The defendant salesmen argued that the clause was unenforceable, relying on the CEO’s departure and the company’s possible purchase by another business as a “material change” in employment.
But Judge E. Susan Garsh granted a preliminary injunction against the employees, ruling from the bench that failure to enforce the agreement would result in irreparable harm to the former employer.
“The prospect of a material change at some indefinite time in the future does not a material change make,” she said. “Similarly, the fact that [the plaintiff employer] has changed leadership is not evidence here of the kind of material change from which one would infer that the covenant not to compete was rescinded.”
The case, Sentient Jet LLC v. Mackenzie, et al., is scheduled for trial in July.
Abandonment and detriment
C. Max Perlman of Hirsch, Roberts & Weinstein, who represented the employer, said employees frequently seek to vitiate non-compete clauses by relying on the material change doctrine.
“These days, it seems that whenever it is even remotely available to an employee, it’s generally used,” he said. “It’s one more thing a judge can rely on to deny an injunction if he or she is inclined to do so.”
But the Boston lawyer said Garsh’s decision suggests employees will be unsuccessful in cases like this one, where the defendants had been promoted and given raises.
“This ruling limits the material change argument to situations where there is both an abandonment of the prior employment relationship and some sort of detriment suffered by the employee,” Perlman said. “The defendants failed on both regards here.”
Garsh’s holding, he added, also clarifies the material change doctrine in the wake of February’s closely-followed Grace Hunt IT Solutions, LLC v. SIS Software, LLC, et al., decision.
In that case, Massachusetts Superior Court Judge Peter M. Lauriat held that a change in management which resulted in an employee’s base salary being cut voided a restrictive covenant.
“Grace Hunt said it was a material change because there was a 20 percent reduction in pay, but the case didn’t say anything about what would happen if there was a 20 percent increase,” Perlman said. “A decision like this narrows the scope of that ruling.”
Perlman, who handled the case with Kristy L. Avino, said Garsh also rejected the defendants’ argument that the good will they had developed as salespeople belonged to them and not their former employer.
“What the court appeared to hold is that for the goodwill to belong to the employee, it would require a showing of prior experience in the same industry and prior exposure to and work with the same clients,” he said.
The employees’ counsel, Mark M. Whitney of Morgan, Brown & Joy in Boston, said he did not want to discuss the details of the case while it is still pending. However, he said his clients dispute that any proprietary information was taken or improperly used.
“I can tell you one of the significant issues at trial is who actually owned the goodwill as to particular customers,” he said. “That’ll be one of the key issues at trial we think we would prevail on.”
Stephen B. Reed of Beck, Reed, Riden in Boston, who represented the employee in Grace Hunt, said there are few, if any, appellate level decisions that discuss the nuances of the material change doctrine.
The Boston lawyer said there is now a conflict in the case law because Lauriat made clear in Grace Hunt that the existence of a material change in the employment relationship voids a non-compete agreement.
The nature of the change, he said, was immaterial.
“[Lauriat] said it didn’t make a difference to him whether the change was for the good or the bad,” Reed said. “A material change is a material change. So these two decisions unfortunately suggest the issue is undecided.”
Come fly away
The plaintiff, Sentient Jet, caters to a small number of customers who typically include wealthy individuals, corporations, professional athletes and entertainers.
Given that only a limited segment of society can afford to fly privately, the company and its salespeople are well aware of the competitiveness of the industry and the possibility a customer may switch to a competitor at any time.
The defendants were sales directors hired to sell charter flights to existing clients as well as target new business. The plaintiff contended that none of them had any prior experience in the private charter aircraft industry or with its clients.
When the defendants were hired, they signed non-compete agreements.
In 2008, the company was acquired by a new corporation and they were required to sign new agreements barring them from making use of any confidential information or competing with the plaintiff for one year after leaving their jobs.
At the same time, the plaintiff implemented a more generous compensation plan, which allowed the defendants to earn more money in 2009, 2010 and 2011. In 2011, two of the defendants also received promotions.
On Feb. 3, 2012, the defendants left the plaintiff and joined competitor Apollo Jets, where they took jobs in sales. According to a complaint filed a month later in Superior Court, the defendants downloaded proprietary information from the plaintiff’s computers and took it with them to their new company.
The plaintiff also accused the defendants of openly soliciting its clients for their new employer and sought a preliminary injunction to enforce the non-compete clause.
It’s not about the money
In granting the injunction, Garsh said, she did not find any material change in employment.
Unlike in Grace Hunt, the case before her did not involve an allegation that the defendants had suffered a loss of income, she said.
“It is not a situation where a covenant not to compete is sought to be enforced after dropping someone’s … base salary by 20 percent and making it unlikely they’d ever be able to make it up, as was the case in [Grace Hunt],” she said.
Although the salesmen undoubtedly ran the risk of being harmed by the issuance of the preliminary injunction, Garsh said, the harm the plaintiff faced was greater.
“Money damages are not sufficient in a case like this to compensate for loss of customers and good will while a determination could be made of specific clients … that went to the competing company,” she said.