128 Cal.Rptr.2d 172 (2002)
29 Cal.4th 697
59 P.3d 231

[173] Horvitz & Levy, David M. Axelrad, Andrea M. Gauthier, Mary-Christine Sungaila, Encino; Robins, Kaplan, Miller & Ciresi, Roman M. Silberfeld, Los Angeles, Ernest I. Reveal, Bernice Conn and Susan L. Dunbar, for Defendant and Appellant and for Petitioner.

Gibson, Dunn & Crutcher, John J. Swenson, Miguel A. Estrada, Salinas, Georgiana G. Rodiger and Tanya M. Acker, Los Angeles, for Aetna, Inc., Aetna U.S. Healthcare Inc., and Aetna U.S. Healthcare of California, Inc., as Amici Curiae on behalf of Defendant and Appellant and Petitioner.

Mike Hatch, Attorney General (Minnesota), for State of Minnesota as Amicus Curiae on behalf of Defendant and Appellant and Petitioner.

King & Kent, K. Andrew Kent, Santa Barbara, and Gregory N. Albright, Cambria, for Southern California Intellectual Property Rights Coalition as Amicus Curiae on behalf of Defendant and Appellant and Petitioner.

No appearance for Respondent Superior Court.

Loeb & Loeb, Fred B. Griffin, Todd M. Malynn, Century City; Feldman, Gale & Weber, Michael J. Weber, James A. Gale, Miami, FL; Greines, Martin, Stein & Richland and Robin Meadow, Los Angeles, for Plaintiffs and Respondents and for Real Parties in Interest.

Donald E. Warner, Jr., Los Angeles, for California Staffing Professionals as Amicus Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

Ronald J. Gilson, Stanford, as Amicus Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, Ronald Reiter and Joseph Ragazzo, Deputy Attorneys General, as [174] Amici Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

James P. Stoneman II, Claremont, for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

Wilson, Sonsini, Goodrich & Rosati, Ulrico S. Rosales, Tait Graves and David R. Burtt, Palo Alto, for Broadcom Corporation as Amici Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

CHIN, J.

We granted review to consider whether the superior court properly enjoined a party to a California lawsuit from taking any action in a Minnesota proceeding involving the same dispute. We conclude that under principles of judicial restraint and comity the temporary restraining order (TRO) issued here was improper. We therefore reverse the Court of Appeal's judgment.

FACTS

Medtronic, Inc. (Medtronic), a Minnesota corporation with headquarters in Fridley, Minnesota, manufactures implantable neurostimulation devices used to treat chronic pain. In 1995, Medtronic hired plaintiff Mark Stultz in Minnesota as a senior product specialist responsible for spinal cord stimulator lead wires. He was soon promoted to senior product manager in the "Neurostimulation-Pain Division," where he was responsible for managing Medtronic's neurostimulation products.

On accepting employment, Stultz signed the "Medtronic Employee Agreement" (Agreement). The Agreement contained a covenant not to compete, providing that for two years after employment termination, Stultz would not "directly or indirectly render services (including services in research) to any person or entity in connection with the design, development, manufacture, marketing, or sale of a Competitive Product that is sold or intended for use or sale in any geographic area in which Medtronic actively markets a Medtronic Product or intends to actively market a Medtronic Product of the same general type of function." The Agreement defined a "Competitive Product" as "of the same general type, performs similar functions, or is used for the same purposes as a Medtronic Product on which the employee worked during the last two years of employment or about which he/she received or had knowledge of Confidential Information."

The Agreement included a choice-of-law provision: "The validity, enforceability, construction and interpretation of this Agreement shall be governed by the laws of the state in which the Employee was last employed by Medtronic." For the duration of his employment, Stultz worked for Medtronic's Minnesota office.

On June 7, 2000, Stultz resigned from Medtronic and went to California to work for Advanced Bionics Corporation (Advanced Bionics), a Delaware corporation with headquarters in Sylmar, California. The company, a competitor of Medtronic's, develops and manufactures implantable medical devices used to restore hearing to the profoundly deaf. It hired Stultz as a director of business development to market its own spinal cord stimulation device. On the same day, in Los Angeles County Superior Court, Stultz and Advanced Bionics sued Medtronic for declaratory relief, alleging that Medtronic's covenant not to compete and choice-of-law provisions violate California's law and public policy and are void under Business and Professions [175] Code section 16600.^[1] Section 16600 provides in pertinent part that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."^[2]

On June 8, 2000, Stultz and Advanced Bionics notified Medtronic that they intended to apply for a TRO. They applied for an order "enjoining Medtronic from taking any action, other than in this court, to enforce its non-competition agreement with Mr. Stultz, or to otherwise restrain Mr. Stultz from working for Advanced Bionics...." The trial court put over the matter for one day in order to give Medtronic an opportunity to respond. The court rejected Stultz and Advanced Bionics' assertion that Medtronic would use the time to "race to court" in Minnesota. Medtronic immediately removed the action to federal court in order to avoid a hearing on the TRO.

On June 9, 2000, while the action was pending in federal court, Medtronic filed an action in Minnesota state court alleging claims for breach of contract against Stultz and tortious interference with contract against Advanced Bionics. Medtronic filed the action in order to prevent Stultz from working on a competing product at Advanced Bionics. Medtronic then obtained a TRO from the Minnesota court enjoining Advanced Bionics from hiring Stultz in any competitive role. The order also barred both parties "[f]rom making any motion or taking any action or obtaining any order or direction from any court that [would] prevent or interfere in any way with [the Minnesota court's] determining whether it should determine all or any part of the claims alleged in [the Minnesota] lawsuit, including claims for temporary, preliminary or permanent relief."

Within a week, the federal court remanded the California action to the trial court, finding, among other things, that Medtronic had filed its removal notice without evidentiary support and "for the improper purpose of avoiding an unfavorable ruling upon a pending motion before a state court." The federal order stated that removal was improper because Medtronic, a Minnesota company, purported to rely on diversity jurisdiction, even though it knew Stultz was still a Minnesota resident. The federal court also noted that Medtronic had removed the California action "not to have the matter heard in this court, but to interfere with [the TRO] matter being heard."

Thereafter, on July 21, 2000, Medtronic filed a motion in Los Angeles County Superior Court to dismiss or stay the California action on the ground the matter should be decided in Minnesota. The court denied the motion, finding that under a totality of the circumstances, staying or dismissing the California action would not serve the interests of substantial justice.

On August 3, 2000, the Minnesota court issued a preliminary injunction that was similar to its TRO, except it did not include the provision restraining Stultz and Advanced Bionics from pursuing other litigation; it simply restricted Stultz's activities as an Advanced Bionics employee. The court also dissolved the TRO. In Minnesota, Stultz and Advanced Bionics appealed the order issuing the preliminary injunction.

[176] On August 8, 2000, Stultz and Advanced Bionics applied ex parte to the California court for a TRO and order to show cause re preliminary injunction to prohibit Medtronic from taking any further steps in the Minnesota action. The court granted the application, finding there was a "substantial chance" that Medtronic would "go to the Minnesota court [and] attempt to undercut the California court's jurisdiction." Medtronic was "restrained and enjoined from taking any action whatsoever, other than in this Court, to enforce [its covenant not to compete] against ... Stultz or to otherwise restrain ... Stultz from working for Advanced Bionics in California, including but not limited to making any appearance, filing any paper, participating in any proceeding, posting any bond, or taking any other action in the second-filed [Minnesota] lawsuit...."^[3] This TRO was the subject of Medtronic's appeal in the California Court of Appeal.

On August 16, 2000, the Minnesota court amended its August 3 preliminary injunction (purportedly nunc pro tunc), stating it had "failed to incorporate language enjoining [Stultz and Advanced Bionics] from obtaining relief in another court that would effectively stay or limit [the Minnesota] action." The court added a provision enjoining Stultz and Advanced Bionics "from seeking any interim or temporary relief from any other court that would effectively stay, limit or restrain [the Minnesota] action," and ordered them to "move to vacate and rescind the August 8, 2000[TRO] obtained in the California action and refrain from seeking any relief in that action that stays or restrains [the Minnesota] action in any way."^[4]

Stultz and Advanced Bionics informed the Los Angeles County Superior Court that the Minnesota court had directed them to seek vacation of the TRO. The superior court refused to vacate its order. The next day, the Minnesota court held a pretrial conference. Stultz and Advanced Bionics appeared, but Medtronic did not, claiming the California TRO prohibited it from appearing. After a telephone conversation with the Minnesota judge, however, the Los Angeles County Superior Court lifted the TRO temporarily to allow Medtronic to participate in settlement negotiations in Minnesota and in California. The negotiations were unsuccessful.

After additional procedural motions, Medtronic filed a petition for writ of mandate in the Second District Court of Appeal, seeking to continue trial to May 2001. The Court of Appeal stayed the trial (and later stayed all proceedings), issued an order to show cause, and set the matter for hearing.

The Court of Appeal considered the appeal (from the order granting the TRO) and the writ petition (challenging the denial of a trial continuance) together and issued the decision from which Medtronic seeks review. The court held that (1) the trial court's TRO was necessary and proper to protect plaintiffs' interests pending final disposition of the action, and thus was [177] properly issued; (2) notwithstanding the choice-of-law provision in the Agreement, the case would be decided under California law; and (3) because California law would apply and the California action was filed first, California courts should decide the dispute. The Court of Appeal then denied the writ petition as moot. This appeal followed.

DISCUSSION

Issuance of the TRO

Antisuit TRO's must be granted with restraint

Although Medtronic acknowledges that, under certain circumstances, a California court has the power to issue a TRO prohibiting a party from taking action in a case pending in another jurisdiction that would interfere with the California court's proceedings, it asserts that the Court of Appeal here erred in concluding that the TRO entered in this action was proper. Medtronic claims that the Court of Appeal did not place sufficient emphasis on principles of judicial restraint and comity that strongly inform against issuance of the TRO in this case.

We recognize this is a case of first impression, but note that nearly 100 years ago, this court observed that "[t]he courts of this state have the same power to restrain persons within the state from prosecuting actions in either domestic or foreign jurisdictions which courts of equity have elsewhere." (Spreckels v. Hawaiian Com. etc. Co. (1897) 117 Cal. 377, 378, 49 P. 353 (Spreckels).) Spreckels then identified the circumstances under which a trial court is statutorily prohibited from issuing an order restraining litigation in another forum.

Spreckels reversed a California trial court order restraining the defendant from further prosecuting an action he had commenced in the Republic of Hawaii (which did not become United States territory until 1898). (Spreckels, supra, 117 Cal. at pp. 378-380, 49 P. 353.) The court based its holding on the fact that the Hawaii action was pending when the California action seeking a TRO commenced. The court relied on Civil Code section 3423, which remains substantially the same in substance today as it was in 1897, and which specifies the circumstances when a court may not grant a TRO: "(a) To stay a judicial proceeding pending at the commencement of the action in which the injunction is demanded, unless the restraint is necessary to prevent a multiplicity of proceedings. [¶] (b) To stay proceedings in a court of the United States. [¶] (c) To stay proceedings in another state upon a judgment of a court of that state...." Spreckels rejected the plaintiffs' contention that subdivision (a) was limited to California courts, concluding that it was intended as a comprehensive statement of the entire law upon the subject because it was included in part I of the fourth division of the Civil Code. (Spreckels, supra, 117 Cal. at pp. 379-380, 49 P. 353.)

Under the Spreckels rule and Civil Code section 3423, therefore, the rule barring injunctive orders in specific instances is inapplicable here. Although Spreckels recognized that a California court might have power to issue a TRO to prevent multiple proceedings, and implicitly recognized a forum court's power to restrain proceedings, the court never suggested, implicitly or otherwise, that a court may ignore additional proceedings that arise after the initial action commences. The significant principles of judicial restraint and comity inform that we should use that power sparingly.

Several sister state decisions guide our reasoning. These decisions hold that even if a sister state applies different substantive law than the forum state, that fact [178] alone does not justify the issuance of a TRO enjoining proceedings in the sister state. The Texas Supreme Court has observed that a single parallel proceeding in a foreign forum does not constitute a "multiplicity of suits." (Golden Rule Ins. Co. v. Harper (Tex.1996) 925 S.W.2d 649, 651.) Arpels v. Arpels (1960) 8 N.Y.2d 339, 341, 207 N.Y.S.2d 663, 170 N.E.2d 670, held that the use of injunctive relief "to prohibit a person from resorting to a foreign court is a power rarely and sparingly employed, for its exercise represents a challenge, albeit an indirect one, to the dignity and authority of that tribunal." (See also Pfaff v. Chrysler Corp. (1992) 155 Ill.2d 35, 43, 182 Ill.Dec. 627, 610 N.E.2d 51 [court's equity powers must be invoked with great restraint to avoid conflicts and reciprocal interference with jurisdiction]; Gannon v. Payne (Tex.1986) 706 S.W.2d 304, 306 [power to enjoin proceedings pending in a foreign jurisdiction should be exercised sparingly and under special circumstances only].) Medtronic therefore claims that under the judicial restraint principle, if restraining orders are permissible, they must be used only in the most exceptional circumstances, when parallel in personam actions are at stake and "it is necessary for one court to take control of the litigation to ensure an orderly and just resolution." (St. Paul Surplus Lines Ins. Co. v. Mentor Corp. (Minn.Ct.App.1993) 503 N.W.2d 511, 516.)

It is true, as Stultz and Advanced Bionics observe, that certain California cases have recognized that "Where there exists two or more actions involving the same subject matter or the same facts or principles, [a TRO] is necessary to prevent a multiplicity of judicial proceedings." (Rynsburger v. Dairymen's Fertilizer Coop., Inc. (1968) 266 Cal.App.2d 269, 279, 72 Cal.Rptr. 102; see Greene v. Superior Court (1951) 37 Cal.2d 307, 311, 231 P.2d 821; see also, e.g., Code Civ. Proc., § 526, subd. (a)(1), (3), & (6) [pending litigation may be enjoined to prevent a multiplicity of judicial proceedings and for other unrelated reasons].) The above decisions, however, sought to avoid an "unseemly conflict" that might arise between California courts if they were free to make contradictory awards. (Greene, supra, 37 Cal.2d at p. 311, 231 P.2d 821; Rynsburger, supra, 266 Cal.App.2d at p. 279, 72 Cal.Rptr. 102.) When the cases involve different states, as in the matter before us, judicial restraint takes on a more fundamental importance. The possibility that one action may lead to a judgment first and then be applied as res judicata in another action "is a natural consequence of parallel proceedings in courts with concurrent jurisdiction, and not reason for an injunction." (Auerbach v. Frank (D.C.1996) 685 A.2d 404, 407.) "[T]he possibility of an `embarrassing race to judgment' or potentially inconsistent adjudications does not outweigh the respect and deference owed to independent foreign proceedings." (Ibid.)

Stultz and Advanced Bionics also contend that although we should pay deference to foreign state proceedings, California's strong public policy against noncompetition agreements under section 16600 weighs against allowing the action to proceed in Minnesota and provides the exceptional circumstance that warrants our upholding the California court's TRO. As they observe, the law protects Californians, and ensures "that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice." (Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 859, 27 Cal. Rptr.2d 573.) It protects "the important legal right of persons to engage in businesses and occupations of their choosing." (Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1520, 66 [179] Cal.Rptr.2d 731.) We have even called noncompetition agreements illegal. (See, e.g., Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 123, fn. 12, 99 Cal.Rptr.2d 745, 6 P.3d 669.) Therefore, according to Stultz and Advanced Bionics, because the noncompetition provision in the Agreement is broad in application and forbids Stultz from working for any competitor on a competitive product for two years after employment termination, it is likely that a California court would conclude the provision is void under section 16600.^[5]

We agree that California has a strong interest in protecting its employees from noncompetition agreements under section 16600. But even assuming a California court might reasonably conclude that the contractual provision at issue here is void in this state, this policy interest does not, under these facts, justify issuance of a TRO against the parties in the Minnesota court proceedings. A parallel action in a different state presents sovereignty concerns that compel California courts to use judicial restraint when determining whether they may properly issue a TRO against parties pursuing an action in a foreign jurisdiction.

The comity principle also supports our conclusion. Comity is based on the belief "`"that the laws of a state have no force, proprio vigore, beyond its territorial limits, but the laws of one state are frequently permitted by the courtesy of another to operate in the latter for the promotion of justice, where neither that state nor its citizens will suffer any inconvenience from the application of the foreign law. This courtesy, or comity, is established, not only from motives of respect for the laws and institutions of the foreign countries, but from considerations of mutual utility and advantage."` ... `The mere fact that state action may have repercussions beyond state lines is of no judicial significance so long as the action is not within that domain which the Constitution forbids.'" (Estate of Lund (1945) 26 Cal.2d 472, 489, 159 P.2d 643; see also Gannon v. Payne, supra, 706 S.W.2d at p. 308 [involving parallel actions in Canada and Texas].) The comity principle requires that we exercise our power to enjoin parties in a foreign court sparingly, in line with the policy of judicial restraint discussed above.

Notwithstanding comity principles, Advanced Bionics contends that the first-filed rule provides alternative support for the Court of Appeal's decision to uphold the TRO and to enjoin the litigants from proceeding in Minnesota. We disagree. The first-filed rule in California means that when two courts of the same sovereignty have concurrent jurisdiction, the first to assume jurisdiction over a particular subject matter of a particular controversy takes it exclusively, and the second court should not thereafter assert control over that subject matter. The first-filed rule "was never meant to apply where the two courts involved are not courts of the same sovereignty. [Citation.] Restraining a party from pursuing an action in a court of foreign jurisdiction involves delicate questions of comity and therefore `requires that such action be taken only with [180] care and great restraint.'" (Compagnie des Bauxites de Guinea v. Ins. Co. of N. Am. (3d Cir.1981) 651 F.2d 877, 887, fn. 10.)

We conclude, therefore, that the Court of Appeal erred in upholding the TRO issued against the parties in the Minnesota proceedings. California courts have the same power as other courts to issue orders that assist in protecting their jurisdiction. However, enjoining proceedings in another state requires an exceptional circumstance that outweighs the threat to judicial restraint and comity principles. As explained, the circumstances of this case do not provide sufficient justification to warrant our court's issuing injunctive orders against parties pursuing the Minnesota litigation.^[6]

CONCLUSION

We hold that the trial court improperly issued the TRO enjoining Medtronic from proceeding in the Minnesota action. We also conclude, however, that the Minnesota action does not divest California of jurisdiction, and Advanced Bionics remains free to litigate the California action unless and until Medtronic demonstrates to the Los Angeles County Superior Court that any Minnesota judgment is binding on the parties. As stated above, potentially conflicting judgments naturally result from parallel proceedings but do not provide a reason for issuing a TRO. (Ante, 128 Cal.Rptr.2d at pp. 178-179, 59 P.3d at pp. 236-237.) For these reasons, we reverse the Court of Appeal judgment and remand for additional proceedings consistent with this conclusion.

WE CONCUR: GEORGE, C.J., and KENNARD, BAXTER, WERDEGAR, JJ.

Concurring Opinion by BROWN, J.

I agree with most of Justice Moreno's concurrence. Specifically, I agree with him that the majority has not sufficiently explained its reasons for deferring to principles of comity in this case, and therefore its opinion gives insufficient guidance to lower courts. (Cone. opn. of Moreno, J, post, 128 Cal.Rptr.2d at pp. 181-182, 59 P.3d at p. 239.) I do not, however, agree with the implication in Justice Moreno's opinion that a choice-of-law analysis is irrelevant to determining whether to enjoin parties from litigating a dispute in a foreign jurisdiction. (Id. at p. 188, 59 P.3d at p. 244.) If a careful choice-of-law analysis indicates that the foreign jurisdiction's law applies to the parties' dispute, I think that fact weighs heavily in favor of permitting the foreign proceeding to go forward unimpeded.

This case involves a contract dispute between Medtronic, Inc. (Medtronic), a Minnesota corporation, and Mark Stultz, a former Medtronic employee who worked for Medtronic in Minnesota and, at that time, resided in Minnesota. The parties executed the employment contract in Minnesota, and the choice-of-law provision in the contract designates Minnesota law. Under the terms of the contract, Stultz agreed not to work for a competitor of Medtronic for two years after termination of his employment with Medtronic, and that provision is enforceable under Minnesota law, though not under California law. California had absolutely no interest in this matter until Stultz relocated to California, terminated his employment with [181] Medtronic, and began employment with Advanced Bionics Corporation, a Delaware corporation with headquarters in California. Under these circumstances, where almost all the geographic points of contact in the dispute lie in Minnesota, California's concededly strong interest in promoting competition by encouraging the free movement of personnel laterally across an industry is not "`materially greater'" than Minnesota's countervailing interest in enforcing bargained-for restrictions on that free movement. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 466, 11 Cal.Rptr.2d 330, 834 P.2d 1148.) Therefore, the contract's choice-of-law provision, designating Minnesota law, controls. (Ibid.) Stultz, having enjoyed the benefits of his contract with Medtronic, should not be free to avoid his side of the agreement and thereby cancel some of the value for which Medtronic legitimately bargained.

