a term of the employment contract that patents on inventions vital to the employer's continued business success must be assigned to the employer, even though the inventions were conceived at home. National Development Co, v. Gray, 316 Mass. 240 (1944). Under the "shop right" doctrine, an employee who uses his employer's resources to conceive an invention or reduce it to practice must afford to his employer a nonexclusive, royalty free, irrevocable and nontransferable license to make use of the invention. This is true even for an employee "whose duties to his employer do not require him to make any inventions" and thus in the absence of any implied obligation to assign. Id., 316 Mass. at 247.

Note, however, that under the shop rights doctrine, the employee remains the owner of the patent and that the employer's nonexclusive license does not put it in a position to prevent competitors from obtaining a license under the patent. Hence the employer can assure itself of enjoying the full value of employee-generated patents only by establishing a clear written obligation of the employee to assign rights in any such inventions. In addition, inventions and improvements made by a former employee on his own after his employment has terminated belong to the employee. This is because "the law looks upon an invention as the property of the one who conceived, developed and perfected it, and establishes, protects and enforces the inventor's rights in his invention unless he has contracted away those rights." Id., 316 Mass. at 246. Thus invention assignment agreements for all technical employees should include provisions, sometimes referred to as "trailer" clauses, which require assignment by the former employee of any improvements or inventions relating to his previous employment.

F. Copyrights.

The law defines a "work made for hire" as "a work prepared by an employee within the scope of his or her employment," 17 U.S.C. sec. 101, and provides that the employer is the owner of the copyright, sec. 201. However, in Community for Creative Nonviolence v. Reid, 490 U.S. 730 (1989), the United States Supreme Court interpreted the definition to mean works prepared within the common law master-servant relationship and endorsed reliance on the Restatement of the Law of Agency 2d, to establish a federal law definition of agency to provide a national uniform copyright law. In Community for Creative Nonviolence the artist hired was held to be the owner of the copyright to the work he created under agreement with the organization that commissioned the work on the ground that he was an independent contractor. Prudence dictates that employers concerned with protecting their ownership rights in copyrights obtain written agreements with employees which acknowledge that copyright in any works created by the employee will belong to and be assigned to the employer. The written agreement will avoid any potential ambiguities. This becomes particularly important in certain contexts, e.g., the employment of free lance software programmers to write code for company products.

G. Inducing Other Employees to Leave.

A so-called "anti-piracy" clause, which prohibits a former employee from soliciting other employees to leave the company is occasionally found in an employment contract or separation agreement. No Massachusetts cases enforcing such clauses have been found, and they are antithetical to the free movement of labor. Note, however, that a general manager or partial owner who departs from a company may have fiduciary obligations which would be breached by attempting to induce other key employees to leave. See, Augat, 409 Mass. at 173-74; Chelsea Industries, Inc. v. Gaffney, 389 Mass. 1 (1983).

H. Contractual Inducements Not to Compete.

An expensive but potentially effective method for avoiding competition by a employee whose services are no longer desired is to keep the employee under employment contract with full pay and benefits. Difficulties would arise, however, unless the employee agreed to this arrangement. Moreover, it may be economically unfeasible in most instances. Lesser forms of economic persuasion, e.g., deferred compensation benefits, have been upheld where reasonable. See, e.g., Kroeger v. Stop & Shop Cos., Inc., 13 Mass. App. Ct. 310 (1982).
FORM OF EMPLOYEE CONFIDENTIAL INFORMATION AND NON-COMPETITION AGREEMENT

Below is set forth a form of confidential information and non- competition agreement for employees and consultants of Duzmor Biotech, Inc., a mythical biotechnology company located in Massachusetts. I am indebted to my partner, Bruce D. Sunstein, for the careful draftsmanship reflected in this form.

Reproduced as an appendix to these materials is an employment, non- disclosure and non-competition agreement of LABLAW, Inc., a mythical medical apparatus company located in Massachusetts, which provides an alternative comprehensive form. The LABLAW agreement provides for a two-year non-compete worldwide and includes as attachments LABLAW's conflicts of interest policy (Appendix A), guidelines of company principles and practices (Appendix B), and an acknowledgment upon termination of employment to be signed by the employee at an exit interview to underline the employee's obligation to comply with his non-competition undertakings (Appendix C).

