Massachusetts High Court To Weigh In on Forfeiture-for-Solicitation Provisions in Era of Massachusetts Noncompetition Agreement Act

On Monday, March 3, 2025, the Massachusetts Supreme Judicial Court (“SJC”) heard argument in Miele v. Foundation Medicine, Inc., regarding whether the Massachusetts Noncompetition Agreement Act, G. L. c. 149, § 24L (the “MNAA”), applies to a forfeiture-for-solicitation provision contained in a termination agreement.

The outcome of this appeal will clarify the bounds of the recently enacted statute and may have a significant impact on the landscape of restrictive covenants in Massachusetts on the whole.

This appeal challenges the Superior Court’s July 2024 ruling that a contract provision requiring Plaintiff-Appellee to forfeit severance benefits upon breach of non-solicitation obligations was subject to, and prohibited by, the MNAA because it does not satisfy the requirements for an enforceable noncompetition agreement under the statute. The MNAA requires valid covenants to be reasonable in scope of proscribed activities in relation to the interests protected, supported by mutually agreed upon consideration, and consonant with public policy. G. L. c. 149, § 24L.

Factual Background

In 2017, at the outset of her employment, Plaintiff entered into a Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement (the “2017 Agreement”) containing restrictive covenants including an obligation not to solicit Defendant’s employees. In early 2020, the parties entered into a “Transition Agreement” in which Plaintiff would remain in her position through December 15, 2020 in exchange for transition benefits. The Transition Agreement included a reaffirmation of Plaintiff’s obligations under the 2017 Agreement as well as a provision calling for forfeiture of the transition benefits if Plaintiff breached the terms of the Transition Agreement.

The Superior Court Action

In 2021, Defendant accused Plaintiff of breaching the Transition Agreement by soliciting Defendant’s employees and, as a result, withheld approximately $300,000 of the unpaid transition benefits. Plaintiff initiated the litigation seeking the unpaid benefits. Defendant responded by asserting a counterclaim for repayment of the paid transition benefits (approximately $1,181,000), plus interest, for breaching the Transition Agreement.

In July 2024, the Superior Court granted judgment as a matter of law dismissing Defendant’s Counterclaim after determining the forfeiture provision contained in the Transition Agreement was governed by, and invalid under, the MNAA.

At the core of the underlying ruling was the Superior Court’s determination that “forfeiture for competition agreements,” which impose consequences for engaging in “competitive activities,” reach non-solicitation provisions as they are not expressly excluded from “competitive activities” under the statute. The Superior Court contrasted this definition with the MNAA’s definition of “noncompetition agreements,” which expressly excludes non-solicitation provisions. The Superior Court explained that the scope of “competitive activities” is not co-extensive with the types of agreements excluded from the definition of “noncompetition agreements,” and concluded that a non-solicitation covenant, when combined with a forfeiture provision, is a “forfeiture for competition agreement” and thus within the scope of the MNAA. The Superior Court ultimately decided that the Transition Agreement was unenforceable because it did not satisfy the MNAA’s requirements for agreements within is purview.

The Pending Appeal

Defendant-Appellant contends that the Superior Court erred by incorrectly interpreting the MNAA when it held that the Transition Agreement’s forfeiture-for-solicitation provision is subject to the MNAA, arguing that both covenants not to solicit employees and noncompetition agreements made in connection with separations from employment are excluded from the MNAA’s definition of “noncompetition agreement.” Defendant-Appellant, supported by amici curiae including the New England Legal Foundation, Massachusetts Defense Lawyers Association, and the attorney who drafted the first version of what became the MNAA, contend that the MNAA is limited to noncompetes and agreements that function as noncompetes because these provisions place restrictions on an individual’s livelihood, whereas non-solicitation provisions protect the investment of employers.

Defendant-Appellant maintains that a forfeiture-for-solicitation provision is the functional equivalent of a non-solicitation provision (and is excluded from the constraints of the MNAA), because both restrict or impose liability for the same underlying activity. See Cheney v. Automatic Sprinkler Corp. of Am., 377 Mass. 141, 147 n.7 (1979) (likening forfeiture for competition clause with a noncompetition agreement as both can have an inhibitory effect on present and former employees in the same way). Defendant-Appellant further asserts (though not developed at the Superior Court level) that the Transition Agreement at issue complies with the MNAA’s requirements for a valid and enforceable noncompete.

The SJC’s forthcoming decision, either endorsing the Superior Court’s expansive view of the MNAA or excluding forfeiture-for-solicitation provisions in termination agreements from the statute’s purview, will provide crucial guidance to employers crafting post-employment restrictions and clarify definitions and distinctions (or lack thereof) within the MNAA.