I can think of several contexts in which a person might relocate to California but remain obligated under contracts entered into in the place of his or her former residence. California courts cannot then reach out and nullify those foreign obligations simply because the same obligations, if entered into here, would run afoul of important California policies. California government is, of course, free to make policy choices for California (subject to constitutional limitations), but we cannot also tell our sister states how they should govern. Choice of law is not, therefore, simply a matter "`of determining which conflicting law manifests] the "better" or the "worthier" social policy,'" because doing so would fail to recognize that, in a federal system, "`states are empowered to mold their policies as they wish,'" and therefore either state's policy is equally valid as representing the choice of a coequal sovereign. (Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 165, 148 Cal.Rptr. 867, 583 P.2d 721.) For this reason, choice of law requires a fair assessment of a jurisdiction's interests in a dispute, not an assessment of how right the jurisdiction's policy is. This point is particularly important because courts have a natural bias favoring the law of the state in which they sit, and litigants are aware of this bias, explaining in part the procedural maneuvering and forum shopping that occurred here. If we permit California courts to apply California law to a dispute like the one at issue here, then California's economic strength gives rise to a kind of political imperialism, absorbing every state into the California legal ethos.

Relocating to California may be, for some people, a chance for a fresh start in life, but it is not a chance to walk away from valid contractual obligations, claiming California policy as a protective shield. We are not a political safe zone vis-à-vis our sister states, such that the mere act of setting foot on California soil somehow releases a person from the legal duties our sister states recognize. Rather, we give full faith and credit to the laws of our sister states, and in a case such as this one, I think doing so requires California courts to apply Minnesota law. Moreover, that conclusion is highly relevant to determining whether the trial court's antisuit injunction in this case was appropriate. I see no reason for a trial court to enjoin parties from litigating in a foreign jurisdiction when the foreign jurisdiction's law applies to the dispute and therefore the task of the California courts will ultimately be to discern how the enjoined proceeding would have come out.

For the reasons stated in Justice Moreno's concurrence, supplemented by the additional points made here, I concur.

Concurring Opinion by MORENO, J.

I agree with the majority that the trial court improperly enjoined Medtronic from [182] pursuing its action in Minnesota. The majority concludes that the trial court's temporary restraining order (TRO) was improper under notions of judicial restraint and comity. I write separately to explain why I believe these notions of judicial restraint and comity should apply in this case and also to discuss, more generally, what I consider to be the appropriate criteria for issuing antisuit injunctions.

The majority recognizes California's interest in protecting employees from noncompetition agreements, yet it concludes that "this policy interest does not, under these facts, justify issuance of a TRO against the parties in the Minnesota court proceedings." (Maj. opn., ante, 128 Cal. Rptr.2d at p. 179, 59 P.3d at p. 237.) The majority explains that "[a] parallel action in a different state presents sovereignty concerns that compel California courts to use judicial restraint when determining whether they may properly issue a TRO against parties pursuing an action in a foreign jurisdiction." (Maj. opn., ante, at p. 179, 59 P.3d at p. 237.) Since there will always be sovereignty concerns when parallel actions are proceeding in two different states, I write separately to explain why I believe that an antisuit injunction is inappropriate in this case notwithstanding California's public policy interest against noncompetition agreements.

Comity has been described as a "complex and elusive concept." (Laker Airways v. Sabena, Belgian World Airlines (D.C.Cir.1984) 731 F.2d 909, 937 (Laker Airways); see Philips Medical Systems Intern. B.V. v. Bruetman (7th Cir.1993) 8 F.3d 600, 604 [describing comity as "a traditional, although in the nature of things a rather vague, consideration in the exercise of equitable discretion"].) In the issues presented for review in this case, Medtronic asserts that "[t]his court has not examined the criteria for issuing anti-suit injunctions since 1897." (Citing Spreckels v. Hawaiian Com. etc. Co. (1897) 117 Cal. 377, 49 P. 353 (Spreckels).) Since this issue is now squarely before us, I believe it is necessary for us to explain what criteria should be used in determining when a court of this state should issue an antisuit injunction.

I.

State courts have the power to issue antisuit injunctions; they can restrain litigants from proceeding in suits brought in a sister state or in a foreign nation. (Spreckels, supra, 117 Cal. at p. 378, 49 P. 353; Pfaff v. Chrysler Corp. (1993) 155 Ill.2d 35, 43, 610 N.E.2d 51, 54 (Pfaff); Gannon v. Payne (Tex.1986) 706 S.W.2d 304, 306.)

State courts typically issue antisuit injunctions only in exceptional circumstances, but the state courts employ various different tests to determine whether an antisuit injunction is appropriate. Texas, for example, enjoins foreign suits "sparingly, and only in very special circumstances." (Christensen v. Integrity Ins. Co. (Tex.1986) 719 S.W.2d 161, 163.) Texas courts apply a four-part test to determine whether an antisuit injunction is appropriate: "1) to address a threat to the court's jurisdiction; 2) to prevent the evasion of important public policy; 3) to prevent a multiplicity of suits; or 4) to protect a party from vexatious or harassing litigation." (Golden Rule Ins. Co. v. Harper (Tex.1996) 925 S.W.2d 649, 651, citing Gannon v. Payne, supra, 706 S.W.2d at p. 307.)

In Illinois, a foreign action can be restrained if it "will result in fraud or gross wrong or oppression; a clear equity must be presented requiring the interposition of the court to prevent manifest wrong and injustice." (Pfaff, supra, 182 Ill.Dec. 627, 610 N.E.2d at p. 61.) An antisuit injunction [183] is not issued "merely because of inconvenience or simultaneous, duplicative litigation, or where a litigant simply wishes to avail himself of more favorable law." (Id at p. 62.) Further, the mere fact that a party filing in another state might benefit from a more favorable law does not mean that the party has "avoided or defeated the laws of Illinois so as to require equitable interposition." (Id at p. 65.) Illinois courts inquire whether the jurisdiction of the Illinois trial court is threatened, and whether the litigant has "avoided or defeated the laws of Illinois" by filing suit in a sister state. (Ibid.)

Similarly, in New York, the use of injunctive power to restrain litigation in a foreign court is "rarely and sparingly employed, for its exercise represents a challenge, albeit an indirect one, to the dignity and authority of that tribunal. Accordingly, an injunction will be granted only if there is danger of fraud or gross wrong being perpetrated on the foreign court." (Arpels v. Arpels (1960) 8 N.Y.2d 339, 341, 207 N.Y.S.2d 663, 170 N.E.2d 670, 671.)^[7]

II.

"The state law standards for interstate injunctions are often similar to those for international injunctions, and the authoritative cases tend to be used interchangeably." (George, Parallel Litigation (1999) 51 Baylor L.Rev. 769, 840.) Since state courts consider the same criteria for deciding whether to issue both intrastate and international injunctions, it is understandable that some state courts have looked to, and incorporated, the standards established by federal courts to determine when a federal court may enjoin a proceeding in a foreign nation. (See, e.g., Gannon v. Payne, supra, 706 S.W.2d at p. 307, citing Laker Airways, supra, 731 F.2d 909; and Seattle Totems, etc. v. National Hockey League (9th Cir.1981) 652 F.2d 852 (Seattle Totems Hockey Club), cert, denied sub nom. Northwest Sports Enterprises, Ltd. v. Seattle Totems Hockey Club, Inc. (1982) 457 U.S. 1105, 102 S.Ct. 2902, 73 L.Ed.2d 1313.)

Another reason that state courts have looked to federal law is that federal law is fairly well developed in the area of foreign antisuit injunctions. Two competing views have emerged: one view, deemed the "liberal approach," looks to whether the foreign suit involves similar parties and issues; the other view, described as the "restrictive approach," considers whether issuing an antisuit injunction would offend notions of international comity. (Compare Kaepa, Inc. v. Achilles Corp. (5th Cir.1996) 76 F.3d 624 with China Trade and Development v. M.V. Choong Yong (2d Cir.1987) 837 F.2d 33 (China Trade).)

The Fifth, Seventh, and Ninth Circuit Courts of Appeals have adopted, or "incline[d] toward" the liberal approach. (Philips Medical Systems Intern. B.V. v. Bruetman, supra, 8 F.3d at p. 605 [7th Cir.]; see Kaepa, Inc. v. Achilles Corp., supra, 76 F.3d 624 [5th Cir.]; Allendale Mut. Ins. v. Bull Data Systems (7th Cir.1993) 10 F.3d 425; Seattle Totems Hockey Club, supra, 652 F.2d 852 [9th Cir.]; In re Unterweser Reederei, Gmbh (5th Cir. 1970) 428 F.2d 888, revd. on other grounds sub nom. The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513.)

[184] Under the liberal approach, a duplication of the parties and issues, alone, is generally sufficient to justify the issuance of an antisuit injunction. (See, e.g., Seattle Totems Hockey Club, supra, 652 F.2d at p. 856.) Courts following this approach consider vexatiousness or oppressiveness in a race to judgment in the foreign forum as sufficient grounds to issue an antisuit injunction. As the Fifth Circuit stated, "a district court does not abuse its discretion by issuing an antisuit injunction when it has determined `that allowing simultaneous prosecution of the same action in a foreign forum thousands of miles away would result in "inequitable hardship" and "tend to frustrate and delay the speedy and efficient determination of the cause."'" (Kaepa, Inc. v. Achilles Corp., supra, 76 F.3d at p. 627, fn. omitted.)

In contrast, the District of Columbia, Second, Third, Sixth, and possibly the Eleventh Circuit Courts of Appeals have adopted the restrictive approach, which places a greater emphasis on international comity. (Stonington Partners v. Lernout & Hauspie Speech (3d Cir.2002) 310 F.3d 118 (Stonington Partners); General Elec. Co. v. Deutz Ag (3d Cir.2001) 270 F.3d 144; Gau Shan Co., Ltd. v. Bankers Trust Co. (6th Cir.1992) 956 F.2d 1349 (Gau Shan); Sea Containers Ltd. v. Stena AB (D.C.Cir. 1989) 890 F.2d 1205; China Trade, supra, 837 F.2d 33 [2d Cir.]; Laker Airways, supra, 731 F.2d 909 [D.C.Cir.]; Mutual Service Cas. Ins. Co. v. Frit Industries (M.D.Ala.1992) 805 F.Supp. 919, 921, affd. (11th Cir.1993) 3 F.3d 442.)

The circuits that follow the restrictive approach "hold that the only proper grounds to grant a foreign antisuit injunction are: 1) to protect the forum's jurisdiction, or 2) to prevent evasion of the forum's important public policies." (Gau Shan, supra, 956 F.2d at p. 1354; see Laker Airways, supra, 731 F.2d at p. 927.) These circuits maintain that the mere duplication of parties and issues is not a sufficient basis for the issuance of an antisuit injunction. They reason that "[factors such as `vexatiousness' or `oppressiveness' and a `race to judgment' are `likely to be present whenever parallel actions are proceeding concurrently'" and therefore are not sufficient grounds for issuance of an antisuit injunction. (Gau Shan, supra, 956 F.2d at p. 1355.)

Courts applying the restrictive approach stress comity, rather than concerns about duplication and a race to judgment, in deciding whether to issue an antisuit injunction. As the Sixth Circuit stated, "[a]ntisuit injunctions ... deny foreign courts the right to exercise their proper jurisdiction. Such action conveys the message, intended or not, that the issuing court has so little confidence in the foreign court's ability to adjudicate a given dispute fairly and efficiently that it is unwilling even to allow the possibility." (Gau Shan, supra, 956 F.2d at p. 1355.) As a result, "[c]omity dictates that foreign antisuit injunctions be issued sparingly and only in the rarest of cases." (Id. at p. 1354.)

III.

In determining which criteria courts of this state should apply when deciding whether to issue an antisuit injunction, I agree with the majority that considerations of comity and judicial restraint should be paramount. Therefore, I would adopt a test that emphasizes these considerations. While the state courts have employed various standards for determining when an antisuit injunction is appropriate, it is in the federal context where these standards have been most fully explored.

The liberal approach favored by some federal circuit courts does not give sufficient attention to concerns of comity; under this approach, it is simply enough to [185] show that there is parallel litigation in a foreign forum causing "`an absurd duplication of effort' [which] would result in unwarranted inconvenience, expense, and vexation." (Kaepa, Inc. v. Achilles Corp., supra, 76 F.3d at p. 627, fn. omitted.) Unlike the liberal approach, the restrictive approach followed by other circuit courts finds that "the possibility of an `embarrassing race to judgment' or potentially inconsistent adjudications does not outweigh the respect and deference owed to independent foreign proceedings." (Laker Airways, supra, 731 F.2d at pp. 928-929, fn. omitted.) The restrictive approach is clearly more protective of the principles of comity and judicial restraint. In deciding what criteria courts of this state should use for issuing antisuit injunctions, I would therefore adopt the restrictive approach.

Under this approach, courts should only issue antisuit injunctions in two situations: if "necessary to protect the jurisdiction of the enjoining court, or to prevent the litigant's evasion of the important public policies of the forum." (Laker Airways, supra, 731 F.2d at p. 927.) The circuits that follow the restrictive approach "have interpreted these exceptions narrowly." (Stonington Partners, supra, 310 F.3d at p. 127.) As I explain below, neither of these exceptions apply in this case.

A. Protecting Jurisdiction

In Laker Airways, the Court of Appeals for the District of Columbia Circuit approved an antisuit injunction where the foreign defendants had initiated the foreign proceeding for the "sole purpose of terminating the United States claim" and where the foreign court had enjoined the parties from pursuing the United States action. (Laker Airways, supra, 731 F.2d at p. 915.) The foreign court was "not following a parallel track but attempt[ing] to carve out exclusive jurisdiction over concurrent actions." (Id. at p. 930.) In such a case, in which the foreign proceedings were "solely designed to rob the court of its jurisdiction," an antisuit injunction was necessary to protect the forum's jurisdiction. (Id. at p. 931.)

While Laker Airways presented a situation in which the jurisdiction of the forum state was in fact threatened, "[s]uch threats to a court's jurisdiction ... are quite unusual." (Gau Shan, supra, 956 F.2d at p. 1356.) Typically, only two scenarios threaten a court's jurisdiction. The first is when the concurrent proceedings are in rem or quasi in rem. (China Trade, supra, 837 F.2d at p. 36.) In such a case, jurisdiction is based on the presence of property within the court's jurisdictional boundaries. A concurrent proceeding in another jurisdiction presents the danger that the foreign court will order the property transferred out of the jurisdictional boundaries of the first court, thereby depriving it of jurisdiction over the matter. The second scenario was presented in Laker Airways. In that case, a foreign court in an in personam action was attempting to carve out exclusive jurisdiction over the matter. In such a case, "an injunction may ... also be necessary to protect the enjoining court's jurisdiction." (China Trade, supra, 837 F.2d at p. 36.)

Circuits that have followed the restrictive approach have held that the possibility that a foreign court may favor the party filing the foreign suit is not a threat to the jurisdiction of the United States courts. (Gau Shan, supra, 956 F.2d at p. 1356.) Even "the possibility that a ruling of a foreign court might eventually result in the voluntary dismissal of the claim before the United States court" does not threaten the United States court's jurisdiction. (Ibid.)

In the present case, the parallel proceeding initiated by Medtronic in Minnesota does not threaten the jurisdiction of the [186] California courts. At the time when the California court issued the TRO at issue here, enjoining Medtronic "from taking any action whatsoever, other than in this Court," the Minnesota court had issued a preliminary injunction restricting Stultz's activities as an Advanced Bionics Corporation employee but not restraining the parties from pursuing other litigation. After the California court issued the antisuit TRO, the Minnesota court revised its prehminary injunction. Notably, however, the Minnesota court did not enjoin the action from proceeding in a California court; instead, the Minnesota injunction was defensive; it enjoined the parties "from obtaining relief in another court that would effectively stay or limit [the Minnesota] action." Whereas the foreign proceedings in Laker Airways were "solely designed to rob the court of its jurisdiction" and the foreign court attempted to carve out exclusive jurisdiction, the Minnesota injunction did not seek to terminate the litigation in California, but was instituted merely to protect the jurisdiction of the Minnesota court. (Laker Airways, supra, 731 F.2d at p. 931.) Further, as courts applying the restrictive approach have held, the possibility that Medtronic may receive a more favorable ruling in a Minnesota court does not threaten the jurisdiction of a California court. (Gau Shan, supra, 956 F.2d at p. 1356.)

B. Evading Public Policies

"Few cases have addressed a situation in which an anti-suit injunction has been appropriately entered to protect important public policy, but the courts that take a restrictive approach have referenced this exception as being narrowly drawn." (Stonington Partners, supra, 310 F.3d at p. 127.) "[O]nly the evasion of the most compelling public policies of the forum will support the issuance of an antisuit injunction." (Gau Shan, supra, 956 F.2d at p. 1358.)

Here, Stultz and Advanced Bionics, as well as several amici curiae, argue that California has a fundamental interest in protecting its employees from noncompetition agreements under Business and Professions Code section 16600.^[8] They contend that allowing the parallel suit to proceed in Minnesota would undermine California's strong public policy interest.

Contrary to the arguments of Stultz and Advanced Bionics, however, the public policy exception does not allow for an injunction merely because two states may apply different substantive laws. "If any advantage in law was sufficient to justify application of the public policy exception, antisuit injunctions would become common and ... comity a consideration of secondary importance. Procedural or substantive advantages offered by the forum law do not, of themselves, provide grounds for an antisuit injunction." (Gau Shan, supra, 956 F.2d at p. 1357.)

Even the possibility that the party filing in a sister state may benefit favorably from an application of that state's law does not necessarily constitute an evasion of the forum state's public policies. The Supreme Court of Illinois, for example, has held that Illinois law was not avoided or defeated in a case where "Chrysler may benefit from a liberal interpretation by a Michigan court of Michigan's law" and similar claims had already been dismissed without prejudice in Illinois. (Pfaff supra, 182 Ill.Dec. 627, 610 N.E.2d at p. 65.) The court held that while a party may gain by filing suit in a sister state, "that gain alone does not mean that [the party filing in the forum state] has suffered a manifest wrong and injustice." (Ibid.) In addition, the possibility that a sister state may apply and [187] enforce a different law is merely speculative and is present "whenever courts have concurrent jurisdiction." (China Trade, supra, 837 F.2d at p. 37.)

The crucial determination is whether the suit was filed in another state for the purpose of evading the important policies of the forum state. Such a purpose may be inferred, for example, if neither party has ties to the sister state in which a parallel suit has been initiated. Courts have found that a party's connection to the foreign jurisdiction minimizes the possibility that such a suit was filed for purposes of evading the forum state's law. For example, the Sixth Circuit found that the purpose of filing suit in Hong Kong was not to evade the policies of Tennessee, since one of the parties was a Hong Kong corporation and its assets were located there. (Gau Shan, supra, 956 F.2d at p. 1358.) Also, in Arpels v. Arpels, the New York Court of Appeal found that the filing of parallel divorce proceedings in France was appropriate based on the fact that the parties were married in France, lived there for several years, maintained a home there after moving to New York, and possibly were still citizens of France. (Arpels v. Arpels, supra, 8 N.Y.2d at p. 342, 207 N.Y.S.2d 663, 170 N.E.2d 670.)

Similarly, courts have held that the identity of the so-called evading party is relevant in determining whether the purpose of the parallel litigation was to evade the laws of the forum state. (Laker Airways, supra, 731 F.2d at pp. 931-932.) Courts have granted an antisuit injunction in cases in which the litigants are both residents of the state in which the injunction is sought, and one resident is seeking to evade the law of the common domicile in order to gain an inequitable advantage over the other. In Cole v. Cunningham (1890) 133 U.S. 107, 119, 10 S.Ct. 269, 33 L.Ed. 538, the United States Supreme Court affirmed a Massachusetts decree enjoining prosecution of a New York action, in which Massachusetts creditors prosecuted attachment suits against a Massachusetts debtor in New York to avoid Massachusetts insolvency laws. The court stated that the rule allowing courts to enjoin those over which they have jurisdiction "has been often applied by the courts of the domicile against the attempts of some of its citizens to defeat the operation of its laws, to the wrong and injury of others." (Ibid.)

Further, an evasive purpose might also be inferred if the foreign suit is initiated contrary to the dictates of a forum selection clause. If the foreign suit is filed in adherence to the forum selection clause, however, an evasive purpose is less likely. For example, in Kirby v. Norfolk Southern Railway Co. (N.D.Ga.1999) 71 F.Supp.2d 1363, 1371, the court found that there was no evidence from which to infer that the party filing suit in Australia was evading the public policies of the forum, based in large part on the forum selection clauses in the applicable contracts, selecting Australia as the forum of choice.

