Highlights
- The Massachusetts Supreme Judicial Court (SJC) has ruled that a forfeiture clause triggered by a breach of a non-solicitation agreement is not a "forfeiture for competition agreement" under the Massachusetts Noncompetition Agreement Act (the Act).
- The ruling clarifies the scope of the Act, reverses the lower court's decision and confirms the ability of Massachusetts employers to enforce forfeiture of separation payments or other consideration for an individual's violation of non-solicitation and certain other restrictive covenants.
- The SJC's decision addresses concerns of employers and practitioners following the lower court's decision. Employers and employees, as well as Massachusetts employment attorneys, should take note of this distinction when drafting and enforcing contractual agreements.
The Massachusetts Supreme Judicial Court (SJC) has ruled that a forfeiture clause triggered by a breach of a non-solicitation agreement is not a "forfeiture for competition agreement" under the Massachusetts Noncompetition Agreement Act (the Act). The ruling, issued on June 13, 2025, clarifies the scope of the Act, corrects the lower court's decision and confirms Massachusetts employers' ability to enforce forfeiture of separation payments or other consideration for an individual's violation of non-solicitation and certain other restrictive covenants.
Background
In 2017, Susan Miele was hired by Foundation Medicine Inc. (FMI) and signed a restrictive covenant agreement as a condition of her employment. The agreement contained a non-solicitation provision, which restricted Miele from soliciting FMI employees for one year after her departure. In 2020, at the time of her separation from FMI, Miele entered into a transition agreement that reaffirmed the restrictive covenant agreement's terms and included a forfeiture clause that provided that if Miele breached the transition agreement or her restrictive covenant agreement, then any unpaid benefits under the transition agreement would be forfeited and any previously paid benefits would need to be "immediately repaid" to FMI.
After leaving FMI, Miele joined another company, and FMI alleged that Miele, during the restricted period, recruited a number of then-current FMI employees to join her at the new company. FMI ceased making payments to Miele under the transition agreement and demanded that she repay all previously disbursed funds. Miele then sued FMI for breach of contract based on FMI's withholding of payments, and FMI counterclaimed, asserting that Miele violated her agreements by soliciting FMI's employees.
In response to the counterclaims, Miele filed a motion for judgment on the pleadings, arguing that the forfeiture clause based on violation of the non-solicitation provision brought the agreements within the scope of the Act, which would make the forfeiture provision unenforceable as the agreements did not comply with the minimum requirements of the Act. FMI asserted that the non-solicitation provision was just that – a non-solicitation provision – and thus excluded from the scope of the Act, which states that the Act does not apply to "covenants not to solicit."
The Superior Court, however, granted Miele's motion in part, finding that the forfeiture provision fell within the Act and was unenforceable. At FMI's request, the court reported the following question for appellate review:
Does [the Act], apply to a non-solicitation agreement incorporated into a termination agreement if the termination agreement includes a forfeiture provision in the event that the employee breaches the non-solicitation agreement?
SJC Ruling
After thorough examination, the SJC ruled that a forfeiture
clause triggered by breaching a non-solicitation agreement does not
constitute a "forfeiture for competition agreement,"
which would be considered a non-competition agreement under the Act
and thus restricted. The SJC emphasized that the statute explicitly
excludes non-solicitation agreements from the broader category of
non-competition agreements and that a forfeiture clause in a
non-solicitation agreement does not transform it into a
"forfeiture for competition agreement."
Justice Serge Georges, writing for the court, explained that
treating a non-solicitation covenant differently due to a
forfeiture mechanism would contradict the Act's express
exclusion of non-solicitation agreements. The court explained:
The critical flaw in Miele's position is that her reading would expand the scope of forfeiture for competition agreements to include non-solicitation provisions—despite the statute's clear exclusion of such provisions from the definition of noncompetition agreements. Because forfeiture for competition agreements are expressly defined as a subset of noncompetition agreements, and non-solicitation agreements are explicitly excluded from that category, solicitation cannot be reintroduced through the back door of "competitive activities" without rendering the statute internally contradictory.
Consequently, the SJC reversed the trial court's order granting Miele's motion for judgment on the pleadings and remanded the matter for further proceedings.
Implications
The SJC's ruling provides significant clarity regarding the scope of the Massachusetts Noncompetition Agreement Act and affirms that non-solicitation agreements, even with forfeiture clauses, are beyond its purview. Accordingly, a forfeiture clause in a separation or transition agreement, which provides that the employee forfeits severance pay for a violation of a non-solicitation or non-disclosure agreement, is enforceable and not subject to the requirements of the Act.
The SJC's decision addresses concerns of employers and practitioners following the lower court's decision. Employers and employees, as well as Massachusetts employment attorneys, should take note of this distinction when drafting and enforcing contractual agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