********************

DUZMOR BIOTECH, INC.

CONFIDENTIAL INFORMATION AND NON-COMPETITION AGREEMENT

For good and valid consideration, the receipt and sufficiency of which I hereby acknowledge, Duzmor Biotech, Inc. (the "Company") and I hereby agree as follows:

1. Definitions.

For the purposes of this Agreement, the following terms shall have the following meaning:

(a) "Client" shall mean any individual, firm, corporation, federal or state government agency or other entity (any of the foregoing being referred to below as "Person") for whom or which the Company provided goods or services during the course of my engagement as an employee or consultant with the Company, regardless whether I induced or solicited such Person to give its patronage or business to the Company.

(b) "Prospective Client" shall mean any Person (as defined above) with whom or which negotiations or discussions occurred (as evidenced in writing) during the course of my engagement as an employee or consultant with the Company concerning the provision by the Company of goods or services to such Person, regardless whether I solicited such Person to give its patronage or business to the Company.

(c) "Business" shall mean the business of developing and marketing infectious disease diagnostic kits, materials and instruments or any other business in which the Company may engage.

2. Inventions.

Any and all inventions, processes, procedures, systems, discoveries, designs, configurations, technology, works of authorship, trade secrets and improvements (whether or not patentable and whether or not they are made, conceived or reduced to practice during working hours or using the Company's data or facilities) which I make, conceive, reduce to practice, or otherwise acquire during my engagement as an employee or consultant by the Company (either solely or jointly with others) and which are related to the Company's Services or present or planned business ("Inventions") shall be the sole property of the Company and shall at all times and for all purposes be regarded as acquired and held by me in a fiduciary capacity for the sole benefit of the Company. All Inventions that consist of works of authorship capable of protection under copyright laws shall be prepared by me as works made for hire, with the understanding that the Company shall own all of the exclusive rights to such works of authorship under the United States copyright law and all international copyright conventions and foreign laws. I hereby assign to the Company, without further compensation, all such Inventions and any and all patents, copyrights, trademarks, trade names or applications therefor, in the United States and elsewhere, relating thereto. I shall maintain adequate and current written records of all such Inventions (in the form of notes, sketches, and/or drawings all as may be specified by the Company), which records shall be available to and remain the sole property of the Company at all times. I shall promptly disclose to the Company all such Inventions and shall assist the Company in obtaining and enforcing for its own benefit patent, trademark and copyright registrations on and with respect to such Inventions in all countries. Upon request, I shall execute all applications, assignments, instruments and papers and perform all acts, such as the giving of testimony in interference proceedings and infringement suits or other litigation, necessary or desired by the Company to enable the Company and its successors, assigns, and nominees to secure and enjoy the full benefits and advantages of such Inventions. I understand that my obligations under this Section 2 shall continue after the termination of my engagement by the Company. I further understand that if I am not engaged by the Company at the time I am requested to perform any obligations under this Section 2, I shall receive reasonable compensation for such performance, as well as reimbursement of any expenses incurred at the Company's request. In addition, I understand that the absence of a request by the Company for information, or for the making of an oath, or for the execution of any document shall in no way be construed to constitute a waiver of the Company's rights under this Agreement.

3. Proprietary Information.

I recognize that my relationship with the Company is one of high trust and confidence by reason of my access to and contact with the trade secrets and confidential and proprietary information of the Company. I shall use my best efforts to protect the Inventions and any and all confidential, proprietary or secret information relating to the products, services, customers, or business operations or activities of the Company (collectively, "Proprietary Information"). I shall not, during my engagement as an employee or consultant by the Company or at any time thereafter, disclose to others or use for my own benefit or for the benefit of another any Proprietary Information (whether or not learned, obtained or developed solely by me or jointly with others). My undertakings and obligations under this Section 3 shall not apply, however, to any such information which: (a) is or becomes in the public domain through no action or failure to act on my part, (b) is generally disclosed to third parties by the Company without restrictions on such third parties, or (c) is approved for release by written authorization of the Board of Directors of the Company. Upon termination of my engagement or at any other time upon request, I shall promptly deliver to the Company all Proprietary Information and all notes, memoranda, notebooks, drawings, records, files, and other documents (and all copies or reproductions of such materials) in my possession or under my control, whether prepared by me or others, which are or which contain Proprietary Information or other information or material which is secret, confidential or proprietary to the Company, all of which I acknowledge is the sole property of the Company.

