Parent Companies Cannot Enforce Non-Compete Agreements Against Their Subsidiaries' Employees Under Massachusetts Law

In a decision of first impression that will affect businesses throughout the Commonwealth, the Massachusetts Superior Court ruled that a company cannot enforce a non-compete agreement to prevent a former employee of the company's subsidiary from working for a competitor. As the court held, the Massachusetts Noncompetition Agreement Act of 2018 (the "MNAA") does not consider parent (or grandparent) entities to be "employers" within the meaning of the statute and, as such, noncompete agreements between those entities and the employees of their subsidiaries are unenforceable under the statute.

Beginning in 2019, Timothy Brennan was employed Anaplan, Inc., a business software company that is a subsidiary of Anaplan Parent, LP (hereinafter, "Parent"). During his employment with Anaplan, Brennan signed three executive equity grant agreements with Parent, each of which contained a non-compete provision. The agreements did not identify Anaplan, Inc. as a party to the agreements, and they were only signed by Brennan and by a representative of Parent—not by Anaplan, Inc. The non-compete provision stated that Brennan was not permitted to work for any competitor of Anaplan for a period of 12 months following the conclusion of his employment there. Nonetheless, in July 2025 Brennan resigned from Anaplan in order to work for one of its competitors, Pigment Inc. In response, both Anaplan and Parent filed suit against Brennan in the Superior Court's Business Litigation Session and moved for a preliminary injunction to stop Brennan from working for Pigment.

The case turned on the court's interpretation of the MNAA, which governs the enforceability of non-compete agreements in Massachusetts. Under that law, non-competes like the ones that Parent required Brennan to sign during the course of his employment may be enforced only where they meet certain criteria, including: (1) the agreements must be supported by fair and reasonable consideration independent from the continuation of employment; (2) the agreements must provide employees with at least ten business days to review and sign them; (3) the agreements must be in writing; (4) the agreements must be signed by both the employer and employee; and (5) they agreements must expressly state that the employer has the right to consult with counsel before signing.

Here, Brennan argued that his non-compete agreement did not comply with the MNAA and was therefore unenforceable. Specifically, he claimed that the agreement had not been signed by his "employer," which was Anaplan Inc., but instead had only been signed by Parent, a separate company. Anaplan and Parent both argued to the contrary, claiming that the term "employer" should be interpreted broadly enough to encompass both the specific entity that an employee works for as well as that entity's controlling parent(s).

As the court found, the MNAA does not define the term "employer" and, therefore, the court would need to look elsewhere for guidance on whether a parent entity could be included within the definition. Specifically, the court considered how other Massachusetts statutes—including the Worker's Compensation Act, the Wage Act, and the Unemployment Insurance Act—defined 'employer.' In each instance, the court explained that "none of those statutes suggest that an 'employer' includes a parent or subsidiary entity of an actual employer." The court also looked to prior Massachusetts case law and found that decisions from the Supreme Judicial Court and the Appeals Court "have declined to extend" employer status to parent entities "based on the doctrine of corporate separateness."

In reaching this decision, the court rejected an argument that a parent entity's "management and control" over the subsidiary-employer would effectively transform the parent into the role of the employer itself. Likewise, the court rejected Anaplan and Parent's claim that a narrow interpretation of "employer" would lead to the invalidation of incentive equity agreements like the ones at issue here. As the court explained, even where those agreements grant the employee equity in the parent entity, they could simply be written or amended to include the actual employer as a party and signatory.

In light of the Anaplan decision, corporate entities in Massachusetts should reexamine their non-compete agreements to determine whether those agreements are valid and enforceable. Where the restricted employees technically work for subsidiary entities that are not themselves signatories to the agreements, those agreements should be amended to ensure compliance with the MNAA's requirements.