In the present case, the issue is not simply whether California has a strong public policy against noncompetition agreements. Instead, the question is whether Medtronic initiated its action in Minnesota for the purpose of evading California's public policy. Based on the facts of this case, I conclude that Medtronic did not institute its suit in Minnesota to evade California law. Medtronic is a Minnesota corporation. Medtronic entered into an employment contract with Stultz, a Minnesota resident, in Minnesota. The contract contained a choice-of-law provision that stated: "The validity, enforceability, construction and interpretation of this Agreement shall be governed by the laws of the state in which the Employee was last employed, [188] by Medtronic." Stultz worked for Medtronic's Minnesota office for the duration of his employment. Based on these significant ties to a Minnesota forum, as well as the choice-of-law clause designating Minnesota as the chosen forum, I cannot conclude that Medtronic filed suit in Minnesota for the purpose of evading California public policy.

I therefore do not agree with the argument of Stultz and Advanced Bionics, as well some of the amici curiae, that the issuance of the antisuit TRO by the California trial court was appropriate because California law should apply to the action. The Court of Appeal below reached this same conclusion, finding that California law should apply and therefore that the restraining order was appropriate to ensure that this dispute be litigated in California. The antisuit injunction case law does not involve a choice-of-law type of inquiry. A choice-of-law analysis "is simply not a good `fit' with the injunction context." (Stonington Partners, supra, 310 F.3d at p. 130.) Here, the question is not whether California law should apply, but simply whether Medtronic initiated the suit in Minnesota for the purpose of evading California's public policy. Even though Medtronic may benefit by initiating a proceeding in Minnesota, I do not find that the purpose of Medtronic's action was to evade the public policy of California.

IV.

Following the restrictive approach of the federal courts, I therefore conclude that this case does not fall within the exceptional circumstances in which the issuance of an antisuit injunction is appropriate. Medtronic has a legal right to proceed in Minnesota and it is entitled to avail itself of that forum. In this case, an injunction is not necessary to protect the jurisdiction of the California courts, nor is it needed to prevent Medtronic from evading the public policy of California. Accordingly, I agree with the majority that the issuance of the antisuit injunction was inappropriate under principles of comity and judicial restraint.

[1] All statutory references are to the Business and Professions Code unless otherwise stated.

[2] A few days later, Stultz and Advanced Bionics amended the complaint to add unfair competition and unfair business practices claims under section 17200 et seq. That section defines "unfair competition" to include "any unlawful, unfair or fraudulent business act or practice...." (Ibid.)

[3] By order to show cause, the court set a hearing to determine whether it should issue a preliminary TRO, but that matter was taken off calendar when the parties stipulated that the TRO would remain in effect.

[4] In a published opinion, on June 26, 2001, the Minnesota Court of Appeal affirmed the preliminary TRO, rejecting Stultz and Advanced Bionics contention that the trial court erred by failing to defer to the "first-filed" California action and observing that the "first-filed rule" is not intended to be applied in a rigid or inflexible manner. (Medtronic, Inc. v. Advanced Bionics Corp. (Minn.Ct.App. 2001) 630 N.W.2d 438, 449-450.) The court concluded that "Minnesota ... has a strong interest in having contracts executed in this state enforced in accordance with the parties' expectations." (Id. at p. 456.)

[5] Because we conclude the California court improperly issued the TRO, we do not address the trade secrets issues raised in the parties' briefs. We also deny, as inapplicable to our analysis and decision, the request for judicial notice Stultz and Advanced Bionics submitted, that includes evidence of legislative intent in drafting the Uniform Trade Secrets Act. (Evid.Code, § 459.)

[6] Advanced Bionics also contends that the choice-of-law analysis in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 466, footnote 6, 11 Cal.Rptr.2d 330, 834 P.2d 1148, supports application of California law to the facts of this case and provides alternative support for the Court of Appeal's decision to uphold the antisuit TRO. Because we have determined that the court improperly upheld the TRO against the Minnesota proceedings, we do not reach the choice-of-law issue here.

[7] Based on our research, it appears that the Minnesota Supreme Court has not addressed the standards for issuing antisuit injunctions. A lower court has held that a Minnesota court could enjoin parallel litigation proceeding in Texas, based on the substantial similarity of the cases and the first filed status of the Minnesota case. (First State Ins. v. Mn. Min. and Mfg. Co. (Minn.Ct.App.1995) 535 N.W.2d 684, 689.)

[8] All statutory references are to the Business and Professions Code unless otherwise stated.

[884] COUNSEL

Thelen, Marrin, Johnson & Bridges, Charles S. Birenbaum and Thomas M. McInerey for Defendant and Appellant.

Stephen E. Taylor, Jan J. Klohonatz and Paul Beach for Plaintiffs and Respondents.

OPINION

PHELAN, P.J.

The Hunter Group, Inc. (Hunter or appellant), timely appeals from a judgment by which the San Francisco Superior Court declared that covenants not to compete contained in the employment contracts of Hunter consultants who do not reside in California are illegal in the circumstances of this case, and cannot be enforced against respondents The Application Group, Inc. (AGI), a California-based corporation, and Dianne Pike (Pike), a resident of Maryland and former Hunter consultant who was recruited to work for AGI in California in 1992. The trial court's judgment [885] was based on sections 16600 and 17200 of the California Business and Professions Code.^[1]

On appeal, Hunter contends: (1) There is no "actual controversy" between or among the parties and, therefore, certain of AGI's and Pike's claims for declaratory and injunctive relief are not justiciable; (2) the enforceability of the relevant covenants not to compete must be determined under the law of Maryland, not California; and (3) under Maryland law, the covenants not to compete are lawful and enforceable.

We conclude the trial court did not abuse its discretion in determining that AGI's claims are justiciable. We further conclude, in agreement with the trial court, that California law may be applied to determine the enforceability of a covenant not to compete, in an employment agreement between an employee who is not a resident of California and an employer whose business is based outside of California, when a California-based employer seeks to recruit or hire the nonresident for employment in California. However, we agree with Hunter that the trial court abused its discretion by granting declaratory relief in favor of Pike, whose individual claims became moot during the pendency of the proceedings below. Accordingly, we vacate those portions of the judgment relating to Pike's individual claims for relief. As thus modified, the judgment will be affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties.

Hunter is a privately held Maryland corporation, with its headquarters in Maryland. It provides computer consulting services for businesses that use human resources software, including software manufactured by the California-based company, PeopleSoft, Inc. Hunter maintains a branch office in San Francisco, California, as well as in Georgia, Illinois, New York, and Massachusetts. Hunter frequently competes with AGI and other California-based companies for consulting projects. Although its business is centered primarily in the eastern United States, Hunter has provided and continues to provide consulting services to customers in California.

Between October 1992 and July 1993, Hunter employed six computer consultants and one administrative assistant who were California residents. [886] None of these employees had a covenant not to compete in their employment agreements. However, all of Hunter's employees who reside outside of California and work primarily in other states do so under covenants not to compete, which prevent them from working for any of Hunter's competitors for up to one year from termination unless the employee is laid off for economic reasons.

Between August 1993 and May 1994, Hunter performed no billable work in California.^[2] However, in 1994, Hunter again attempted to enter the California computer consulting market. By late 1994, Hunter had ninety employees nationwide, only two of whom resided in California, and five California-based customers. At this time, too, the employment agreements of all of Hunter's non-California resident employees contained covenants not to compete, but those of the two California residents did not. To increase its capacity in California, Hunter assigned temporary projects in California to employees from other states.

AGI is a California corporation, with its headquarters in San Francisco, California. It is a subsidiary of Automatic Data Processing, a publicly held corporation, and maintains offices in Georgia, Illinois, and New Jersey. Like Hunter, AGI provides its customers with the services of trained, specialized computer consultants who frequently travel substantial distances to work directly at the customer's premises. Sometimes these consultants travel from their home state to the customer's location for a project of extended duration. Competition for the limited number of qualified computer consultants among prospective employers — including Hunter and AGI — is "stiff." As of the end of 1994, AGI employed 106 consultants nationwide, 30 of them in California.

AGI and Hunter are structured differently and manage their employees in different ways. AGI conducts both its in-state and out-of-state business from its San Francisco headquarters. AGI's employees are treated as California employees; all AGI employees are residents of, work in, or are managed from California, and, with one exception, have employment agreements governed by California law. Unlike Hunter, AGI does not vary the terms of its employment agreements depending upon the employee's state of residence. AGI does not require a covenant forbidding employment with its competitors.

Pike is a consultant who is skilled in computerized human resources management systems, the field in which Hunter and AGI compete. She has [887] been a resident of Maryland since 1963, and was hired by Hunter in 1991. During the 16 months she was employed by Hunter, Pike worked at Hunter's Baltimore offices and at various customer sites in Arizona, Colorado, Massachusetts, and New York. It is undisputed that Pike never set foot in California, even for pleasure, during the time she was employed by Hunter.

Hunter objected to AGI's recruitment and hiring of Pike, and demanded she withdraw her resignation and continue service under her employment contract. When Pike refused, Hunter sued her in the Circuit Court for Montgomery County, Maryland, in an action entitled Hunter Group, Inc. v. Pike (No. 95647), for breach of the covenant not to compete contained in her employment agreement. Hunter also sued AGI for unlawful interference with that contractual relationship. That action was concluded in May 1994, following presentation of the plaintiff's case, when the Maryland court granted Pike's and AGI's motion for judgment because of Hunter's failure to present any evidence of damages.^[3]

B. Hunter's Covenant Not to Compete.

The covenant not to compete contained in Pike's employment contract is similar to those used by Hunter with respect to all of its employees who may or may not work in, but are not residents of, California. The covenant in Pike's employment contract provided: "During the term of [her] employment, and for a period of [one year] after the date of its termination, [Pike] agrees that [she] will not render, directly or indirectly, any services of an advisory or consulting nature, whether as an employee or otherwise, to any business which is a competitor of [Hunter]." The noncompetition clause does not apply where the employee is "terminated by [Hunter] for economic or budgetary reduction purposes." Pike's employment contract expressly provided it was to be "governed by and construed in accordance with the laws of the State of Maryland."

Hunter uses the covenant not to compete for the admitted purpose of deterring and preventing the solicitation, recruitment and hiring of Hunter's employees by its competitors, especially those in California. Hunter intends [888] that the covenant not to compete will serve as a complete barrier between its competitors and all of its employees. Hunter's use of the covenants not to compete also allows it to avoid a "bidding war" that would increase the salary of its consultants. Hunter has admitted its consultants cannot, and do not, shop for a potential offer from a competitor to obtain leverage in salary negotiations with Hunter. Hunter has objected, and continues to object, to what Hunter calls AGI's "poor business practice" of "trying to hire [Hunter's] people and steal them away from all their competitors." Indeed, Hunter's president testified that the covenant not to compete was designed to "scare [AGI] away" from soliciting its employees and that, until the Maryland action, Hunter's strategy had "worked quite well for three years."

Hunter endeavors to assure the efficacy of its covenant not to compete by repeatedly notifying competitors in California, including AGI, that they are not to solicit, recruit, or hire any Hunter employee in California. For example, in a letter of July 20, 1989, Hunter warned AGI, as follows: "[Y]ou should be aware [Hunter] has secured very strict employment agreements with each staff that disallows working for a competitor company or in a competitive position upon leaving Hunter. We would seek an injunction barring any provision of similar services by Hunter employees hired by [AGI]." Similarly, during the pendency of this action in August 1994, Hunter warned AGI in writing to "cease and desist its solicitation of [Hunter] employees." Hunter's covenant not to compete has, in fact, chilled the interest of Hunter's consultants to seek employment with its competitors, and has chilled AGI's efforts to solicit and recruit such consultants.

C. The Instant Action.

AGI and Pike filed their original verified complaint in San Francisco Superior Court on April 16, 1993, seeking a declaratory judgment that section 16600, and not Maryland law, applied to Pike's covenant not to compete and AGI's recruitment of Pike. At that time the Maryland action was still pending, and Hunter successfully moved the San Francisco court on forum non conveniens grounds for a stay of the action pending completion of Maryland litigation. On January 20, 1994, AGI and Pike jointly filed a verified first amended complaint for declaratory relief.

In their amended complaint, AGI and Pike first sought a declaration that California law, specifically sections 16600 and 17200, and not Maryland law, applied to Pike's covenant not to compete, and that Hunter would be prohibited from enforcing any judgment obtained in the Maryland action. Second, AGI sought a declaration that these California statutes provided it with a "privilege" to contact and recruit any Hunter consultant, wherever he [889] or she resided or worked, who was employed under a covenant not to compete. Third, AGI sought a declaration that, by including an illegal noncompetition provision in its employees' contracts, Hunter was engaging in "unfair competition" within the meaning of section 17200. Finally, AGI sought a declaration that, pursuant to sections 16600 and 17200, Hunter was precluded from enforcing in California any out-of-state judgment or injunction it "might obtain" which upholds the validity of its covenant not to compete.

D. The Trial Court's Orders.

The parties filed cross-motions for summary judgment or, in the alternative, summary adjudication, in the law and motion department of the San Francisco Superior Court. On December 13, 1994, the Honorable William Cahill issued an order granting AGI's motion in part, ruling as follows: (1) As a matter of law, California law applies to the actions of AGI in calling and recruiting from California, any Hunter consultants or former consultants who have covenants not to compete in their employment contracts. (2) Sections 16600 and 17200 permit AGI to recruit and hire from California any Hunter consultants who are residents of California, and the use by Hunter of covenants not to compete, for such employees, is illegal under sections 16600 and 17200. (3) California law applied to Pike's covenant not to compete, which was "invalid and unenforceable in California" as to her but, in any event, the covenant with Hunter no longer prohibited her from working for AGI. Judge Cahill denied AGI's motion to the extent it sought a declaration that Hunter's covenant is unenforceable against its consultants "who work or have worked in California, or who report to or are managed from, or have reported to or have been managed from, any [Hunter] California office," ruling that "[a] case-by-case evaluation is needed for these individuals." Judge Cahill also ruled that case-by-case evaluation would be necessary for any out-of-state judgment or injunction against AGI because of its recruitment or hiring of a Hunter employee who has a covenant not to compete. Finally, Judge Cahill declined to recognize a "privilege," based on sections 16600 and 17200, in favor of AGI.^[4]

The balance of the case proceeded to trial in January 1995 before the Honorable Roy Norman, an assigned judge. The matter was submitted after a half-day of live testimony by AGI's president, William Campbell, and the filing of a stipulated statement of facts.

On January 30, 1995, Judge Norman issued a statement of decision, denying AGI's claims for declaratory relief. However, on April 5, 1995, [890] in response to AGI's objections to the proposed statement of decision, Judge Norman issued a revised statement of decision which, for the most part, adopted the rationale of Judge Cahill's prior ruling. Judge Norman also ruled — for the first time — that Hunter's covenant not to compete is an "unenforceable contract[] to restrain trade," the use of which constitutes "unfair competition" in violation of section 17200. More specifically, in his final statement of decision, Judge Norman ruled that AGI was entitled to a declaratory judgment, as follows:

"1. California law applies to [AGI's] hiring of [Hunter] employees to engage in a profession or business in California. The reason is that California has a strong public policy concerning contracts which would prohibit employment in California regardless of where the parties exchanged promises. The fact that [AGI] does the hiring itself from California is not an operative fact. The operative fact is that California is precluded from the benefits of a business or profession by contract.

"2. Sections 16600 and 17200 of the Business and Professions Code respectively do not confer a privilege. The former deprives certain contract provisions of legal recognition. The latter is a definition. Each separate [sic] and in combination are limitations on conduct to promote public policy. Under Section 17203, [AGI] is given the privilege of enforcing that public policy in its own interest to prevent its breach. The effect of Business and Professions Code section 16600 can be imagined to be an addendum to [Hunter's] non-compete clause to add the words `void in California.' That neither gives the privilege to recruit or hire, it simply renders that promise unenforceable in California.

"3. With respect to [Hunter] employees who work or have worked or who report to or are managed from [Hunter's] California office, neither Business and Professions Code sections 16600 or 17200 state or imply that, foreign contracts valid where made, are vitiated by engaging in business in California. California's concern is to prevent the offending term from enforcement to the detriment of its citizens. The operative fact is not its offensive language but its offensive effect. [¶] [AGI's] recruitment efforts to secure employees for employment in California are protected indirectly by invalidating employment contracts which seek to preclude acceptance of such offers. Such efforts are not dependent on the employee's domicile nor his contacts with California. On the other hand, [AGI's] recruitment for employment beyond the borders of California are not brought under California law so as to apply California employment restrictions of Business and Professions Code section 16600 simply because that party has California connections.

[891] "4. [Hunter] is bound by California law only to the extent that its consultants are free from the stricture against employment by a competitor in a business to be performed in California. This is so without reference to present residence or employment location and whether or not the employee has engaged in any of [Hunter's] business in California.

"5. No controversy exists at this time with regard to an existing out-of-state injunction or judgment against [AGI] enforcing [Hunter's] non-compete provision. The Court therefore declines to make any declaration with respect to such injunctions or judgments.

"6. The Court declines to render declaratory relief as specifically requested in paragraphs 50-52 and 55-57[^[5]] of the First Amended Verified Complaint since these paragraphs, as specifically worded, are inconsistent with the law of California as this Court understands it to be and as stated herein."

Finally, Judge Norman was careful to add that the revised statement of decision, filed April 5, 1995, superseded his prior statement of decision, and that it was not intended to modify, vacate or change Judge Cahill's orders of December 13, 1994, and January 30, 1995, on the parties' cross-motions for summary judgment and summary adjudication of issues. On June 15, 1995, [892] judgment was entered based on Judge Norman's revised statement of decision and Judge Cahill's orders. Hunter timely filed a "Notice of Partial Appeal," specifying portions of this judgment.

II. DISCUSSION

This appeal raises one of the many interesting and difficult legal questions created by the rapid expansion of computer technology. It involves what might be called the "virtual employer," one whose employees work out of their homes, or from branch offices scattered throughout the country, or at customer sites in various states, as necessary to provide "consulting" services with respect to the customers' computerized human resources systems. Competition among such employers is fierce, both for customers and for qualified employees. The situation gives rise to potential conflicts among the laws governing solicitation, recruitment, and employment in the various states where the employees, employers and customers can be said to "reside."

In this case, we must decide whether California law may be applied to determine the enforceability of a covenant not to compete, in an employment agreement between an employee who is not a resident of California and an employer whose business is based outside of California, when a California-based employer seeks to recruit or hire the nonresident for employment in California. Before proceeding to the merits of the parties' dispute on that issue, however, we must address a few preliminary questions.

A. Although Pike's Individual Claims Are Moot, the Trial Court Did Not Err in Adjudicating the Issue of Enforceability of Hunter's Noncompetition Clause When Invoked to Preclude Employment in California.

(1a) Hunter contends that certain of AGI's claims about the enforceability of its covenants not to compete are not justiciable. Specifically, Hunter challenges those portions of the declaratory judgment relating to Hunter consultants who are residents of California, contending they reflect a decision on issues as to which there was and is no "actual controversy." Hunter also contends that Pike's individual claims are moot.

(2) Code of Civil Procedure section 1060 confers standing upon "[a]ny person interested under a ... contract" to bring an action for declaratory relief "in cases of actual controversy relating to the legal rights and duties of the respective parties." "Whether a determination is proper in an action for declaratory relief is a matter within the trial court's discretion ... and the [893] court's decision to grant or deny relief will not be disturbed on appeal unless it be clearly shown ... that the discretion was abused." (Hannula v. Hacienda Homes (1949) 34 Cal.2d 442, 448 [211 P.2d 302, 19 A.L.R.2d 1268]; see also General of America Ins. Co. v. Lilly (1968) 258 Cal. App.2d 465, 471 [65 Cal. Rptr. 750].) Whether an action is justiciable for purposes of Code of Civil Procedure section 1060 is also a matter entrusted to the sound discretion of the trial court. (See Tehachapi-Cummings County Water Dist. v. Armstrong (1975) 49 Cal. App.3d 992, 998 [122 Cal. Rptr. 918].) (1b) In this case, we conclude the trial court did not abuse its discretion either by finding AGI's claims to be justiciable, or by granting declaratory relief in AGI's favor.

Hunter does not appear to challenge AGI's standing as a "person interested under" the noncompetition agreement. Nor does Hunter raise any issue about the justiciability of the parties' dispute about the enforceability of covenants not to compete in the employment agreements of its nonresident employees.^[6] Hunter simply contends that any controversy over the use of covenants not to compete for its employees residing in California is purely "conjectural" because, as a matter of corporate policy, Hunter never has and never will include a noncompetition clause in the employment agreements of its employees who reside in California.

