Recently, in NuVasive, Inc. v. Day, the United States Court of Appeals for the First Circuit upheld the decision of the United States District Court for the District of Massachusetts to apply Delaware law and grant an employer a preliminary injunction against a former employee related to a nonsolicitation clause.
The employer was incorporated in Delaware, and the former employee was a resident of Massachusetts. The former employee’s contract contained a choice-of-law clause instructing Delaware law applied to its interpretation and enforcement. The District Court applied Delaware law in its analysis and issued a preliminary injunction.
The former employee appealed, asserting that pursuant to Massachusetts’s choice-of-law framework the District Court should have applied Massachusetts law in its analysis, which would not have resulted in a preliminary injunction. While Massachusetts’s choice-of-law framework would ordinarily dictate that the specified state law in a contract applied, the former employee argued there were two applicable exceptions: (1) where that specified state “has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice;” and (2) where “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state [in the determination of the particular issue] and the law of the state with the greater interest would otherwise apply in the absence of an effective choice of law by the parties” (internal quotations omitted).
As to the second exception, the former employee argued that applying Delaware law violated both the Massachusetts Noncompetition Agreement Act (the “MNCA”) (M.G.L. c. 149, § 24L) and the doctrine in Massachusetts that provides “non-solicitation agreement[s] or covenant[s] not to compete may be deemed void if there are material changes in the employment relationship between an employee and the employer.”
The First Circuit determined the first exception did not apply because the employer was incorporated in Delaware and the plaintiff in the action. The First Circuit determined the second exception did not apply because the MNCA applied to agreements after the date the relevant agreement was entered into, and the MNCA did not apply to the nonsolicitation clause. Moreover, the second exception did not apply because there had not been an applicable material change to the former employee’s relationship with the employer where the former employee had decided to terminate employment.