4. Absence of Restrictions upon Disclosure and Competition.

I hereby represent that, except as disclosed in writing to the Company, I am not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of my engagement by the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. I further represent that my performance of all the terms of this Agreement and of my duties as an employee of or consultant to the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company, and I will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any previous employer or others.

5. Other Obligations.

I acknowledge that the Company from time to time may have agreements with other persons or entities or with the U.S. Government, or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company.

6. Non-Competition.

(a) During the course of my engagement as an employee or consultant with the Company, and for a period of one (1) year after the termination of my employment with the Company for any reason whatsoever, I shall not engage or become interested, directly or indirectly, as employee, owner, consultant, officer, director, or partner, through stock ownership, investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in the operation of any type of business or enterprise competitive with the Company's Business, in the United States, otherwise than on behalf of the Company.

(b) During the course of my engagement as an employee or consultant with the Company and for a period of two (2) years after the termination of my engagement with the Company for any reason whatsoever, I shall not, otherwise than on behalf of the Company, directly or indirectly as employee, owner, consultant, officer, director, or partner, through stock ownership, investment of capital, lending of money or property, rendering of services or otherwise, either alone or in association with others, (i) solicit any of the employees of the Company to leave the employ of the Company or (ii) solicit any Client or Prospective Client for any purpose except on behalf of the Company.

(c) My holding of any investment in any business or enterprise other than the Company shall not be deemed to be a violation of this Section 6 if such investment does not constitute over five percent (5%) of the outstanding issue of such security and I do not otherwise accept employment with, act as a consultant to, become an officer, director or partner of, or otherwise become actively associated with the issuer of such security.

7. Reasonableness.

I recognize, acknowledge and agree that the foregoing limitations are reasonable and properly required for the adequate protection of the Company's business and do not preclude me from pursuing my livelihood. However, if any such limitation is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

8. Breach.

If I violate any provisions of this Agreement, then the time limitations set forth in this Agreement shall be extended for a period of time equal to the period of time during which such breach occurs; and, in the event the Company is required to seek relief from such breach before any court, board, or other tribunal, then the time limitation shall be extended for a period of time equal to the pendency of such proceedings, including all appeals.

9. Equitable Relief; Liquidated Damages.

I acknowledge that any breach of this Agreement by me may give rise to irreparable injury to the Company, which may not be adequately compensated by damages. Moreover, I acknowledge that to the extent that any breach of this Agreement by me may give rise to injury to the Company which may be adequately compensated by damages, such damages are difficult or impossible to calculate. Accordingly, in the event of a breach or threatened breach of any of Sections 2 through 6 of this Agreement by me, the Company shall have, in addition to any remedies it may have at law, the right to an injunction or other equitable relief to prevent the violation of its rights hereunder.

10. Miscellaneous.

(a) Any action or proceeding brought by either party against the other arising out of or related to this Agreement shall be brought only in a state court of competent jurisdiction located in Commonwealth of Massachusetts, or the Federal District Court for the District of Massachusetts, and the parties hereby consent to the personal jurisdiction of such courts.

(b) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(c) This Agreement supersedes all previous agreements, written or oral, between the Company and me relating to the subject matter of this Agreement. This Agreement may not be modified, changed or discharged in whole or in part, except by an agreement in writing signed by the Company and me. I agree that any subsequent change or changes in the scope of or compensation for my engagement with the Company, the duration of my engagement with the Company, or the reasons for the cessation or termination of my engagement with the Company shall not affect the validity or scope of this Agreement. This Agreement shall be binding upon me and my heirs and personal representatives and shall inure to the benefit of the Company and its successors, assigns and nominees, provided that Section 3 above shall be binding upon such heirs and personal representatives only to the extent that they obtain from me Proprietary Information of the Company.

(d) No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion.

(e) I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary or affiliate thereof without the necessity for any separate execution of this Agreement in favor of such parent, subsidiary or affiliate.