In this regard, Hunter's justiciability argument is beside the point. It is true that Hunter never really disputed and, indeed, conceded it cannot lawfully require a covenant not to compete in the employment agreement of any employee who is a California resident. Ordinarily, declaratory relief would be inappropriate in such a situation. (See Auberry Union School Dist. v. Rafferty (1964) 226 Cal. App.2d 599, 602-603 [38 Cal. Rptr. 223].) However, in this case, it was necessary for the trial court to determine as a [894] preliminary matter whether the particular noncompetition clause used by Hunter would be enforceable if required of California employees. If so, there would have been no need to decide the central issue raised by AGI's and Pike's complaint: Whether the covenant is enforceable with respect to Hunter's nonresident employees who — like Pike — maintain their foreign domicile, but seek to engage in a business or profession in California. (§ 16600.)^[7] That the trial court chose to articulate a logical premise of its declaratory judgment was not error.

As to Hunter's mootness argument, it is true the one-year term stated in Pike's covenant had expired, and final judgment had been entered in her favor in the Maryland lawsuit, by the time the summary judgment proceedings commenced below. There is nothing to indicate that Pike faces any further liability under her noncompetition pledge, or that she is interested in becoming reemployed by Hunter (or by any other out-of-state company that requires covenants not to compete from its consultants) any time in the near future. Thus, as Hunter contends, Pike's individual claims for declaratory relief under Code of Civil Procedure section 1060, for the alleged violations of sections 16600 and 17200, were and are entirely moot.^[8] Of course, there is little to be gained by vacating those portions of Judge Cahill's order relating to Pike's noncompetition agreement. As we discuss in part II.B, post, the declaratory judgment in favor of AGI with respect to nonresident employees necessarily implies Hunter's noncompetition clause would not be enforceable to prevent the recruitment and hiring of any employee situated precisely as was Pike. Nevertheless, this court is not in the business of deciding issues that have lost their vitality as matters in "actual controversy." Accordingly, we will vacate those portions of the judgment relating to Pike's individual claims for declaratory relief.

B. The Trial Court Did Not Err in Concluding That California Law Governs the Issues Presented in This Appeal.

(3a) Hunter's principal contention on appeal is that the trial court erred in its application of conflict of laws principles to this case. AGI counters [895] that there is no true conflict of laws issue because all of the rulings by the trial court govern conduct and activities that occur exclusively in California. We reject both of these arguments but nevertheless conclude that the trial court did not err in applying California law to the issues raised by the complaint.

It is important at the outset to clear away issues we need not decide to resolve the conflict of laws issue presented. As we have noted, there is no real dispute about the enforceability of a covenant not to compete in the employment agreement of Hunter employees who are residents of California. To the extent AGI and Pike alleged that Hunter requires a covenant not to compete from its employees who are California residents, Hunter has conceded that California law invalidates such provisions. It is quite clear that a covenant prohibiting a California employee from working for a competitor after termination of his or her employment violates section 16600, except in two circumstances not present here. (Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242 [42 Cal. Rptr. 107, 398 P.2d 147, 18 A.L.R.3d 1241]; Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal. App.4th 853, 860 [27 Cal. Rptr.2d 573].) Nor is there any genuine dispute about AGI's recruitment of Hunter consultants exclusively "for employment beyond the borders of California." Judge Norman clearly ruled that California law does not apply to or regulate such recruitment or employment, and AGI does not object to that aspect of the trial court's judgment.

What is at issue is the trial court's ruling that Hunter's noncompetition clause is rendered unenforceable by sections 16600 and 17200 as against its nonresident consultants (such as Pike) when a California employer (such as AGI) seeks to hire them for employment in California.^[9] Hunter does not suggest any theory under which this use of its covenant not to compete would survive challenge if California law applies. Hunter simply contends the trial court should have decided this issue under Maryland law — in accordance with the contractual choice-of law-provision in the employment agreements of Hunter's nonresident employees — and, thus, found its noncompetition covenant to be enforceable in the present context. (See Holloway v. Faw, Casson & Co. (1990) 319 Md. 324 [572 A.2d 510, 515] [noncompetition agreements are enforceable so long as they are reasonable in scope and duration]; Ruhl v. F.A. Bartlett Tree Expert Co. (1967) 245 Md. 118 [225 A.2d 288, 291] [same].) AGI, for its part, does not dispute that [896] Hunter's covenant not to compete would be enforceable in these circumstances if Maryland law applies, but contends that application of Maryland law to the parties' dispute would be contrary to fundamental public policy of California. Thus, we must decide whether California or Maryland law applies to a dispute over the enforceability of Hunter's noncompetition clause when a California employer (such as AGI) seeks to hire one of Hunter's nonresident consultants (such as Pike) for employment in California.

1. California Choice-of-Law Principles.

(4) Perhaps the most comprehensive statement of the California choice of laws principles applicable to this case can be found in a federal court opinion upon which Hunter places heavy reliance. In S.A. Empresa, etc. v. Boeing Co. (9th Cir.1981) 641 F.2d 746 (S.A. Empresa), the court observed: "California does not apply a mechanical test to choice-of-law questions. Rather, it employs the `governmental interest analysis.' Under this approach, California law will be applied unless the foreign law conflicts with California law and California and the foreign jurisdiction have significant interests in having their law applied. [Citations.] Where significant interests conflict, the court must assess the `comparative impairment' of each state's policies. [Citations.] The law applied will be that of the state whose policies would suffer the most were a different state's law applied. [Citations.] A separate choice-of-law inquiry must be made with respect to each issue in a case. [Citation.] [¶] The preceding rules apply regardless of whether the dispute arises out of contract or tort. [Citation.] An exception applies, however, in the case of contracts with choice-of-law provisions. California will apply the substantive law designated by the contract unless the transaction falls into either of two exceptions: [¶] 1) the chosen state has no substantial relationship to the parties or the transaction, or [¶] (2) application of the law of the chosen state would be contrary to a fundamental policy of the state. [Citations.] Under the second exception, where application of a choice-of-law provision would result in the contravention of California's public policy, the provision will be ignored to the extent necessary to preserve public policy. [Citations.]" (Id. at pp. 749-750; see also Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 319-321 [128 Cal. Rptr. 215, 546 P.2d 719] ["governmental interest" and "comparative impairment" approaches to choice of law problems]; Sommer v. Gabor (1995) 40 Cal. App.4th 1455, 1468 [48 Cal. Rptr.2d 235] [summarizing "comparative impairment" test]; North American Asbestos Corp. v. Superior Court (1986) 180 Cal. App.3d 902, 905 [225 Cal. Rptr. 877] [application of comparative impairment test in "`true'" conflict situation]; Dixon Mobile Homes, Inc. v. Walters (1975) 48 Cal. App.3d 964, 972 [897] [122 Cal. Rptr. 202] ["comparative impairment" approach applies to both tort and contract cases].)

Recently, the S.A. Empresa court's exposition and application of California choice of laws rules met with the approval of our Supreme Court. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-466 & fn. 1 [11 Cal. Rptr.2d 330, 834 P.2d 1148] (Nedlloyd).) The Nedlloyd court recognized that, although the Ninth Circuit did not expressly say so, it was applying the "modern, mainstream" approach of section 187 of the Restatement Second of Conflicts of Laws (hereinafter Restatement), and, more particularly, subdivision (2) of that section.^[10] (Nedlloyd, supra, 3 Cal.4th at pp. 464-466, fns. 1 & 6; see also S.A. Empresa, supra, 641 F.2d at p. 749, citing Gamer v. duPont Glore Forgan, Inc. (1976) 65 Cal. App.3d 280, 287-288 [135 Cal. Rptr. 230] [explicit reference to Rest. § 187].)

The Nedlloyd court elaborated: "[T]he proper approach under Restatement section 187, subdivision (2) is for the court first to determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law. If neither of these tests is met, that is the end of the inquiry, and the court need not enforce the parties' choice of law.... If, however, either test is met, the court must next determine whether the chosen state's law is contrary to a fundamental policy of California.... If there is no such conflict, the court shall enforce the parties' choice of law. If, however, there is a fundamental conflict with California law, the court must then determine whether California has a `materially greater interest than the chosen state in the determination of the particular issue....' (Rest., § 187, subd. (2).) If California has a materially greater interest than the chosen state, the choice of law shall not be enforced, for the obvious reason that in such circumstances we will decline to enforce a law contrary to this state's fundamental policy." (Nedlloyd, supra, 3 Cal.4th at p. 466, italics in original, fns. omitted.)

Although the Nedlloyd court thus outlined the analytical approach to cases involving contractual choice-of-law provisions, it expressly declined to [898] decide how the principles of subdivision (2)(b) of section 187 of the Restatement would apply to cases in which the interests of the chosen state clash with a "fundamental policy" of California, because the court found that no "fundamental policy" of California was implicated in the case before it. (Nedlloyd, supra, 3 Cal.4th at pp. 466, fn. 6, 468.) However, in dicta, the Nedlloyd court cited S.A. Empresa, supra, 641 F.2d 746, as an example of a case involving such a conflict and, indeed, suggested that the Ninth Circuit had properly enforced the parties' contractual choice-of-law provision after finding that the interests of the chosen state (Washington) were materially greater than those of the forum state (California) even though "fundamental policy" of California may have been implicated in the parties' dispute. (Nedlloyd, supra, at p. 466, fn. 6; S.A. Empresa, supra, at pp. 750-753.)

One of the difficulties in these cases is that the "materially greater interest" test of subdivision (2)(b) of section 187 of the Restatement overlaps with the "governmental interest" and "comparative impairment" analyses that must be conducted in California to determine which state "would be the state of the applicable law in the absence of an effective choice of law by the parties" (see Dixon Mobile Homes, Inc. v. Walters, supra, 48 Cal. App.3d at p. 972). Neither Nedlloyd nor S.A. Empresa, nor any other case disclosed by our research, discusses the relationship between and among these tests. The approach utilized by the Ninth Circuit for dealing with that problem in the S.A. Empresa case appears to have been to first examine the respective "governmental interests" of the chosen and forum states and then determine the extent to which those interests would be impaired by application of the other state's laws. (See S.A. Empresa, supra, 641 F.2d at pp. 752-753.)^[11] Under this approach, a court can decline to enforce the parties' contractual choice-of-law provision only if the interests of the forum state are "materially greater" than those of the chosen state, and the forum state's interests would be more seriously impaired by enforcement of the parties' contractual [899] choice-of-law provision than would the interests of the chosen state by application of the law of the forum state.^[12]

2. Application of California Choice-of-Law Rules to This Case.

(3b) Hunter is correct that the trial court did not explicitly undertake any formal choice-of-law analysis, as prescribed by the foregoing case law, but that does not mean the trial court came to the wrong conclusion.^[13] There is no dispute that the chosen state — Maryland — has a "substantial relationship" to the parties and their transaction. There is also no dispute that there is a "reasonable basis" for the parties' contractual choice-of-law provision. Indeed, the mere fact that one of the parties to the contract is incorporated in the chosen state is sufficient to support a finding of "substantial relationship," and the mere fact that one of the parties resides in the chosen state provides a "reasonable basis" for the parties' choice of law. (Nedlloyd, supra, 3 Cal.4th at pp. 467-468.)

The parties also agree that California and Maryland are "potentially concerned" states with diametrically opposed laws regarding the enforceability of Hunter's noncompetition clause. (See Sommer v. Gabor, supra, 40 Cal. App.4th at p. 1467; North American Asbestos Corp. v. Superior Court, supra, 180 Cal. App.3d at p. 905.)^[14] As we have noted, with certain limited exceptions, California law renders void such provisions (§ 16600), while [900] Maryland law permits them so long as they are reasonable in scope and duration (Holloway v. Faw, Casson & Co., supra, 572 A.2d 4th at p. 515; Ruhl v. F.A. Bartlett Tree Expert Co., supra, 225 A.2d at p. 291). Furthermore, as we will discuss, each state purports to have significant interests in having its law applied. Thus, the real issues for decision are whether Maryland's law is contrary to a fundamental policy of California and, if so, which state has a "materially greater interest" in the determination of the issue and which state's interests would be more seriously impaired if its policy were subordinated to the policy of the other state. (Bernhard v. Harrah's Club, supra, 16 Cal.3d at p. 320; Sommer v. Gabor, supra, 40 Cal. App.4th at p. 1468.) As our Supreme Court has instructed, "careful consideration" of California policy and Maryland's interests is required in order to resolve these issues. (Nedlloyd, supra, 3 Cal.4th at p. 466, fn. 6.)

AGI is correct when it argues that section 16600 reflects a "strong public policy" of the State of California. (KGB, Inc. v. Giannoulas (1980) 104 Cal. App.3d 844, 848 [164 Cal. Rptr. 571]; Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal. App.3d 668, 673 [97 Cal. Rptr. 811] (Frame); Scott v. Snelling and Snelling, Inc. (N.D.Cal. 1990) 732 F. Supp. 1034, 1042.) Indeed, the strength of California's policy interest was the explicit basis for Judge Norman's rulings on the applicability of California law to Hunter's noncompetition covenants insofar as it affects employment in California. As the Second Appellate District recently observed: "California courts have consistently declared this provision an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice. Section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated, unless necessary to protect the employer's trade secrets. [Citation.] The corollary to this proposition is that [a competitor] may solicit another's employees if they do not use unlawful means or engage in acts of unfair competition." (Metro Traffic Control, Inc. v. Shadow Traffic Network, supra, 22 Cal. App.4th at p. 859.) In Diodes, Inc. v. Franzen (1968) 260 Cal. App.2d 244 [67 Cal. Rptr. 19], the court further explained the policy underpinnings of section 16600, as follows: "The interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change." (Diodes, Inc. v. Franzen, supra, at p. 255.) It follows that California has a strong interest in [901] protecting the freedom of movement of persons whom California-based employers (such as AGI) wish to employ to provide services in California, regardless of the person's state of residence or precise degree of involvement in California projects, and we see no reason why these employees' interests should not be "deemed paramount to the competitive business interests" of out-of-state as well as in-state employers. (Ibid.)

To the extent it is invoked by a California employer to protect itself from "unfair competition," moreover, section 16600 (as implemented through sections 17200 and 17204) is all the more important as a statement of California public policy which ensures that California employers will be able to compete effectively for the most talented, skilled employees in their industries, wherever they may reside. In this day and age — with the advent of computer technology and the concomitant ability of many types of employees in many industries to work from their homes, or to "telecommute" to work from anywhere a telephone link reaches — an employee need not reside in the same city, county, or state in which the employer can be said to physically reside. California employers in such sectors of the economy have a strong and legitimate interest in having broad freedom to choose from a much larger, indeed a "national," applicant pool in order to maximize the quality of the product or services they provide, as well as the reach of their "market." California has a correlative interest in protecting its employers and their employees from anticompetitive conduct by out-of-state employers such as Hunter — including litigation based on a covenant not to compete to which the California employer is not a party — who would interfere with or restrict these freedoms.

Hunter suggests, however, that Maryland has an equally strong public policy favoring the use and enforcement of its noncompetition covenants, insofar as they serve the interests of Maryland employers in preventing recruitment of employees who provide "unique services," and the misuse of trade secrets, routes, or lists of clients, or solicitation of customers. (Fowler v. Printers II (1991) 89 Md. App. 448 [598 A.2d 794, 799]; Becker v. Bailey (1973) 268 Md. 93 [299 A.2d 835]; Holloway v. Faw, Casson & Co., supra, 572 A.2d at p. 515.) However, there is nothing in the record of this case to support a finding that failure to enforce Hunter's noncompetition covenant would significantly impair either of the asserted interests. We have no reason to doubt the parties' showing that highly skilled consultants such as Pike are a scarce resource. But, with all due respect to Ms. Pike, there is no showing [902] that she performed "unique services" for Hunter.^[15] There is also no showing that Pike was attempting to exploit Hunter's trade secrets or other protected information about its customers. In any event, should such concerns arise with respect to the recruitment of other Hunter consultants for employment in California, Hunter has recourse under both Maryland and California law. (See, e.g., Morlife, Inc. v. Perry (1997) 56 Cal. App.4th 1514 [66 Cal. Rptr.2d 731].)

We are, therefore, convinced that California has a materially greater interest than does Maryland in the application of its law to the parties' dispute, and that California's interests would be more seriously impaired if its policy were subordinated to the policy of Maryland. Accordingly, the trial court did not err when it declined to enforce the contractual conflict of law provision in Hunter's employment agreements. To have done so would have been to allow an out-of-state employer/competitor to limit employment and business opportunities in California. As the Nedlloyd court held, California courts are not bound to enforce a contractual conflict of law provision which would thus be "contrary to this state's fundamental policy." (Nedlloyd, supra, 3 Cal.4th at p. 466, fn. omitted; see also Frame, supra, 20 Cal. App.3d at p. 673; Hollingsworth Solderless Terminal Co. v. Turley (9th Cir.1980) 622 F.2d 1324, 1338; Davis v. Jointless Fire Brick Co. (9th Cir.1924) 300 F. 1, 2-3; Scott v. Snelling and Snelling, Inc., supra, 732 F. Supp. at pp. 1039-1040, 1041.)

Frame, supra, 20 Cal. App.3d 668, is closely on point. In that case, the plaintiff brought an action seeking a determination that a portion of an agreement between the plaintiff and his former employer, a stock brokerage, was void under section 16600 to the extent it provided for forfeiture of profit-sharing rights by any employee who voluntarily terminated his employment and went to work for a competitor. (20 Cal. App.3d at p. 670.) The trial court and the court of appeal agreed with the plaintiff, and rejected the employer's argument that the forfeiture clause was valid under New York law and, thus, enforceable under a clause in the profit-sharing plan designating New York law as governing their rights under the contract. (Id. at p. 673.) The Frame court held that it could not allow New York law to defeat the "strong public policy" embodied in section 16600 and, thus, declined to give effect to the parties' contractual choice-of-law provision. (20 Cal. App.3d at p. 673; see also Davis v. Jointless Fire Brick Co., supra, 300 F. at pp. 2-3.) It is noteworthy that the court in S.A. Empresa, supra, 641 F.2d [903] 746, cited Frame for the proposition that "... where application of a choice-of-law provision would result in the contravention of California's public policy, the provision will be ignored to the extent necessary to preserve public policy." (Id. at p. 749, cited with approval in Nedlloyd, supra, 3 Cal.4th at pp. 464-466, fns. 1 & 6.)

In defense of its noncompetition clause, Hunter does not rely heavily upon a claim that the State of Maryland has legitimate and compelling interests in the enforcement of the covenant, beyond a general interest in the enforceability of a contract valid where made. Hunter simply suggests that we should focus our attention on the "relevant contacts" of the parties with California and Maryland (see Robert McMullan & Son, Inc. v. United States Fid. & Guar. Co. (1980) 103 Cal. App.3d 198, 205 [162 Cal. Rptr. 720], citing Dixon Mobile Homes, Inc. v. Walters, supra, 48 Cal. App.3d at p. 972, fn. 4), and, on that basis, conclude the trial court erred by reading section 16600 as a "super-statute" applicable to out-of-state contracts as to which California has no interest. In a related argument, Hunter suggests that Maryland law was the "only law apparently applicable" at the time of contracting and that we must honor the expectations of the parties in that regard. (See Bernkrant v. Fowler (1961) 55 Cal.2d 588, 594-595 [12 Cal. Rptr. 266, 360 P.2d 906].)^[16] It is only by exaggerating and distorting the reach of the trial court judgment, and by ignoring important features of "relevant contacts" analysis, that Hunter can take this position.

(5) "With the governmental interest approach, `relevant contacts' stressed by the Restatement Second of Conflict of Laws are not disregarded, but are examined in connection with the analysis of the interest of the involved state in the issues, the character of the contract and the relevant purposes of the contract law under consideration." (Dixon Mobile Homes, Inc. v. Walters, supra, 48 Cal. App.3d at p. 972, fn. omitted.) In contract cases, these "relevant contacts" include: "`(a) the place of contracting, [¶] (b) the place of negotiation of the contract, [¶] (c) the place of performance, [¶] (d) the location of the subject matter of the contract, and [¶] (e) the domicil, residence, nationality, place of incorporation and place of business of the parties.'" (Id., at p. 972, fn. 4, quoting Rest. § 188, subd. (2).)

