Last week, we wrote briefly about EMC v. Donatelli, a case that is being litigated simultaneously in California and Massachusetts. On May 4, the Superior Court in Massachusetts ruled that EMC, a Massachusetts corporation, could obtain injunctive relief preventing Mr. Donatelli, who had been President of one of EMC’s major divisions, from starting a job at HP in California even though California has a statutory prohibition on covenants not to compete. The Court made some important findings in its decision which are summarized below.
Choice of Law – The court relied on the language of the agreement that Donatelli signed to find that Massachusetts law applied. Rejecting Donatelli’s argument that California’s fundamental policy against enforcement of non-competes made it futile for EMC to proceed in Massachusetts, the Massachusetts Court stated it “did not agree that California’s legislative policy, at least in this case, is somehow more ‘fundamental’ than, and therefore trumps, Massachusetts’ common law.”
Equitable Considerations – Donatelli also argued that Massachusetts should defer to California’s strong policy of protecting its workers. The Massachusetts Court rejected this argument as well, finding that Donatelli was not a California resident, and therefore not one of its workers. He was still a Massachusetts resident. The Court also took Donatelli to task for “escaping” the obligations of the non-compete where the expectations of the parties were that he would be bound by it.
Enforceability of Covenant Under Massachusetts Law – The Court dealt with two issues that are of particular interest to practitioners in Massachusetts. The first is whether there was adequate consideration for the covenant even though it was signed 15 years after Donatelli started working at EMC. In ruling in favor of EMC, the Court found that even though the law in Massachusetts on this issue is somewhat unclear, under the facts of this case, continued employment constituted adequate consideration. However, regarding the breadth of the covenant, the Court allowed Donatelli to supplement the record to demonstrate that the covenant was broader than necessary to protect EMC’s interests.
The ball is now in the California Court. The Massachusetts Court was clear in ruling that California’s law against enforcement of non-competes did not trump Massachusetts’ common law in enforcing them, at least with respect to Massachusetts residents who move to California to escape the obligations of a Massachusetts non-compete. We will continue to follow this case as it no doubt progresses through the courts.