In order to protect confidential information and good will, an employer may have certain employees sign noncompetition and nonsolicitation agreements.

These agreements, in addition to prohibiting former employees from using confidential information, will, for a period usually ranging between six months to two years after the employment ceases, prohibit the former employee from either competing with the company or soliciting the company’s customers.

When a former employee who has signed such a noncompetition or nonsolicitation agreement breaches it, the employer can, in addition to seeking monetary damages for the breach, ask a court to force the employee to live up to his bargain through an injunction.

A decision from the 1st Circuit Court of Appeals, which hears appeals from Massachusetts and New Hampshire federal trial courts, addressed what happens when the court rules on the injunction request after the time period for noncompetition and non-solicitation has passed.

On Aug. 26, the 1st Circuit Court of Appeals ruled that an injunction request by EMC Corp. against former employee Christopher Blotto was appropriately approved by the federal trial court prohibiting Blotto’s use of EMC’s confidential business information obtained in that the prohibition lasted for as long as the information remained confidential.

The federal trial court also was correct in denying an injunction against Blotto to prohibit him from competing with EMC or soliciting its customers because the one-year period prohibiting competition and soliciting in the agreement passed before any injunction could issue.

The agreement between Blotto and EMC had no provision for extending that one-year period during the period Blotto was breaching the agreement.

Therefore, the court determined it could not grant an injunction to prohibit Blotto from doing something he was no longer prohibited from doing. As to the prior breaches during the one-year period, the court found that Blotto could be held liable for damages.

From a practical standpoint, EMC, a business and technology consulting firm, could have concern with a damage claim against Blotto because not only would it have to show that Blotto’s breach of the agreement caused it to lose business revenue, but it also would have to prove EMC’s probable profit suffered from the lost business, after EMC’s variable costs that would have been associated with that loss of business such as commissions, expenses and wages paid to employees to do the consulting work.

In pretrial discovery, Blotto could be entitled to certain otherwise confidential financial information from EMC so as to determine what the actual damages would be.

Obviously EMC, if now in competition with Blotto, would be legitimately concerned about showing Blotto the markup between what is charged to a customer and what is paid to a consultant, the cost structure, bidding strategy or other confidential financial or business terms.

For that reason, sometimes a damage claim can be a less attractive option for these noncompetition cases.

Some employers choose to provide a liquidated damage provision for noncompetition, and if enforceable, that could be a good option for the employer.

For an employer to consider what terms they wish to put into a noncompetition and nonsolicitation agreement, they should consult with legal counsel to determine what terms would most likely be enforceable and obtain the most leverage against a former employee who may consider breaching the agreement as well as the practical effect of insisting that current employees sign those agreements.

The courts generally have no problem enforcing confidentiality agreements stating that a former employee cannot use confidential business information and if any employee complains about signing such an agreement, the loss of that employee may be no real loss.

However, courts narrowly will construe employee noncompetition and nonsolicitation agreements and enforce them only to the extent necessary to protect the legitimate business interests of the former employee.

Good employees may also be lost over noncompetition and nonsolicitation agreements and the employer therefore has to carefully think through the cost and benefit of such agreements in its particular circumstances.

One size does not fit all.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, P.A., whose legal practice includes counseling businesses and business professionals. He can be reached at dmarr@nashualaw.com.

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