[904] (3c) In essence, Hunter suggests this court should mechanically apply an outdated — or at least incomplete — "choice-of-laws" test which, it contends, would result in a choice of Maryland law because that was the place where the contract was negotiated, entered into and performed, as well as "the domicil, residence, nationality, place of incorporation and place of business" of the parties to the contract, i.e., Hunter and Pike. While partially correct, this argument indicates that Hunter's focus is on the wrong "contract." There is no issue in this case about the enforceability of Pike's employment agreement, only of the covenant not to compete.^[17] That covenant was negotiated and signed in Maryland, which is both Pike's and Hunter's state of residence, but Maryland was not the exclusive place of business of either Hunter or Pike and was not necessarily the place where the covenant was to be "performed." In this case, moreover, the contracting parties were undoubtedly well aware that the purpose of the noncompetition clause was to prevent Hunter's competitors, especially those in California, from recruiting and hiring Hunter's consultants. Thus, the parties were or should have been alerted to the possibility that California law could come into play in the course of their relationship. In fact, the issue of "performance" arose — at least in part — in California when Pike was recruited by and accepted employment with a California employer to perform services in California. Similarly, although Hunter overlooks this aspect of the Restatement test, "the subject matter of the contract" is arguably subsequent employment which was, in this case, employment by a competitor who is "located" in California.^[18]

Even more fundamentally, however, Hunter overlooks the facts that AGI is a key player in this drama. AGI is a California employer against whom Hunter has repeatedly threatened and attempted to "enforce" the relevant "contract" — a contract, as we have noted, to which AGI is not even a party. We simply cannot ignore AGI's interests, and those of the state of California, with respect to enforceability of Hunter's noncompetition covenants as it affects employment and business opportunities in California.

Nor can we overlook the fact that Hunter itself has significant "contacts" with California. Hunter maintains an office in California, conducts business in California, competes head-to-head with AGI for California customers, and [905] maintains close relationships with California software companies whose products it supports. Hunter also freely admits it has actively sought to recruit AGI employees who, under California law and AGI policy, cannot be saddled with a covenant not to compete. Indeed, Hunter even pays its current employees a reward for referring any AGI consultant who is successfully recruited for employment by Hunter. Thus, if we were to engage only in the "relevant contacts" analysis Hunter urges, we would not find error in the trial court's decision to apply California law.

Finally, Hunter contends that the trial court's declaratory judgment was "woefully vague and ambiguous" and, for that reason, unenforceable. We disagree. It is true that, to fall within the scope of the trial court's declaratory judgment, a recruited employee need not have had any prior contact with California, so long as the goal of the solicitation is "employment in California," or employment in "business to be performed in California." As to any such employee, the trial court declared that Hunter's covenant not to compete is invalidated by section 16600. In essence, the trial court acted to protect AGI's freedom to solicit or recruit out-of-state consultants for employment in California, as well as the rights of non-California residents, who are prospective employees of a California company, to engage in a business or profession in California if they so choose. (§ 16600.) Under Judge Norman's ruling, however, it is plainly not sufficient simply to be employed by a California-based employer such as AGI, or to be treated as a California employee for tax and other legal purposes, if the employee is to perform services exclusively "beyond the borders of California."

Under Hunter's own reasoning, it could not enforce its noncompetition covenant against a former consultant who accepts a position with AGI after moving to California and becoming a "citizen" of this state — even if the consultant does 100 percent of his or her work outside the State of California. But we agree with the trial court that the enforceability of Hunter's noncompetition covenant does not turn on whether the recruited employee physically resides in California. The concept of "employment in California" is broader than that, at least in the expansive and dispersed industry with which we deal in this case. It must also take into account the location of the employer, and the location of the employer's vendors and customers. Viewing the larger picture, the trial court did not err in concluding that an employee of a California-based employer, who performs services for California-based customers, is "employed in California" and, thus, "engage[d] in a business or profession" in California, so as to enjoy the protection of section 16600.^[19]

[906] C. The Trial Court Did Not Err in Finding That Hunter's Unlawful Use of Covenants Not to Compete to Preclude Employment in California Also Violates Section 17200.

(6a) Hunter also contends the trial court erred when it concluded that, in addition to violating section 16600, Hunter's use of its noncompetition covenant to prevent its former consultants from obtaining employment by AGI in California violates the Unfair Practices Act (UPA) (§ 17200 et seq.).^[20] Section 17200 expresses California public policy against unfair [907] competition, and prohibits "wrongful business conduct in whatever context such activity might occur." (Stoiber v. Honeychuck (1980) 101 Cal. App.3d 903, 927 [162 Cal. Rptr. 194].) Section 17200 defines unfair competition as, inter alia, any "unlawful, unfair or fraudulent business practice." (7a) "The `unlawful' practices prohibited by section 17200 are any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made. [Citation.] It is not necessary that the predicate law provide for private civil enforcement. [Citation.] As our Supreme Court put it, section 17200 `borrows' violations of other laws and treats them as unlawful practices independently actionable under section 17200 et seq. [Citation.]" (Saunders v. Superior Court (1994) 27 Cal. App.4th 832, 838-839 [33 Cal. Rptr.2d 438].)

(6b) In this case, Judge Norman expressly found that, to the extent Hunter requires a covenant not to compete in the employment agreements of employees who are not California residents, but who seek employment in California with a California-based employer, the noncompetition agreement is an "unenforceable contract[] to restrain trade," use of which constitutes "unfair competition" in violation of section 17200. AGI contends, more broadly, that use of a covenant not to compete in this context is both "unlawful" and "unfair" within the meaning of section 17200.

(7b) California courts have recognized that an employer's business practices concerning its employees are within the scope of section 17200. (Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal. App.4th 1109, 1126 [41 Cal. Rptr.2d 46]; Wilkinson v. Times Mirror Corp. (1989) 215 Cal. App.3d 1034, 1052 [264 Cal. Rptr. 194]; People v. Los Angeles Palm, Inc. (1981) 121 Cal. App.3d 25, 32-33 [175 Cal. Rptr. 257].) For example, where the employer's policy or practice is forbidden by or found to violate the Labor Code, it may also be held to constitute an "unlawful business practice" subject to redress under the UPA. (See Hudgins v. Neiman Marcus Group, Inc., supra, 34 Cal. App.4th at p. 1126 [employer policy of deducting losses for unidentified returns when calculating employees' wages violates both Labor Code section 221 and Business and Professions Code section 17200]; People v. Los Angeles Palm, Inc., supra, 121 Cal. App.3d at pp. 32-35 [employer practice of crediting tips of restaurant employees against their minimum wage violates both Labor Code section 351 and Business and Professions Code section 17200].) The reasoning of these cases applies as well to contractual provisions that are found to violate the Business and Professions [908] Code. (See Saunders v. Superior Court, supra, 27 Cal. App.4th at pp. 838-839; but cf. Californians for Population Stabilization v. Hewlett-Packard Co., supra, 58 Cal. App.4th at pp. 287-292.)^[21]

(6c) Of course, the twist in this case is that the employer whose practice is being challenged as "unfair competition" is not a California-based employer. But Hunter presents no authority that holds or suggests that nonresident businesses cannot be held to account for "wrongful business conduct" affecting California employers and employees (Stoiber v. Honeychuck, supra, 101 Cal. App.3d at p. 927), and none is disclosed by our research. Indeed, one California court has held that the law of the state in which a "restraint of trade" will occur overrides that of other states with more limited contacts with the transaction at issue. (Bushkuhl v. Family Life Ins. Co. (1969) 271 Cal. App.2d 514, 521 [76 Cal. Rptr. 602]; cf. Birbrower, supra, 17 Cal.4th at pp. 128-129 [section 6125 regulates out-of-state attorneys, and invalidates fee agreement made with out-of-state law firm to the extent contract is for legal representation "in California"].) We have already discussed at length the interests of California and Maryland in the enforceability of Hunter's noncompetition covenant in the circumstances of this case and have concluded that California's interests should prevail. For similar reasons, we conclude California law may be applied to AGI's claim of unfair competition and that, thus, the trial court did not err in finding Hunter's use of a covenant not to compete in violation of section 16600 to be a violation of section 17200 as well.^[22]

[909] III. CONCLUSION

The judgment shall be modified to delete those portions relating to Pike's individual claims for relief. As thus modified, the judgment will be affirmed. The parties shall bear their own costs.

Parrilli, J., and Walker, J., concurred.

Appellant's petition for review by the Supreme Court was denied May 13, 1998.

[1]All statutory references are to the Business and Professions Code unless otherwise indicated.

In relevant part, section 16600 provides: "[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Section 17200 defines "unfair competition." It "... include[s] any unlawful, unfair or fraudulent business act or practice...." (Ibid.)

[2] Between July 1991 and the end of 1993, 14 Hunter employees performed 12,250 hours of billable service for its California-based customers. Two of these employees, who were responsible for 3 percent of Hunter's billings in California during the same period, worked under covenants not to compete.

[3] In the course of argument on the motion for judgment, the Maryland court found that the covenant not to compete in Pike's employment agreement was valid on its face and enforceable, at least under Maryland law. However, as far as this record discloses, the parties did not actively litigate, and the Maryland court did not actually decide, the choice-of-laws issue presented in the instant action. Even if it did decide that Maryland law determines the enforceability of Hunter's covenant not to compete in all circumstances, the court's ruling on the choice-of-laws issue was not essential to the judgment in favor of Pike and AGI and, thus, need not be given issue preclusive (collateral estoppel) effect. (See Lumpkin v. Jordan (1996) 49 Cal. App.4th 1223, 1230 [57 Cal. Rptr.2d 303]; Rest.2d Judgments, § 27.)

[4] A final order on the parties' cross-motions for summary judgment and summary adjudication of issues was not filed until February 22, 1995, after the trial of this action was completed.

[5] These paragraphs were part of the prayer for relief, as follows: "50. For a declaration that Business and Professions Code sections 16600 and 17200 give AGI a privilege, with respect to any of [Hunter's] computer consultants and former consultants, to call and recruit such consultants from California; [¶] 51. For a declaration that Business and Professions Code sections 16600 and 17200 permit AGI to recruit and hire, from California, any [Hunter] computer consultants and former consultants who are residents of California, who work or have worked in California, or who report to or are managed from, or have reported to or have been managed from, any California office, whether or not such employees have a Covenant Not To Compete with [Hunter]; [¶] 52. For a declaration that, under California law, [Hunter] may not attempt to enforce in California any out-of-state judgment or injunction which [Hunter] might obtain against AGI for AGI's recruitment or hiring of any [Hunter] computer consultant who has a Covenant Not To Compete with [Hunter]; [¶] ... [¶] 55. For a declaration that [Hunter] is bound by the law of the State of California, specifically Business and Professions Code sections 16600 and 17200, with respect to its computer consultants who are residents of California, or who work or have worked in California, or who report to or are managed from, or have reported to or have been managed [from a Hunter] office in California. [¶] 56. For a declaration that with respect to [Hunter's] computer consultants who are residents of California, or who work or have worked in California, or who report to or are managed, or have reported to or been managed from, [a Hunter] office in California, [Hunter's] use of Covenants Not To Compete with such consultants is illegal, invalid and unenforceable under Business and Professions Code sections 16600 and 17200. [¶] 57. For a declaration that, under California law, [Hunter] may not attempt to enforce in California any out-of-state judgment or injunction which [Hunter] might obtain against AGI for interference in [Hunter's] Covenant Not To Compete."

[6] Nor could it. AGI seeks declaratory relief regarding the enforceability of a specific contract, under which Hunter has made multiple threats of litigation and has on at least one occasion brought suit against AGI, and as to which AGI and Hunter will continue to have run-ins as they compete for employees to work on projects for their customers, and otherwise conduct their business in California. In these respects, we cannot fairly conclude that the trial court abused its discretion to grant declaratory relief. This is not a case in which the court is being called upon to "imagine a myriad of hypotheticals," or to speculate on the application of law to such hypotheticals. (Cf. BKHN, Inc. v. Department of Health Services (1992) 3 Cal. App.4th 301, 309-310 [4 Cal. Rptr.2d 188]; see also Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal. App.3d 405, 410-411 [256 Cal. Rptr. 240].) The trial court had before it evidence of the very real and concrete controversy over Pike's recruitment by AGI. The court reasonably could find that the dispute over Pike's employment is typical of controversies that will almost certainly continue to arise between AGI and Hunter over nonresident employees. Furthermore, it is essentially a pure question of law whether Hunter's covenant not to compete is enforceable when invoked to prevent a California-based competitor from soliciting or recruiting a current or former Hunter consultant for employment in California. Plainly, AGI is such a competitor and it has been and will continue to be subject to litigation in this precise factual context.

[7] In addition, there is the issue of enforceability of Hunter's covenants not to compete as to former consultants who may relocate to become residents of California during the period of noncompetition stated in their employment agreements, insofar as such nonresident employees may wish to become employed in California.

[8] There is no argument that Pike's claim is "capable of repetition, yet evading review" (Gannett Co. v. DePasquale (1979) 443 U.S. 368, 377 [99 S.Ct. 2898, 2904, 61 L.Ed.2d 608]), or that the controversy was of such short duration so as to preclude normal appellate review (In re Willon (1996) 47 Cal. App.4th 1080, 1089 [55 Cal. Rptr.2d 245]; cf. Press-Enterprise Co. v. Superior Court (1986) 478 U.S. 1, 6 [106 S.Ct. 2735, 2739, 92 L.Ed.2d 1]; San Jose Mercury-News v. Municipal Court (1982) 30 Cal.3d 498, 501, fn. 2 [179 Cal. Rptr. 772, 638 P.2d 655]).

[9] Again, this statement of the issue encompasses former Hunter employees who may relocate from out of state to become California residents during the period of noncompetition stated in their employment agreements.

[10] In relevant part, Restatement section 187, subdivision (2), provides that the law of the chosen state will be applied unless: "(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or [¶] (b) 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 which ... would be the state of applicable law in the absence of an effective choice of law by the parties." (Italics added.)

[11] In that regard, the S.A. Empresa court apparently found that Washington had a materially greater interest in having its law determine the validity of an exculpatory clause in a contract for sale of a plane that later crashed, i.e., a clause which effectively immunized the Washington-based airplane manufacturer against a breach of warranty suit filed by a foreign purchaser (a Brazilian corporation) and, thus, required the purchaser to bear the entire loss even if misconduct by the manufacturer caused the crash. (641 F.2d at p. 753.) Indeed, the S.A. Empresa court did not consider California as having any significant interest in the dispute because its public policy was designed to protect its citizens and the plaintiff purchaser was not even a California corporation. Accordingly, even though California public policy may have prohibited enforcement of the exculpatory clause (see Civ. Code, § 1668), and despite the probability that application of the chosen state's laws would produce a result in conflict with a "fundamental policy" of California, the S.A. Empresa court held that it was proper to apply the law of the chosen state, Washington. (S.A. Empresa, supra, 641 F.2d at p. 753.)

[12] It is efficient to begin the analysis under Restatement section 187, subdivision (2)(b), with the standard "governmental interest" and "comparative impairment" tests because an early determination that the chosen state and the state that would provide "the applicable law in the absence of an effective choice of law by the parties" are one and the same, or a finding that the chosen state is the only state with a significant interest in having its law applied, obviates any need to weigh the forum's public policy interests against the chosen state's interests or to determine which state has the "materially greater interest" in having its law applied.

[13] Furthermore, it is clear Judge Norman did consider both the interests of the concerned states, and the parties' "contacts" and "connections" with those states. That he did not analyze the issues precisely as Hunter would have liked did not render his statement of decision, or the judgment, deficient in any way.

[14] Thus, this is a "`true' conflict" case. (See Sommer v. Gabor, supra, 40 Cal. App.4th at p. 1467; North American Asbestos Corp. v. Superior Court, supra, 180 Cal. App.3d at p. 905.) There are other "potentially concerned" states including, for example, the ones in which other nonresident Hunter employees may reside, which may have interests, like Maryland's, in the enforceability of covenants not to compete, valid where made, and the competitive advantages of such provisions. On the other hand, other "potentially concerned" states may broadly prohibit covenants not to compete, as does California, with the result being no real "choice-of-law" issue. Or the "other" states might allow "reasonable" restrictions on the Hunter employee's freedom to compete after termination, but may find one year too long a period or the geographical reach of the covenant too broad. However, the parties focus their choice of laws arguments on California and Maryland as the two "potentially concerned states" with respect to the enforceability of Pike's covenant not to compete, and agree that these laws call for diametrically opposite results on that issue. For that reason, our discussion will maintain the same focus.

[15] It appears that Hunter's real concern about Pike's recruitment was that it would have to pay more for a replacement than it was paying her. But, in light of the "no damages" judgment in the Maryland court, even that concern did not materialize.

[16] Hunter also relies on Roesgen v. American Home Products Corp. (9th Cir.1983) 719 F.2d 319, a case in which the Ninth Circuit affirmed a trial court's ruling that New York law applied to a forfeiture provision in an employment agreement, which was triggered by the employee's subsequent employment by a California-based competitor of the first employer. That reliance is misplaced. The federal appellate court applied the highly deferential "clear error" standard of review to the trial court's ruling, one which Hunter insists is inappropriate in the conflict of laws context. Indeed, application of such a lenient standard of review may well have resulted in an erroneous decision under California law by a federal court, which we need not follow. (Cf. Muggill v. Reuben H. Donnelley Corp., supra, 62 Cal.2d at p. 242; Frame, supra, 20 Cal. App.3d at pp. 672-673.)

[17] Thus, we express no opinion about the enforceability of other provisions in the employment agreements of Hunter consultants who may perform services in California but whose contracts expressly state that they are to be "governed by and construed in accordance with the laws of the State of Maryland."

[18] In these respects, Bernkrant v. Fowler, supra, 55 Cal.2d 588, is distinguishable because the contract in that case was a "purely local transaction" made and performed in Nevada, involving the refinancing of obligations arising from the sale of Nevada land and secured by interests therein. (Id. at pp. 594-595.)

[19] We note that Judge Norman did not attempt to define what it means to be employed "in California." We express no opinion as to the precise contours of that concept, leaving it to the parties to raise the issue in the future if and when a dispute over that issue should arise in connection with the declaratory judgment in this case. We note, however, that our Supreme Court recently decided a case which may provide some guidance on the issue. In Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119 [70 Cal. Rptr.2d 304, 949 P.2d 1] (Birbrower), the court held that whether an attorney may be deemed to be practicing law "in California" for purposes of section 6125 (requiring State Bar membership) will be determined on a case-by-case basis using a "sufficient contacts" analysis, as follows: "In our view, the practice of law `in California' entails sufficient contact with the California client to render the nature of the legal service a clear legal representation. In addition to a quantitative analysis, we must consider the nature of the unlicensed lawyer's activities in the state. Mere fortuitous or attenuated contacts will not sustain a finding that the unlicensed lawyer practiced law `in California.' The primary inquiry is whether the unlicensed lawyer engaged in sufficient activities in the state, or created a continuing relationship with the California client that included legal duties and obligations. [¶] Our definition does not necessarily depend on or require the unlicensed lawyer's physical presence in the state. Physical presence here is one factor we may consider ..., but it is by no means exclusive. For example, one may practice law in [California] although not physically present here by advising a California client on California law in connection with a California legal dispute by telephone, fax, computer, or other modern technological means. Conversely, although we decline to provide a comprehensive list of what activities constitute sufficient contact with the state, we do reject the notion that a person automatically practices California law `in California' whenever that person practices law anywhere, or `virtually' enters the state by telephone, fax, e-mail, or satellite. [Citations.]" (17 Cal.4th at pp. 128-129, italics in original.)

[20] Just prior to oral argument on November 25, 1997, AGI and Pike moved to dismiss this appeal on the grounds that Hunter failed to notify the Consumer Law Section of the Office of the Attorney General and the San Francisco District Attorney of the pendency of this "appellate proceeding," as required by section 17209 when the "application or construction" of the UPA is in issue. In Californians for Population Stabilization v. Hewlett-Packard Co. (1997) 58 Cal. App.4th 273 [67 Cal. Rptr.2d 621], the Sixth Appellate District held that a notice served pursuant to section 17209 will be deemed timely if it is served within three days of the filing of the appellant's opening brief on appeal, but that failure to give timely notice is not a jurisdictional defect. (58 Cal. App.4th at pp. 284-285.) Counsel for Hunter candidly admits he was unaware of the requirements of section 17209, and that the statutory notices were not served until November 18, 1997, long after the case had been fully briefed and calendared for oral argument. We are not convinced that Hunter has made an adequate showing of good cause for an extension of time to serve the required notices. Nevertheless, based on the proofs of service filed in this court, we are satisfied that the relevant public prosecutors have had ample time to seek permission to participate as amici curiae or otherwise influence the prosecution of this appeal. Accordingly, we will deny AGI's motion to dismiss and proceed to the merits of Hunter's claims of error under section 17200. Should the Attorney General or the San Francisco District Attorney wish to intervene prior to entry of final judgment in this case, we will entertain a timely petition seeking rehearing on that basis, as to those portions of the opinion dealing with the UPA.

