The Massachusetts Supreme Judicial Court (SJC) recently clarified the scope of the Massachusetts Noncompetition Agreement Act (MNAA). In Susan Miele v. Foundation Medicine, Inc., the SJC held the MNAA does not apply where a forfeiture clause is triggered by a breach of a non-solicitation agreement.

The MNAA

The MNAA, passed in October 2018, provides that noncompetition agreements are only valid and enforceable if they meet specific requirements. The MNAA also clarified that “noncompetition agreement” includes “forfeiture for competition” provisions that impose adverse financial consequences on a former employee only if the employee engages in competitive activities.

The MNAA does not include non-solicitation provisions or “forfeiture agreements” in the definition of noncompetition provisions. Forfeiture agreements are those that impose adverse financial consequences on a former employee regardless of whether the employee engages in competitive activities.

Susan Miele v. Foundation Medicine, Inc.

Susan Miele is a former employee of Foundation Medicine, Inc. (FMI) [1]. As part of Miele’s separation from FMI, the parties reached an agreement that would provide Miele with benefits in the amount of $1.2 million in exchange for certain restrictive covenants, including a one-year non-solicitation provision that barred Miele from soliciting FMI employees to leave their employment for any reason. If Miele breached the non-solicitation provision, she would trigger a forfeiture clause, forfeiting any then-unpaid benefits owed to her under the agreement, and allowing FMI to seek repayment of all previously paid benefits. In the year following the execution of the agreement, Miele began work for a competitor company and subsequently recruited several FMI employees to join her. FMI notified Miele of the breach, ceased making payments under the agreement, and demanded repayment of benefits already provided to Miele.

Miele sued FMI for breach of contract, alleging, in part, that the company’s decision to exercise the forfeiture clause was unenforceable under the MNAA. FMI asserted counterclaims for breach of contract and sought a declaration that it was not obligated to make any remaining payments. The Superior Court partially granted Miele’s motion for judgement on the pleadings, finding in relevant part that the MNAA precluded the company from enforcing the forfeiture clause.

On appeal to the Supreme Judicial Court, the SJC reversed the lower court’s findings and held that the MNAA does not apply to a forfeiture clause triggered by a breach of a non-solicitation agreement. The SJC reasoned that noncompetition agreements expressly do not include non-solicitation agreements, and forfeiture for competition agreements must therefore also exclude forfeiture for non-solicitation agreements.

Takeaways and Next Steps

Prior to this ruling, some Massachusetts employers faced uncertainty as to whether adding a financial-forfeiture remedy to a non-solicitation agreement would invoke protection under the MNAA, subjecting the agreement to MNAA’s strict requirements, including advanced notice, consideration requirements, and jurisdictional limitations, among other things. The court’s opinion clarifies and affirms the limited scope and application of the MNAA.

Companies with employees in Massachusetts may now opt to incorporate and/or bolster the use of non-solicitation provisions accompanied by carefully drafted forfeiture clauses in agreements with employees in order to protect talent without triggering the MNAA.