(f) This Agreement is governed by the laws of the Commonwealth of Massachusetts, without giving effect to conflict of laws provisions thereof.

Signature

printed name

Agreed to and accepted by

DUZMOR BIOTECH, INC.

By:______________________

Date:____________________

Title:_____________________

********************
ENFORCEMENT

A. Maximizing Effectiveness.

Since the ultimate means for enforcement of restrictive covenants is litigation, a frequently expensive and potentially disruptive course of conduct, the wise employer will take steps to maximize the effectiveness of its non-competition agreements. A written agreement is essential. Ideally the employer will obtain the employee's signature at the outset of employment and not leave this matter for resolution at the termination of employment. Good written company policies on protection of trade secrets and other confidential information, invention disclosure and pursuit of patent protection, conflict of interest and related areas will tend to reinforce the seriousness with which the company regards and protects its assets, and will encourage the employees to comply with their non-disclosure and non- competition obligations. An exit interview policy for departing employees will permit the employer to routinely reemphasize the restrictive covenants to which the employee had previously agreed. Use of a form at the exit interview, such as the acknowledgement upon termination of employment form at the back of the LABLAW, Inc. materials in the appendix will permit the employer to doubly reinforce both its seriousness and the employee's obligation to honor the non-competition covenant. Finally, if the employee has departed and the company has good reason to believe that a violation of the non-competition covenant is or is about to committed, written notice to the employee and to his new employer may help to avert a showdown in court.

The employee's interest is, of course, to avoid any restriction on future activities, particularly if it impairs the employee's ability to earn his livelihood or pursue his entrepreneurial dreams. Particularly for highly trained technical personnel, or for high level employees with many years in a particular industry, the obstacles presented by a non-competition agreement may be formidable. Since the employee is unlikely to be able to avoid signing a non-competition agreement in connection with employment by a well-run company, the employee should at least attempt to have the terms of the non-competition agreement as limited in time, geographical area and scope as possible, and also as clear as possible.

B. Pre-Litigation Efforts; Notice, Negotiation.

The expense of litigation frequently makes it worthwhile for the employer to notify a former employee and his new employer of a violation of non-competition or non-disclosure agreements and to seek to secure compliance by a negotiated resolution. Both the employee and the new employer will also be well served if a negotiated settlement is possible. For example, the former employee and his new employer may be able to satisfy the former employer that the employee's arena of activity will not be competitive, or will pose minimal threat to the interests of the former employer. Under these circumstances a written agreement defining the permissible range of conduct as acknowledged by the former employer could well avoid a shootout in court.

C. Litigation; Preliminary Injunction Standard.

Where resort to litigation is unavoidable, both sides will concentrate their attention and efforts on the preliminary injunction stage. Unless the case presents serious issues of misappropriation of trade secrets in addition to violation of non-competition covenants, the preliminary injunction stage will frequently be outcome determinative. Under Massachusetts law, the court initially evaluates in combination the moving party's claim of injury and chance of success on the merits. If the judge is convinced that failure to issue the injunction would subject the moving party to a substantial risk of irreparable harm, the judge must then balance this risk against any similar risk of irreparable harm which granting the injunction would create for the opposing party. The judge must evaluate the risk of harm in light of the party's chance of success on the merits. Where the balance between these risks cuts in favor of the moving party, a preliminary injunction may properly issue. Packaging Industries Group v. Chaney, 380 Mass. 609, 615-16, 405 N.E.2d 106, 11-12 (1980). In federal court, the employer must satisfy the familiar four-part test for preliminary injunction by proving immediate irreparable harm, likelihood of success on the merits, the balance of injury favors the employer and the public interest will be served by issuance of the injunction. Camel Hair and Cashmere Institute of America, Inc. v. Associated Dry Goods Corp., 799 F.2d 6, 12 (1st Cir. 1986).

Since employee non-competition agreements typically have one to two years' duration, the result of the preliminary injunction hearing will likely determine the outcome of the case. An employer who secures the injunction will have protected itself against competition by the former employee. Where the employer fails to obtain the injunction, the employee is free to continue with his new employer. Absent trade secret misappropriation issues, the cost of litigation is likely to be disproportionate to remaining issues of damages and hence the case will likely be ready for settlement at that time.


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