[21] Hunter quotes language from Californians for Population Stabilization v. Hewlett-Packard Co., supra, 58 Cal. App.4th 273, for the proposition that "The mere fact that certain provisions were unenforceable in California does not render the use of the documents an unfair business practice." (58 Cal. App.4th at p. 293.) This passage appears, at first blush, to support a conclusion that Hunter's use of covenants not to compete does not violate section 17200. Upon closer examination, however, the Sixth Appellate District's holding follows from the fact that the plaintiff failed to prove any of its claims that the contractual provisions at issue were "unlawful" under various California statutes, including section 16600, leaving it with only the "unfair" business practice prong of section 17200 as a basis for obtaining relief. (58 Cal. App.4th at pp. 287-293.) The instant challenge is different in that AGI is claiming, and proved to the satisfaction of the trial court, that Hunter's covenant not to compete (as it was used against Pike and AGI) is not simply "unfair" or "unenforceable" but, rather, violates a specific statute (§ 16600) and is, thus, to that extent "unlawful" under section 17200. Of course, the Californians for Population Stabilization court also stated, in dictum, that it is questionable whether violations of the statutes at issue there (§ 16600; Civ. Code, §§ 1670.5, 1671) can support a cause of action under 17200 for an "unlawful" business practice. (58 Cal. App.4th at p. 287.) As with most dicta, this statement is deserving of little or no weight in our analysis.

[22] We need not decide, and express no opinion on, two additional issues raised by Hunter in its briefs. We do not construe the trial court's judgment as including declaratory relief with respect to either the "full faith and credit" owed to any judgment Hunter "might obtain" against AGI or Pike, or the existence of a "privilege" under California law to disregard Hunter's covenant not to compete. AGI and Pike have conceded as much.

179 Cal.App.4th 564 (2009)

[566] Feldman Gale, James A. Gale and Todd M. Malynn for Plaintiffs and Appellants, for Cross-defendant and Appellants, for Plaintiffs, Cross-defendants and Appellants and for Plaintiffs, Cross-defendants and Respondents.

Steptoe & Johnson, Mark A. Neubauer, Rebecca Edelson and Carla A. Veltman for Defendant, Cross-complainant and Respondent and for Defendant, Cross-complainant and Appellant.

OPINION

DOI TODD, Acting, P.J.—

Plaintiffs and appellants St. Jude Medical S.C., Inc. (SC), and Pacesetter, Inc. (Pacesetter) (collectively, St. Jude), along with employees Deana Dowell, Steven Chapman and Claudio Plaza, sued defendant and cross-complainant Biosense Webster, Inc. (Biosense), to enjoin it from enforcing noncompete and nonsolicitation clauses in employment agreements used in California, including agreements it had with the individual [567] plaintiffs. The trial court summarily adjudicated that the clauses were facially void under Business and Professions Code^[2] section 16600 and that their use violated California's unfair competition law (UCL) (§ 17200 et seq.). The trial court also summarily adjudicated that Biosense's unclean hands defense and its cross-complaint for unfair competition failed as a matter of law. The court determined that there was no "prevailing party" and ordered the parties to bear their own costs.

On appeal, St. Jude contends that the trial court's ruling "did not go far enough" because the court failed to issue a permanent injunction against Biosense's use of such restrictive clauses in all agreements with California employees. Plaintiffs also contend that they are entitled to costs. In its cross-appeal, Biosense contends that the trial court erred in summarily adjudicating the validity of the clauses because there was a triable issue of fact as to whether the so-called "common law trade secret exception" applied, and that the court erred in summarily adjudicating its unclean hands defense and its cross-complaint.

We affirm the judgment. We conclude that the trial court properly determined that the clauses were void as a matter of law, that no defense applied and that the cross-complaint failed to state a cause of action. We also conclude that the trial court did not abuse its discretion in denying a permanent injunction and costs.

FACTUAL AND PROCEDURAL BACKGROUND

The Parties

SC and Biosense are competitors in the market for atrial fibrillation products (e.g., anatomical mapping systems and electrophysiology catheters). Both companies have their principal place of business in California. SC and Pacesetter are subsidiaries of St. Jude Medical, Inc. (SJMI). In 1999, Biosense hired Plaza and eventually promoted him to senior engineer developing electrophysiology catheters. In 2003 and 2004, Biosense hired Dowell and Chapman, respectively, as professional education specialists to educate physicians and their staff about the company's three-dimensional anatomical mapping system. Dowell, Chapman and Plaza are California residents.

The Agreements

Upon accepting employment with Biosense, Dowell and Chapman signed an "Employee Secrecy, Non-Competition and Non-Solicitation Agreement" [568] (the agreements).^[3] The agreements each contained a covenant not to compete which provided that for 18 months after termination of employment the employee would "not render services, directly or indirectly, to any CONFLICTING ORGANIZATION" in which such services "could enhance the use or marketability of a CONFLICTING PRODUCT by application of CONFIDENTIAL INFORMATION" to which the employee "shall have had access" during employment. A conflicting product was defined as any product, process, technology, machine, invention or service which resembles or competes with one upon which the employee worked or of which the employee was knowledgeable as a result of employment. A conflicting organization was defined as a person or organization engaged or about to become engaged in research, development, production, marketing or selling of a conflicting product. And "CONFIDENTIAL INFORMATION" was defined as "information disclosed to me or known by me as a result of my employment by the COMPANY, not generally known to the trade or industry in which the COMPANY is engaged, about products, processes, technologies, machines, customers, clients, employees, services and strategies of the COMPANY, including, but not limited to . . . marketing, merchandising, selling, sales volumes or strategies, number or location of sales representatives, names or significance of the COMPANY's customers or clients or their employees or representatives, preferences, needs or requirements, purchasing histories, or other customer or client-specific information."

The agreements also contained a nonsolicitation clause which provided that the employee "recognize[s] that the COMPANY's relations with its accounts, customers and clients represents an important business asset that results from the COMPANY's significant investment of its time and resources" and that the employee has "gained or may gain relationships with the accounts, customers and clients of the COMPANY, and because of such relationships, [he/she] could cause the COMPANY great loss, damage, and immediate irreparable harm" if the employee should "sell, offer for sale, or solicit or assist in the sale of a product or service that could compete with a product or service being sold or developed by the COMPANY." The employee "therefore agree[s]" that for 18 months after termination of employment, the employee "will not solicit any business from, sell to, or render any service to, or, directly or indirectly, help others to solicit business from or render service or sell to any of the accounts, customers or clients" with whom the employee had contact during the last 12 months of employment.

The agreements contained New Jersey choice-of-law and consent-to-venue clauses.

[569] Between April and July 2005, Dowell and Chapman accepted sales positions with SC and Plaza accepted an engineering position with Pacesetter. By the terms of the agreements with Biosense, Chapman's noncompete obligations expired in October 2006 and Dowell's in January 2007.

The Cease-and-desist Letter

On July 1, 2005, Biosense sent a letter to St. Jude demanding that it cease its "unlawful raiding" of Biosense's employees, including Dowell, Chapman and Plaza. The letter stated that the former employees had covenants not to compete which precluded their employment with St. Jude and their use of confidential and trade secret information relating to the business and personnel of Biosense. While expressing its hope to avoid litigation, Biosense made clear that it was prepared to pursue litigation if necessary and asked for a response within two weeks. St. Jude responded that it needed more time to review the matter. In the meantime, St. Jude initiated this lawsuit.

The Complaint

On July 26, 2005, St. Jude, Dowell, Chapman and Plaza filed a complaint against Biosense alleging two causes of action for declaratory relief and two causes of action for unfair competition. The first cause of action sought a declaration that the contractual restraints of trade imposed on Dowell, Chapman and Plaza by Biosense were void. The second cause of action sought a declaration that none of the plaintiffs had violated any duty owed to Biosense and that St. Jude could lawfully employ Biosense employees consistent with St. Jude's legal rights. The third cause of action for unfair competition sought an injunction permanently enjoining Biosense from "including covenants not to compete in its employment contracts in California." The fourth cause of action for unfair competition sought an antisuit injunction prohibiting Biosense from trying to enforce its noncompete covenants in any forum other than the Superior Court of Los Angeles County.

The Answer and Cross-complaint

Biosense answered the complaint asserting an affirmative defense of unclean hands based on the following alleged conduct: St. Jude used employment agreements with provisions similar to those used by Biosense; Dowell, Chapman and Plaza signed employment agreements with St. Jude that contained provisions similar to those used by Biosense; St. Jude used deception to induce Biosense into delaying its own lawsuit in the jurisdiction of its choice; plaintiffs made misleading statements in ex parte pleadings filed with the trial court; and St. Jude had unlawfully raided Biosense's employees.

Biosense filed a cross-complaint against St. Jude and SJMI for unfair competition. Biosense alleged that St. Jude and SJMI unlawfully raided [570] Biosense employees in California and elsewhere in such a manner as to disrupt Biosense's business; attempted to induce Biosense employees to breach their noncompete agreements with Biosense; and used the insider knowledge of former Biosense employees to unfairly recruit personnel from Biosense. Biosense sought an injunction prohibiting St. Jude and SJMI from using or disclosing Biosense's confidential information and from soliciting Biosense's employees.

Plaintiffs' Motion for Summary Adjudication of First and Third Causes of Action

Plaintiffs moved for summary adjudication of their first and third causes of action, arguing that the agreements' noncompete and nonsolicitation clauses in the agreement were facially invalid under section 16600 and that their use violated section 17200. In support of the motion, Dowell and Chapman submitted declarations stating that if the noncompete clauses were enforced, they would be precluded from working in their chosen professions because they would be unable to sell or support the sales of any catheters, since they had worked with catheters for Biosense.

In opposition, Biosense argued there were triable issues of fact as to whether (1) a common law trade secret exception applied, and (2) plaintiffs' unclean hands barred their claims. As to the trade secret exception, Biosense relied on the declaration of its then vice-president of human resources, Roy Chen, who stated that in his experience "[m]ere confidentiality agreements are not adequate" to protect trade secrets because, for example, "[m]isappropriation is often difficult to discover and prove," and that Dowell and Chapman had "access" to Biosense's trade secrets consisting of business, marketing and pricing strategies. Biosense requested a continuance of the motion pursuant to Code of Civil Procedure section 437c, subdivision (h) so that it could take further discovery.

On Feb. 27, 2007, the trial court entered an order granting the motion for summary adjudication (the February 27, 2007 order), finding that "the restrictive covenants" in the agreements signed by Dowell and Chapman were "void ab initio and unenforceable under [section] 16600," and that "they constitute[d] unfair and unlawful competition under [section] 17200." The trial court expressly limited its adjudication to the Dowell and Chapman agreements, and struck from plaintiffs' proposed order references to Biosense's agreements with other employees and the proposed permanent injunction seeking to enjoin Biosense from attempting to enforce such clauses against any current or former California employee.

[571] Also in the February 27, 2007 order, the trial court found that Biosense's unclean hands defense was irrelevant to the questions of whether the noncompete and nonsolicitation clauses were enforceable under section 16600 and whether their use violated section 17200, because any use by St. Jude of similar clauses in its own employment contracts would be wholly unrelated to the transaction to which plaintiffs sought relief. The court also found that Biosense's common law trade secret defense failed as a matter of law because the restrictive clauses were not narrowly tailored or carefully limited to the protection of trade secrets and that, in any event, there was no evidence that Biosense's customer list is a trade secret because "it appears that the customers for the products at issue (e.g., physicians [and] hospitals) are easily identified from any number of publicly available directories and resources." The court also denied Biosense's request for additional time to conduct discovery because "(1) Biosense has not requested discovery that pertains to whether the restrictive covenants at issue are invalid under [section] 16600, or whether Biosense's asserted confidential information constitutes a trade secret under California's Uniform Trade Secrets Act (as any such information necessarily would be in Biosense's control); and (2) any such discovery would not alter the Court's ruling that Biosense's broadly worded restrictive covenants are void ab initio on their face."

Plaintiffs' Motion for Summary Adjudication of Biosense's Unclean Hands Defense

Plaintiffs also moved for summary adjudication of Biosense's unclean hands defense, arguing that the defense failed as a matter of law. In opposition, Biosense once again requested a continuance of the motion to take discovery. In an order dated April 25, 2007, the trial court denied Biosense's request for a continuance and granted the motion for summary adjudication, restating its reasoning in the February 27, 2007 order, and adding the legal conclusion that the defense cannot be used to excuse unlawful conduct.

St. Jude's Motion for Summary Judgment of Cross-complaint

Finally, St. Jude and SJMI moved for summary judgment of Biosense's cross-complaint, arguing that Biosense's claims for unfair competition failed as a matter of law. St. Jude relied on the declarations of Dowell, Chapman and Plaza, stating that there was no agreement among them to leave Biosense; Dowell applied to SC at the suggestion of a friend and colleague from a hospital at which she had previously worked; Plaza applied to Pacesetter at the suggestion of a Biosense employee; and neither Dowell, Chapman nor Plaza had disclosed to St. Jude any information about other Biosense employees or solicited any Biosense employees.

[572] In opposition, Biosense again relied on Chen's declaration, which stated that in a few months, six employees (Dowell, Chapman and Plaza and three who lived and worked overseas) had gone to work for St. Jude. Biosense also relied on the declaration of David Seton, who had been Dowell and Chapman's supervisor and who claimed that they were "key" employees because they spent more time with customers in their territory than any other employee, and that they were two of only four education specialists who covered California. Once again, Biosense requested a continuance of the motion to take discovery.

The trial court denied the request for a continuance and granted the motion for summary judgment on the cross-complaint, finding no triable issue of fact existed.

The Request for a Permanent Injunction

Following the rulings on the motions for summary adjudication and summary judgment, plaintiffs voluntarily dismissed without prejudice their second and fourth causes of action. St. Jude took the position that the issue of whether it was entitled to permanent injunctive relief had not been resolved by the summary adjudication of the third cause of action and remained to be tried. Although the trial court disagreed, it nevertheless allowed the parties to submit trial briefs on the issue.

In its trial brief, St. Jude stated that it believed the court had before it all the evidence sufficient to issue a permanent injunction, but that in the event it was necessary to produce additional evidence at trial, St. Jude would demonstrate standing to seek a permanent injunction, and produce evidence that Biosense uses the same or similar restrictive clauses in its agreements with California employees.

St. Jude requested a final judgment permanently enjoining Biosense "from having its California-resident employees sign employment agreements that include non-competition or customer non-solicitation clauses that are the same as or substantially similar to the broadly worded covenants found by the Court to be unlawful" and "from enforcing, or attempting to enforce, non-competition or customer non-solicitation clauses that are the same as or substantially similar to the broadly worded covenants set f[or]th above against any current or former California-resident employee who signed an agreement containing such clauses as a condition of employment with Biosense in California." St. Jude also sought as part of the permanent injunction a requirement that Biosense "provide written notice to its current California employees and to former employees who worked for Biosense in California within the past two years by sending a copy of this Order via [573] certified U.S. Mail to the last known address of all such employees within thirty (30) days from the date hereof."

Following a further hearing on the matter, the trial court concluded that St. Jude had no standing to seek a permanent injunction. The court then signed an order denying the requested permanent injunction "in the exercise of its discretion" for the following reasons: (1) the noncompete and nonsolicitation clauses in Dowell's and Chapman's employment agreements with Biosense had already expired by their terms; (2) "the inherent difficulty in fashioning an injunction of the nature sought"; (3) the injunction sought would "affect agreements with persons not before the Court and whose interests are not represented in this litigation"; (4) St. Jude lacked standing under section 17203 to obtain an injunction that would affect agreements of persons not before the court; and (5) the injunction sought was inconsistent with the court's prior adjudication that the first and third causes of action were limited to Biosense's agreements with Dowell and Chapman.

The Judgment

The trial court entered judgment as follows: (1) On plaintiffs' complaint, the court declared that the noncompete and nonsolicitation clauses in the agreements with Dowell and Chapman violated section 16600 and were void ab initio and unenforceable against Dowell and Chapman; (2) Plaintiffs "shall take nothing" by way of their complaint, other than the declaration described above, and the request for injunctive relief was dismissed with prejudice; and (3) Biosense "shall take nothing" by way of its cross-complaint, which was dismissed with prejudice.

Plaintiffs' Memorandum of Costs

St. Jude, SJMI, Dowell and Chapman filed a memorandum of costs in the amount of $20,323. The trial court granted Biosense's motion to strike the cost memorandum in its entirety, exercising its discretion to determine that no party was a "prevailing party." At the hearing on the motion, the court stated its belief that plaintiffs' true objective in the litigation was "to get a more global form of injunctive relief," and to that extent they did not succeed.

Appeals

St. Jude has appealed from the judgment and Biosense has filed a cross-appeal from the judgment. St. Jude, SJMI, Dowell and Chapman have also appealed from the order granting Biosense's motion to strike the cost memorandum. The appeals have been consolidated.

[574] DISCUSSION

Before we can address St. Jude's contention that the trial court erred in failing to grant a permanent injunction against Biosense's use in its California employment agreements of the noncompete and nonsolicitation clauses that the court found were void and unenforceable under section 16600, we must first address Biosense's contentions that the trial court erred in summarily adjudicating both this finding and Biosense's unclean hands defense.

I. The Trial Court Properly Determined that the Noncompete and Nonsolicitation Clauses in the Agreements are Void Under Section 16600 as a Matter of Law.

A. Standard of Review

A motion for summary adjudication shall be granted if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty. (Code Civ. Proc., § 437c, subd. (f)(1).) We review de novo a trial court's decision to grant summary judgment or summary adjudication. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142 [12 Cal.Rptr.3d 615, 88 P.3d 517].) In performing this de novo review, we view the evidence in the light most favorable to the opposing party and strictly construe the evidence of the moving party, and resolve any evidentiary doubts in favor of the opposing party. (Ibid.)

B. The Noncompete and Nonsolicitation Clauses are Void as A Matter of Law

(1) Section 16600 states: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." There are only three statutory exceptions to this prohibition on noncompete agreements: One who sells the goodwill of a business, or all of one's ownership interest in a business entity (which includes partnerships or corporations), or substantially all of its operating assets and goodwill, to a buyer who will carry on the business may agree with the buyer not to carry on a similar business within a specified geographic area, if the business will be carried on by the buyer (§ 16601); upon dissolution of a partnership or dissociation of a partner, such partner may agree not to carry on a similar business within a specified geographic area, if the business will be carried on by remaining partners or anyone deriving title to the business or its goodwill (§ 16602); and a member of a limited liability company may agree not to carry on a similar business within a specified geographic area, so long as other members or anyone deriving title to the business or its goodwill carries on a like business (§ 16602.5).

[575] (2) Section 16600 expresses California's strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice. (Advanced Bionics Corp. v. Medtronic, Inc. (2002) 29 Cal.4th 697, 706 [128 Cal.Rptr.2d 172, 59 P.3d 231]; Weber, Lipshie & Co. v. Christian (1997) 52 Cal.App.4th 645, 659 [60 Cal.Rptr.2d 677] ["section 16600 was adopted for a public reason"].) California courts "have consistently affirmed that section 16600 evinces a settled legislative policy in favor of open competition and employee mobility." (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 946 [81 Cal.Rptr.3d 282, 189 P.3d 285] (Edwards).) "The interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change." (Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 255 [67 Cal.Rptr. 19]; see D'Sa v. Playhut, Inc. (2000) 85 Cal.App.4th 927, 933 [102 Cal.Rptr.2d 495] (D'Sa).) An employer's use of an illegal noncompete agreement also violates the UCL (§ 17200 ["unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . ."]). (Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, 906-908 [72 Cal.Rptr.2d 73] [§ 17200 "borrows" violations of other laws and treats them as unlawful practices independently actionable under § 17200].)

(3) Based on the foregoing it is clear that the noncompete and nonsolicitation clauses in the agreements with Dowell and Chapman are void and unenforceable under section 16600 and that their use violates section 17200. The broadly worded noncompete clause prevents Dowell and Chapman, for a period of 18 months after termination of employment with Biosense, from rendering services, directly or indirectly, to any competitor in which the services they may provide could enhance the use or marketability of a conflicting product by application of confidential information to which the employee had access during employment. Similarly, the broadly worded nonsolicitation clause prevents the employees for a period of 18 months postemployment from soliciting any business from, selling to, or rendering any service directly or indirectly to any of the accounts, customers or clients with whom they had contact during their last 12 months of employment. Ultimately, these provisions restrain the employee from practicing their chosen profession. Indeed, these clauses are similar to those found to be void under section 16600. (See, e.g., D'Sa, supra, 85 Cal.App.4th at p. 931; Kolani v. Gluska (1998) 64 Cal.App.4th 402, 407 [75 Cal.Rptr.2d 257]; Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 860 [27 Cal.Rptr.2d 573] (Metro Traffic).)

Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the [576] so-called trade secret exception, citing cases such as Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1429-1430 [7 Cal.Rptr.3d 427]; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462 [125 Cal.Rptr.2d 277]; Metro Traffic, supra, 22 Cal.App.4th at page 860; and American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1322 [228 Cal.Rptr. 713]. Plaintiffs counter that in light of our Supreme Court's recent decision of Edwards, supra, 44 Cal.4th 937, a common law trade secret exception no longer exists.

(4) The court in Edwards concluded that section 16600 "prohibits employee noncompetition agreements unless the agreement falls within a statutory exception." (Edwards, supra, 44 Cal.4th at p. 942.) In rejecting the Ninth Circuit's "narrow-restraint" exception to section 16600 (Edwards, supra, at pp. 948-950), the court stated: "Section 16600 is unambiguous, and if the Legislature intended the statute to apply to restraints that were unreasonable or overbroad, it could have included language to that effect. We . . . leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600" (id. at p. 950). The court went on to state: "Noncompetition agreements are invalid under section 16600 in California, even if narrowly drawn, unless they fall within the applicable statutory exceptions of section 16601, 16602, or 16602.5." (Id. at p. 955.) Biosense notes that the Edwards court relied on its prior decision in Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242 [42 Cal.Rptr. 107, 398 P.2d 147] (Muggill), which held that section 16600 invalidates provisions in employment contracts that "prohibit[] an employee from working for a competitor after completion of his employment . . . unless they are necessary to protect the employer's trade secrets." In a footnote, the Edwards court stated: "We do not here address the applicability of the so-called trade secret exception to section 16600, as Edwards does not dispute that portion of his agreement or contend that the provision of the noncompetition agreement prohibiting him from recruiting Andersen's employees violated section 16600." (Edwards, supra, at p. 946, fn. 4.) Given this language, Biosense argues that the trade secret exception is still "alive and well."

Plaintiffs argue that the trade secret exception rests on shaky ground in the first place. They point out that many of the cases recognizing a trade secret exception cite to Muggill and that the language in Muggill regarding a trade secret was dicta, as no trade secrets were at issue in that case. Plaintiffs also point out that Muggill, in turn, relied on Gordon v. Landau (1958) 49 Cal.2d 690 [321 P.2d 456], a "trade route" case in which the employee was a door-to-door salesman, whose employment agreement prevented him from divulging the names of his prior customers or soliciting their business for one year following termination of employment. The Gordon court concluded that the agreement was valid under section 16600 because it did not restrain the [577] employee from engaging in his profession. (Gordon v. Landau, supra, at p. 694.) Plaintiffs suggest that the trade secret exception should be limited to "the narrow and antiquated circumstances of door-to-door trade routes" where it is proven that the identity of the customers is a trade secret. Biosense counters that the exception has not been so limited, noting, for example, that the exception was at issue in Metro Traffic, supra, 22 Cal.App.4th 853, a case having to do with the news radio business and not trade routes.

At oral argument, plaintiffs' counsel discussed the recent case of The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226 [98 Cal.Rptr.3d 585] (Galante), the first published California case to discuss Edwards's reference to the trade secret exception in footnote four.^[4] The Galante court stated that "Edwards did not approve the enforcement of noncompetition clauses whenever the employer showed the employee had access to information purporting to be trade secrets. Instead, Edwards merely stated it was not required to `address the applicability of the so-called trade secret exception to section 16600' (Edwards, supra, 44 Cal.4th at p. 946, fn. 4) because it was not germane to the claims raised by the employee." (Galante, supra, at p. 1239.) In reconciling the "tension" between section 16600 and trade secrets, the Galante court stated: "We distill from the foregoing cases that section 16600 bars a court from specifically enforcing (by way of injunctive relief) a contractual clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee's new business, but a court may enjoin tortious conduct (as violative of either the Uniform Trade Secrets Act (Civ. Code, § 3426 et seq.) and/or the unfair competition law) by banning the former employee from using trade secret information to identify existing customers, to facilitate the solicitation of such customers, or to otherwise unfairly compete with the former employer. Viewed in this light, therefore, the conduct is enjoinable not because it falls within a judicially created `exception' to section 16600's ban on contractual nonsolicitation clauses, but is instead enjoinable because it is wrongful independent of any contractual undertaking." (Galante, supra, at pp. 1233, 1238.)

Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition. (See Kolani v. Gluska, supra, 64 Cal.App.4th at p. 407 [finding as a [578] matter of law on demurrer that a noncompete clause was void because it was not "narrowly tailored" but "an outright prohibition on competition"].)

Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are "tethered" to the use of confidential information, and are triggered only when the former employee's services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. "Confidential information" is broadly defined as information disclosed to or known by the employee, including such information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in D'Sa, supra, 85 Cal.App.4th at page 930. There, the employment agreement prohibited the departing employee from "`render[ing] services, directly or indirectly, for a period of one year . . . to any person or entity in connection with any Competing Product,'" which was defined as "`any products, processes or services . . . which are substantially the same . . .'" as those on which the employee worked or "about which" the employee worked or "`about which [the employee] acquire[d] Confidential Information.'" (Ibid.)

We also reject the argument of Biosense that the nonsolicitation clause is narrowly tailored to protect trade secrets and confidential information. The same argument was rejected by the Galante court, which noted: "However, Edwards rejected the claim that antisolicitation clauses could be exempt from section 16600 if the conduct covered by such clauses fell within the `narrow-restraint' exception discussed in Campbell (Edwards, supra, 44 Cal.4th at pp. 948-950), and we decline TRG's implicit invitation to engraft that exception onto this case." (Galante, supra, 176 Cal.App.4th at p. 1241.) Moreover, the clause at issue here goes well beyond prohibiting active solicitation by prohibiting departing employees from selling or rendering any [579] services to Biosense customers or directly or indirectly assisting others to do so—even if it is the customer who solicits the former employee. (See Morris v. Harris (1954) 127 Cal.App.2d 476, 478 [274 P.2d 22] [invalidating restraint that prohibited employee from providing services to former customers who sought him out without any solicitation].)

We also reject Biosense's argument that the trial court failed to interpret the clauses in such a way as to make them lawful. Any attempt to construe the noncompete and nonsolicitation clauses in such a manner as to make them lawful would not be reforming the contract to correct a mistake of the parties but rather to save a statutorily proscribed and void provision. (See D'Sa, supra, 85 Cal.App.4th at p. 935.)

Biosense also argues that the trial court improperly determined the invalidity of the noncompete and nonsolicitation clauses by summary adjudication because the court failed to consider Biosense's evidence that trade secrets existed and that the clauses were necessary to protect them. But we are satisfied that the trial court could properly make this determination as a matter of law. (See, e.g., Kolani v. Gluska, supra, 64 Cal.App.4th at p. 407 [finding covenant not to compete invalid as a matter of law on demurrer]; Kelton v. Stravinski (2006) 138 Cal.App.4th 941, 946-949 [1 Cal.Rptr.3d 877] [finding covenant not to compete invalid as a matter of law on summary judgment]; Edwards, supra, 44 Cal.4th at pp. 944, 948 [finding covenant not to compete invalid as a matter of law where trial court "took no evidence"]; Latona v. Aetna U.S. Healthcare Inc. (C.D.Cal. 1999) 82 F.Supp.2d 1089, 1093 [factual analysis of trade secret issues is "secondary" to determination of "facial validity" of covenant not to compete].) Having properly determined that the clauses were facially void under section 16600, the trial court was not required to undertake any further analysis.

C., D.^[5]

II.-IV.^[5]

[580] DISPOSITION

The judgment is affirmed. The parties to bear their own costs on appeal.

Ashmann-Gerst, J., and Chavez, J., concurred.

[1] Pursuant to California Rules of Court, rules 8.1110 and 8.1110, this opinion is certified for publication with the exception of parts I.C, and D, II., III. and IV.

[2] Unless otherwise noted, all statutory references shall be to the Business and Professions Code.

[3] Plaza signed a different agreement which contained a two-year noncompetition clause. After this lawsuit was filed, Plaza went to work for a third party and voluntarily dismissed his claims without prejudice.

[4] At our invitation, the parties submitted additional briefing on this case and another recent case mentioned by plaintiffs' counsel, Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634 [88 Cal.Rptr.3d 859, 200 P.3d 295], which is discussed in the unpublished portion of this opinion.

[5] See footnote, ante, page 564.

174 Cal.App.3d 268 (1985)
219 Cal. Rptr. 836

[271] COUNSEL

Leff & Mason, Leff & Stephenson and Robert R. Thornton for Plaintiffs, Cross-defendants and Appellants.

Michael L. Harrison, Thomas R. Berthold, Marc H. Greenberg, Harrison & Kaylor, Harrison & Hearn and Harrison, Hearn & Berthold for Defendant, Cross-complainant and Appellant.

[Opinion certified for partial publication.^[1]]

OPINION

AGLIANO, Acting P.J.

The primary question in this proceeding is the validity of a termination agreement between an employer and its former employee which, inter alia, restrains the former employee from disrupting, damaging, impairing or interfering with his former employer's business by "raiding" its employees. Plaintiff Loral Corporation and its subsidiary, Conic Corporation, brought this action against its former executive officer, Robert Moyes, claiming Moyes breached the agreement by inducing employees of plaintiff to work for Moyes' subsequent employer, Aydin Corporation.

The trial court granted judgment of nonsuit on August 26, 1981, after plaintiffs' opening statement as to this cause of action on the ground the restriction against hiring away the plaintiff's employees was an unlawful restraint of competition, stating "the contract in its entirety is null and void ab initio."

The court also determined, contrary to Moyes' contention, that the termination agreement had not been induced by the employer's fraud.

We will reverse the judgment of nonsuit on the employer's action for breach of contract and remand the matter for trial and/or further proceedings on these and subsidiary issues.

[272] I

The Appeal

A. Review of Grant of Motion for Nonsuit

(1) A motion for nonsuit is authorized by Code of Civil Procedure section 581c.^[2] The motion is tantamount to a demurrer to the evidence (Archibald Estate v. Matteson (1907) 5 Cal. App. 441, 445 [90 P. 723]; Reaugh v. Cudahy Packing Co. (1922) 189 Cal. 335, 339 [208 P. 125]) by which a defendant can test the sufficiency of the plaintiff's case before presenting his or her own. (Carson v. Facilities Development Co. (1984) 36 Cal.3d 830, 838 [206 Cal. Rptr. 136, 686 P.2d 656].) It presents a question of law (Archibald Estate, supra, at p. 445, and cases there cited; Reaugh, supra, at p. 339), namely, whether the evidence offered in support of plaintiff's case could justify a judgment for plaintiff. (Cf. Ringgold v. Haven (1850) 1 Cal. 108, 114, 116; Carson v. Facilities Development Co., supra, at p. 838.) (2) On appeal we are required to evaluate the plaintiff's evidence under the same rules governing the trial court. (Id., at pp. 838-839.) The evidence most favorable to the plaintiff must be accepted as true unless it is inherently incredible (Nicholas v. Jacobson (1931) 113 Cal. App. 382, 387-388 [298 P. 505]), and conflicts must be resolved and reasonable inferences drawn in the plaintiff's favor. (Estate of Arnold (1905) 147 Cal. 583, 586 [82 P. 252]; Carson, supra, 36 Cal.3d at pp. 838-839.)

(3) When a nonsuit is based on the plaintiff's opening statement, we assume plaintiff can prove all the favorable facts alleged. (Cf. Moffitt v. Ford Motor Co. (1931) 117 Cal. App. 247, 250 [3 P.2d 605]; Smith v. Roach (1975) 53 Cal. App.3d 893, 897-898 [126 Cal. Rptr. 29], and cases there cited.) The court may consider as part of the opening statement exhibits that would probably become evidence at trial. (John Norton Farms, Inc. v. Todagco (1981) 124 Cal. App.3d 149, 162-163 [177 Cal. Rptr. 215].) A nonsuit on the opening statement is proper only when the court concludes that there will be no evidence which would support a judgment in favor of the plaintiff. (Willis v. Gordon (1978) 20 Cal.3d 629, 633 [143 Cal. Rptr. 723, 574 P.2d 794]; John Norton Farms, Inc. v. Todagco, supra, 124 Cal. App.3d 149, 160, and cases there cited.)

(4) The grounds for the nonsuit motion should be clearly specified to give the plaintiff an opportunity to cure any defects. (People v. Banvard [273] (1865) 27 Cal. 470, 474; Daley v. Russ (1890) 86 Cal. 114, 117 [24 P. 867]; Timmsen v. Forest E. Olson, Inc. (1970) 6 Cal. App.3d 860, 868 [86 Cal. Rptr. 359].) The plaintiff must be given an opportunity to present all the facts he expects to prove before a nonsuit is proper. (Paul v. Layne & Bowler Corp. (1937) 9 Cal.2d 561, 566 [71 P.2d 817]; Huang v. Garner (1984) 157 Cal. App.3d 404, 416-418 [203 Cal. Rptr. 800], and cases there cited.) On appeal we will not consider any ground for the nonsuit not advanced in the trial court, except one which identifies an incurable defect. (Lawless v. Calaway (1944) 24 Cal.2d 81, 92-94 [147 P.2d 604].)

B. The Opening Statement

Plaintiffs' opening statement proffered the following facts. Robert Moyes was employed by the TerraCom Division of Conic as its manager in 1970; his title was later changed to president. He also became a member of Conic's Board of Directors. TerraCom was an electronics manufacturer with approximately 100 employees which sought to develop a commercial digital microwave radio.

Moyes' termination was accompanied by a handwritten agreement of March 29, 1979, and a typed agreement of May 4, 1979, the latter of which stated:

"1. You have resigned as President of the Terracom Division and as a Director of Conic Corporation, effective at the close of business March 29, 1979, and you hereby resign as an employee as of the close of business May 11, 1979.

"2. Your salary and fringe benefits will continue through September 3, 1979 and, if you are then unemployed, salary and fringes will continue thereafter until you become employed but not beyond March 29, 1980. Your existing deferred compensation arrangements will continue unaffected, but no such arrangements shall be made with respect to any salary which may be paid to you for any part of calendar 1980.

"3. You will receive a bonus for fiscal year 1979, as though you were still employed, and whatever vacation pay may be accrued as of May 11, 1979.

"4. Pursuant to the forfeiture provisions of Article VII of Loral's 1976 Stock Option Plan, you hereby resell all shares of Loral common stock obtained on the exercise of special options under the 1976 Stock Option Plan, (except for the 600 shares as to which restrictions have lapsed), amounting to 4400 shares at $5 per share.

[274] "5. All your outstanding unexercised stock options, except for an option granted January 29, 1975, under the Company's 1971 Stock Option Plan as to which 625 option shares remain unexercised, are hereby cancelled.

"6. In addition to the payments already provided for, you will be paid $57,000 in six quarterly installments of $8,000, through September 30, 1980 with a final payment of $9,000 on December 31, 1980.

"7. As a condition for the foregoing payments, you will preserve the confidentiality of all trade secrets and other confidential information of Loral Corporation, Conic Corporation, and its TerraCom Division and you will not now or in the future disrupt, damage, impair or interfere with the business of Conic Corporation, or its TerraCom Division whether by way of interfering with or raiding its employees, disrupting its relationships with customers, agents, representatives or vendors or otherwise. You are not however, restricted from being employed by or engaged in a competing business."

Moyes subsequently became employed by Aydin Corporation. He had been negotiating with Aydin Corporation since February 1979, and received a job offer on March 29, 1979. He accepted and became the president of its microwave division. He then breached the agreement by offering employment with his new employer to two key TerraCom employees, defendants Bruce Jennings and Larry Janssen. Janssen received a job offer from Moyes while he was employed as director of production at TerraCom and he went to work for Aydin soon after Moyes became president. Jennings left his position as executive vice-president of TerraCom, and within a week was interviewed by Moyes at Aydin. On October 1, 1979, Jennings became a marketing manager for Aydin. TerraCom investigated and determined that a large number of their key employees had interviewed with Moyes and been offered jobs at Aydin. Ultimately a large number of people left TerraCom and it spent over $400,000 recruiting new employees. TerraCom's performance on a project to deliver a microwave radio was impaired by the departure of Moyes and other personnel.^[3]

C. The Nonsuit Judgment Must Be Reversed

(5a) Defendant's major contention in support of the trial court's decision is that the termination agreement is void under Business and Professions [275] Code section 16600: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." California courts have apparently not addressed the application of this statute to a former employee's agreement not to disrupt, damage, impair or interfere with his former employer by "raiding" its work-staff, in other words, a noninterference agreement.

Defendant's contention requires that we consider this statute and this contract in relationship to the tort law of the marketplace, which would otherwise regulate Moyes' conduct. (6) Generally the law of unfair competition prohibits former employees from disclosing or misusing an employer's trade secrets and confidential information — even in the absence of contractual restrictions. (Empire Steam Laundry v. Lozier (1913) 165 Cal. 95, 99 [130 P. 1180].) Moreover, an agreement between employer and employee defining a trade secret may not be decisive in determining whether the court will so regard it. (State Farm Mut. etc. Ins. Co. v. Dempster (1959) 174 Cal. App.2d 418, 426 [344 P.2d 821].) The misuse of trade secrets may include solicitation of an employer's customers when confidential information is employed. (Empire Steam Laundry, supra, at p. 102.)

Cases suggest that when permissible solicitation of an employer's customers is at issue, a contract may prohibit more than the law of the marketplace otherwise would. (See Continental Car-Na-Var Corp. v. Moseley (1944) 24 Cal.2d 104, 111 [148 P.2d 9]; Rest.2d Agency, § 396, p. 223.)^[4] Aetna Bldg. Maintenance Co. v. West (1952) 39 Cal.2d 198, 203 [246 P.2d 11], states: "In the absence of an enforceable contract containing negative covenants to the contrary, equity will not enjoin a former employee from soliciting business from his former employer's customers, provided his competition is fairly and legally conducted." Thus, contractual restrictions may have more impact in a nonsolicitation case than a nondisclosure case.

The impact of Business and Professions Code section 16600 on nondisclosure, nonsolicitation and noncompetition promises has already been determined. (7) The basic rule in this state is that contracts precluding a former employee from obtaining new employment with a competitor are [276] invalid under section 16600. "This section invalidates provisions in employment contracts prohibiting an employee from working for a competitor after completion of his employment or imposing a penalty if he does so (Chamberlain v. Augustine, 172 Cal. 285, 288 ...; Morris v. Harris, 127 Cal. App.2d 476, 478 ...), unless they are necessary to protect the employer's trade secrets...." (Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242 [42 Cal. Rptr. 107, 398 P.2d 147].) As Muggill indicates, reasonably limited restrictions which tend more to promote than restrain trade and business do not violate the statute. (Great Western etc. v. J.A. Wathen D. Co. (1937) 10 Cal.2d 442, 446, 448-449 [74 P.2d 745]; Keating v. Preston (1940) 42 Cal. App.2d 110, 123 [108 P.2d 479]; Centeno v. Roseville Community Hospital (1979) 107 Cal. App.3d 62, 69-70, fn. 2 [167 Cal. Rptr. 183]; cf. Grogan v. Chaffee (1909) 156 Cal. 611, 614 [105 P. 745].) Section 16600 does not invalidate an employee's agreement not to disclose his former employer's confidential customer lists or other trade secrets or not to solicit those customers. (Gordon v. Landau (1958) 49 Cal.2d 690, 694 [321 P.2d 456], and cases there cited; see Annot., Statutes Prohibiting Restraint on Profession, Trade, or Business as Applicable to Restrictions in Employment or Agency Contracts, 3 A.L.R.2d 522.) Thus, the statute invalidates an agreement penalizing a former employee for obtaining employment with a competitor, but does not necessarily affect an agreement delimiting how he can compete. (5b) Our question then is whether a noninterference agreement not to solicit former coworkers to leave the employer is more like a noncompetition agreement which is invalid, or a nondisclosure or nonsolicitation agreement which may be valid.

Defendant contends there is nothing generally illegal about a competitor soliciting another's employees not under contract. We note that the law of unfair competition has struggled with the recurrent problem of when solicitation of another's employees gives rise to tort liability. (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 352-353 [49 Cal. Rptr. 825, 411 P.2d 921, 24 A.L.R.3d 795]; Diodes, Inc. v. Franzen (1968) 260 Cal. App.2d 244, 255 [67 Cal. Rptr. 19]; Orkin Exterminating Co., Inc. v. Martin Co. (1978) 240 Ga. 662 [242 S.E.2d 135, 138-139]; Motorola, Inc. v. Fairchild Camera and Instrument Corp. (D. Ariz. 1973) 366 F. Supp. 1173, 1180-1181, and cases there cited; Maryland Meals, Inc. v. Metzner (1978) 282 Md. 31 [382 A.2d 564, 568-570]; Electrolux Corp. v. Lawson (Colo. App. 1982) 654 P.2d 340, 341-342; Annot., Liability for Inducing Employee Not Engaged for Definite Term To Move To Competitor, 24 A.L.R.3d 821.) As stated in comment e to section 393 of the Restatement Second of Agency, regarding what an employee can do in preparation for competition with his employer: "The limits of proper conduct with reference to securing the services of fellow employees are not well marked. An employee is subject to liability if, before or after leaving the employment, he causes fellow [277] employees to break their contracts with the employer. On the other hand, it is normally permissible for employees of a firm, or for some of its partners, to agree among themselves, while still employed, that they will engage in competition with the firm at the end of the period specified in their employment contracts. However, a court may find that it is a breach of duty for a number of the key officers or employees to agree to leave their employment simultaneously and without giving the employer an opportunity to hire and train replacements."^[5] None of these cited cases involved an agreement not to interfere with former coworkers, however.

Defendant quotes from Hollingsworth Solderless Terminal Co. v. Turley (9th Cir.1980) 622 F.2d 1324, 1338: "We think the applicable California law is that `the employer will be able to restrain by contract only that conduct of the former employee that would have been subject to judicial restraint under the law of unfair competition, absent the contract.' [Citation.]" The court reversed a summary judgment in favor of the employee which found restrictive covenants invalid under section 16600. The court suggested that covenants restricting a former employee were valid under the statute but only insofar as they prohibited use of trade secrets or other unfair competition. (Id., at pp. 1339-1340.)

The facts of Hollingsworth Solderless Terminal Co., supra, 622 F.2d 1324, must be considered to understand this holding. A former employer charged a former employee with, among other things, violating restrictive covenants whereby the employee promised nondisclosure of customer lists and descriptions, return of the lists post-termination, and nonsolicitation of the former employer's customers for one year. (Id., at p. 1327, 1328, fn. 2.) There were no noninterference covenants. The former employee was not charged with soliciting former coworkers, although his new employer, a competitor, was so charged. (Id., at pp. 1328, 1336-1338.) The court suggested that the competitor had violated the law of unfair competition if there were more than mere solicitation of employees without a contract, such as misappropriation of trade secrets. (Id., at pp. 1337-1338.) The ruling concerning interference with employees was not concerned with section 16600. [278] The court applied the statute to promises of nonsolicitation and nondisclosure as the California state courts have done, and the case goes no further than that. It does not apply the statute to any noninterference promises.

We have discovered two cases, both from the State of Georgia, which upheld such noninterference promises as not void in restraint of trade. In Lane Co. v. Taylor (1985) 174 Ga. App. 356 [330 S.E.2d 112], an employer sued its former employee for, among other things, violating an agreement which prohibited her for one year post-termination from hiring employees or otherwise causing them to work for another employer. (Id., at p. 114.) The agreement also provided that she would neither solicit the former employer's customers nor disclose confidential information. The court held the provision barring solicitation of customers void because not limited in area, but the limited restriction on "pirating" of employees was reasonable and "needed to protect legitimate business interests." (Id., at p. 117.)

In Lane Co., the court observed that the Georgia Supreme Court announced in Orkin Exterminating Co., Inc. v. Martin Co., supra, 240 Ga. 662 [242 S.E.2d 135, 138-139]: "Overly-restrictive covenants in employment contracts or other similar considerations which place a restraint upon the free movement of employees in the marketplace as opportunity, experience and competition permits is [sic] contrary to this court's view of fair competition." Orkin Exterminating Co. did not involve any written restrictive covenants, however; it involved the tort of interference with contractual relations and the privilege of fair competition described in section 768 of the Restatement Second of Torts. Lane Co. considered the agreement before it not overly restrictive.

Lane Co. also cited Harrison v. Sarah Coventry, Inc. (1971) 228 Ga. 169 [184 S.E.2d 448], which was not mentioned in Orkin Exterminating Co. In Harrison, the former employees had agreed that during employment and for two years post-termination they would not disclose the identity of the employer's employees nor attempt to induce them to leave the company. (Id., at p. 449.) The former employees were charged with violating the agreement. The court upheld these provisions as not in restraint of trade, distinguishing cases involving noncompetition agreements without territorial limitations. There was no restraint of trade because the defendants were free to work for a competitor, so long as they did not interfere with their former employer's contractual relationships nor divulge the names of former coworkers. (Id., at p. 449.)

We agree with the reasoning of the Georgia courts. The potential impact on trade must be considered before invalidating a noninterference agreement. A contract must be construed to be lawful if possible. (Civ. Code, [279] §§ 1643, 3541.) Defendant is restrained from disrupting, damaging, impairing or interfering with his former employer by raiding Conic employees under his termination agreement. This does not appear to be any more of a significant restraint on his engaging in his profession, trade or business than a restraint on solicitation of customers or on disclosure of confidential information. "[T]he May 4th agreement expressly permits Moyes to be employed by or engage in a competing business." (Aydin Corp. v. Loral Corp. (9th Cir.1983) 718 F.2d 897, 900.)^[6]

Responding to our invitation at oral argument, Moyes seeks to distinguish Lane Co. and implicitly Harrison on the basis, among others, they involved noninterference agreements of limited duration. He contends restrictive covenants of unlimited duration are more onerous and tend more to restrain trade. (8) We note as a general proposition the duration alone of a restrictive agreement is not determinative of its enforceability. (Annot., Enforceability of Restrictive Covenant, Ancillary to Employment Contract, as Affected by Duration of Restriction, 41 A.L.R.2d 15, §§ 4(b), 5(b), 127, pp. 33, 41-42, 215-218.) Rather, enforceability depends upon its reasonableness, evaluated in terms of the employer, the employee, and the public. (Id., § 4(c), p. 34.) We also observe the Legislature has allowed business sellers to promise noncompetition to their buyers without time limitation other than for the period "so long as the buyer, or any person deriving title to the goodwill or shares from him, carries on a like business therein." (Bus. & Prof. Code, § 16601.) Courts faced with noncompetition contracts without this limitation have upheld the contracts by reading the statutory limit into them. (Brown v. Kling (1894) 101 Cal. 295, 302 [35 P. 995], questioned on other grounds in Swenson v. File (1970) 3 Cal.3d 389, 394 [90 Cal. Rptr. 580, 475 P.2d 852]; Gregory v. Spieker (1895) 110 Cal. 150, 153-154 [42 P. 576]; Martinez v. Martinez (1953) 41 Cal.2d 704, 706 [263 P.2d 617].) We need not and do not decide whether this noninterference contract would unreasonably and illegally restrain trade if applied to other conduct at another time. (5c) We determine only that there is no statutory problem in applying it to Moyes' conduct within a year of its execution.

This restriction only slightly affects Conic employees. They are not hampered from seeking employment with Aydin nor from contacting Moyes. All they lose is the option of being contacted by him first. It does not restrain them from being employed by Aydin, contrary to defendant's argument. (9) Equity will not enjoin a former employee from receiving and considering [280] applications from employees of his former employer, even though the circumstances be such that he should be enjoined from soliciting their applications. (Cf., Aetna Bldg. Maintenance Co. v. West, supra, 39 Cal.2d 198 at p. 204.)

(5d) The restriction presumably was sought by plaintiffs in order to maintain a stable work force and enable the employer to remain in business. This restriction has the apparent impact of limiting Moyes' business practices in a small way in order to promote Conic's business. This noninterference agreement has no overall negative impact on trade or business. We hold that this contract, as construed, is not void on its face under Business and Professions Code section 16600.^[7]

We also reject defendant's other contention in support of the decision, that plaintiffs did not allege full performance of their part of the contract. (Civ. Code, §§ 1439, 3392; Code Civ. Proc., § 457.)

Under the termination agreement, plaintiffs' obligations to make certain payments were conditioned upon Moyes' observation of his own promises. According to the opening statement, he almost immediately violated his promise not to raid Conic's employees by offering Larry Janssen a job at Aydin.

(10) The requirement of performance may be excused by the other party's breach. (Beverage v. Canton Placer Mining Co. (1955) 43 Cal.2d 769, 777 [278 P.2d 694]; Civ. Code §§ 1440, 1511.) As the trial court observed, the opening statement implied that plaintiffs' performance of the termination agreement was excused, although this was not stated in so many words.

The judgment of nonsuit is reversed.

D. Consequences of Reversal^[8]

.... .... .... .... .... .... .

Conclusion

We reverse the judgment on the complaint insofar as a nonsuit was granted on the first cause of action and as a consequence, we vacate the judgment [281] on the cross-complaint, insofar as cross-complainant was granted restitution of those shares of stock described in paragraph 4 of the termination agreement; and remand for further proceedings as described above. We otherwise affirm judgment on the cross-complaint. The parties will bear their own costs on appeal.

Brauer, J., and Premo, J.,^[9] concurred.

[1] The opinion filed contains portions which need not be published. Pursuant to rule 976.1 of the California Rules of Court subdivision D of part I, and part II are not published.

[2] The statute provided in pertinent part when this motion was granted in August 1981 (Stats. 1980, ch. 187, § 1, p. 409): "(a) After the plaintiff has completed his opening statement, or the presentation of his evidence in a trial by jury, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a judgment of nonsuit."

[3] Plaintiffs' opening statement also addressed several other topics, such as why Moyes was terminated and what the details of his stock option plans were and what amounts of money were involved in the termination agreement. This information pertains more to Moyes' cross-complaint in the action than the nonsuit motion regarding plaintiffs' complaint, so its elaboration is unnecessary.

[4] The Restatement Second of Agency, section 396, provides in pertinent part: "Unless otherwise agreed, after the termination of the agency, the agent: [¶] (a) has no duty not to compete with the principal; [¶] (b) has a duty to the principal not to use or disclose to third persons, on his own account or on account of others, in competition with the principal or to his injury, trade secrets, written lists of names, or other similar confidential matters given to him only for the principal's use or acquired by the agent in violation of duty. The agent is entitled to use general information concerning the method of business of the principal and the names of the customers retained in his memory, if not acquired in violation of his duty as agent; ..." (Italics added.)

[5] It is problematical what sort of conduct will be regarded as tortious interference with contractual relations, because there is a privilege of competition. (Cf. A-Mark Coin Co. v. General Mills, Inc. (1983) 148 Cal. App.3d 312, 323-324 [195 Cal. Rptr. 859]; Rest.2d Torts, § 768, p. 39.)

Section 768 of the Restatement Second of Torts states in pertinent part: "(1) One who intentionally causes a third person... not to continue an existing contract terminable at will does not interfere improperly with the other's relation if [¶] (a) the relation concerns a matter involved in the competition between the actor and the other and [¶] (b) the actor does not employ wrongful means and [¶] (c) his action does not create or continue an unlawful restraint of trade and [¶] (d) his purpose is at least in part to advance his interest in competing with the other...."

[6] This federal circuit court decision affirmed an unpublished district court opinion filed October 8, 1981. These federal decisions determined this very agreement not to be a per se violation of the federal antitrust law, the Sherman Act (15 U.S.C., § 1). (Aydin Corp., supra, 718 F.2d 897, 899-901.) They have persuaded defendant on appeal to abandon his argument to the contrary which prevailed in the trial court below.

[7] This approach does not require us to address plaintiff's interesting argument that the abilities and salaries of its employees were trade secrets. (Cf. Bancroft-Whitney Co. v. Glen, supra, 64 Cal.2d 327, 350-352.) This argument loses some force in light of plaintiff's dismissal of their fourth cause of action alleging misuse of trade secrets.

[8] See footnote, ante, page 268.

[9] Assigned by the Chairperson of the Judicial Council.

442 Mass. 635 (2004)

Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, Sosman, & Cordy, JJ.

Kevin R. McCarthy for the plaintiff.

Robert A. Murphy (Matthew L. Lunenfeld with him) for the defendant.

Steven K. Fedder, of Maryland, Bruce E. Falby, Lewis G. Rudnick, & Lee J. Plave, for International Franchise Association, amicus curiae, submitted a brief.

IRELAND, J.

This case raises an issue of first impression: whether covenants not to compete are enforceable where they stem from franchise agreements. The plaintiff, a former owner of Dunkin' Donuts franchises located in upstate New York, signed covenants not to compete as part of his franchise agreements with the defendant, Dunkin' Donuts Incorporated (Dunkin' Donuts). In relevant part, the agreements restricted the [636] plaintiff, inter alia, from owning or working for a competing business within five miles of any Dunkin' Donuts establishment, for two years after the expiration or termination of the agreements. We granted the plaintiff's application for direct appellate review to consider whether a Superior Court judge erred where, after a bench trial, he held that the covenants not to compete did not violate Massachusetts law. Because we conclude that, in the circumstances of this case, giving due consideration to the fact that Dunkin' Donuts was protecting the very franchise system from which the plaintiff himself benefited, the covenants not to compete were reasonable, we affirm the judgment.

Facts and procedural background. We present the relevant facts as found by the judge, supplementing them as necessary, and reserving certain details for our discussion of the issues.

The defendant is a worldwide franchisor of doughnut and coffee shops^[1] that contracts with independent business persons who use the trade names, trademarks, recipes, and system developed by the defendant. The defendant interfaces with its franchisees through business consultants who organize and conduct district meetings several times a year. The defendant also allows certain high-performing franchisees to enter into a territorial development program whereby, for a fee, the defendant sets aside a particular territory for the franchisee, and the franchisee is expected to locate and develop potentially favorable sites for additional franchised shops.

The plaintiff began working as an employee for a Dunkin' Donuts franchise in the late 1970's. He worked his way up, eventually becoming a general manager in charge of several franchises owned by another franchisee. The judge found that in August, 1996, the plaintiff purchased his own franchise from the defendant, in Syracuse, New York.^[2] The franchise agreement contained a clause (Section 8) which states in relevant part:

"During the term of this Agreement . . . and for a period of two (2) years after the expiration or termination [637] of this Agreement, regardless of the cause of the termination. . . [the] FRANCHISEE . . . shall [not] . . . own, maintain, engage in, be employed by, or have any interest in any other business which sells or offers to sell the same or substantially similar products to the type offered by Dunkin' Donuts shops; provided that, during the [two-year period] only, the provisions of this paragraph

. . . shall not apply to another business located more than five (5) miles from this or any other Dunkin' Donuts shop"^[3] (covenant not to compete).

The defendant does not negotiate changes to the standard franchise agreement with any new (or existing) franchisees.

Although only franchisees are required to sign a covenant not to compete, all employees are bound by a Code of Ethics (code) requiring them to keep confidential information they learned while employed.^[4] There are a number of other documents by which the defendant informs a franchisee that the franchisee will become privy to information that must be held in confidence. They include the uniform franchise offering circular (sent to prospective franchisees), the franchise agreement itself, the development program deposit agreement (signed when a franchisee wants to reserve a certain territory for expansion of franchises), and a cover letter that accompanies certain operating manuals. When a franchisee sells a store, the franchisee is required to acknowledge possession of confidential and proprietary information that the franchisee is willing to sell to the purchaser. The plaintiff signed a number of documents by which he acknowledged the proprietary and confidential nature of the information he was acquiring. The plaintiff purchased two other Dunkin' Donuts franchises in March, 1999, and October, 2000, signing franchise agreements containing covenants similar to the covenants he executed in 1996. He was [638] represented by counsel when he signed each of the franchise agreements containing the relevant covenants. In February, 2002, the plaintiff sold his three franchises to a third party.^[5] In July, 2002, the plaintiff moved to New Hampshire.

Shortly thereafter, before the covenant not to compete^[6] expired, the plaintiff contacted the corporate offices of Honey Dew Donuts and had an opportunity either to be an employee of Honey Dew or to own a franchise. However, when it learned of the plaintiff's covenant with the defendant, Honey Dew Donuts declined to talk to him further. The defendant refused the plaintiff's request to waive the covenant not to compete, and the plaintiff sued.

The plaintiff sought a declaratory judgment (G. L. c. 231A, § 1) that the covenant not to compete was unenforceable regarding both the plaintiff's employment by, and his opening of, a competing business in Massachusetts and New Hampshire. He asked for damages pursuant to G. L. c. 93A, § 11, claiming that the defendant wilfully and knowingly engaged in an unfair trade practice and unfair method of competition. He also claimed that the covenant was unfair under common law. The Superior Court judge issued his order for judgment in June, 2003. The covenant is no longer in effect, having expired in February, 2004.

[639] Discussion.^[7] We accept a judge's findings of fact and legal conclusions unless they are clearly erroneous or tainted by error of law. New England Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 674 (1977).

1. Covenants not to compete.^[8] A covenant not to compete is enforceable only if it is necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest. See Marine Contrs. Co. v. Hurley, 365 Mass. 280, 287-288, 289 (1974); All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974). Covenants not to compete are valid if they are reasonable in light of the facts in each case. See Marine Contrs. Co. v. Hurley, supra at 287; Saltman v. Smith, 313 Mass. 135, 145 (1943). Historically, covenants not to compete typically have arisen in either the employment context or in the context of the sale of a business. See, e.g., Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85 (1979) (sale of business); Marine Contrs. Co. v. Hurley, supra (employment); All Stainless, Inc. v. Colby, supra (employment); Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488 (1986) (sale of business). In the context of the sale of a business, courts look "less critically" at covenants not to compete because they do not implicate an individual's right to employment to the same degree as in the employment context. See Alexander & Alexander, Inc. v. Danahy, supra at 498, citing Whitinsville Plaza, Inc. v. Kotseas, supra at 102-103, and Wells v. Wells, 9 Mass. App. Ct. 321, 323-325 (1980). Moreover, in the context of the sale of a business, courts are less concerned with unequal [640] bargaining power between the parties. Wells v. Wells, supra at 324. Rather, courts consider whether "the parties entered into the agreement with the assistance of counsel and without compulsion (an element frequently not present in the employer-employee context)." Wells v. Wells, supra at 324-325, and cases cited. Courts in other jurisdictions have concluded that a covenant not to compete in a franchise agreement does not fit neatly into existing standards for reviewing such covenants. See, e.g., In re KBAR, Inc., 96 B.R. 158, 159-160 (Bankr. C.D. Ill. 1988), and cases and authorities cited. However, many courts analogize such covenants either to employment covenants or sale of business covenants. For cases that have used the sale of business analogy, see, e.g., Wilkinson v. Manpower, Inc., 531 F.2d 712 (5th Cir. 1976); Jiffy Lube Int'l, Inc. v. Weiss Bros., 834 F. Supp. 683 (D.N.J. 1993). For cases that have used the employment analogy, see, e.g., Novus Franchising, Inc. v. Taylor, 795 F. Supp. 122 (M.D. Pa. 1992); O.V. Mktg. Assocs., Inc. v. Carter, 766 F. Supp. 960 (D. Kan. 1991); South Bend Consumers Club, Inc. v. United Consumers Club, Inc., 572 F. Supp. 209 (N.D. Ind. 1983), appeal dismissed, 742 F.2d 392 (7th Cir. 1984).

We conclude that, in light of the facts in this case, the covenant in the franchise agreement is more akin to a sale of business covenant. The plaintiff was not the defendant's employee. The franchise agreement itself specified that the plaintiff, as a franchisee, was an independent contractor. The defendant maintained an advisory relationship with the plaintiff. See generally DAR & Assocs., Inc. v. Uniforce Servs., Inc., 37 F. Supp. 2d 192, 197 (E.D.N.Y. 1999) (license agreement); Sentilles v. Kwik-Kopy, Corp., 652 So. 2d 79, 82-83 (La. Ct. App. 1995) (franchisees were not employees). The plaintiff had to pay to obtain his franchise. Moreover, as the trial judge found, the plaintiff entered into his agreement and its attending covenants with his eyes wide open. He was represented by counsel. See generally Alexander & Alexander, Inc. v. Danahy, supra at 501 (covenant not to compete analyzed as sale of business where defendant, who was former shareholder of insurance firm, sold assets to plaintiff and entered into agreement freely, with substantial consideration and with benefit of counsel).

[641] In addition to the obvious right to use Dunkin' Donuts confidential information and trademarks (discussed below), and to receive profits from his franchise, the plaintiff received other consideration. For example, he received long-term contracts of association with Dunkin' Donuts,^[9] and protection from competition from former Dunkin' Donuts franchisees under the terms of the very covenant not to compete he now challenges. The plaintiff voluntarily terminated the franchise agreements, profiting by $72,000. See note 6, supra. See also Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 294-297 (1980) (noting that franchisee did not suffer potential loss of his investment because Dairy Mart repurchased inventory; termination provision was not obscurely worded or buried in fine print and there was no deception in Dairy Mart's introductory brochure). All of these facts support our conclusion that the franchise agreement was akin to a sale of business. Moreover, there are no factors that indicate that the plaintiff was treated unfairly. Cf., e.g., Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 315 (1982) (holding covenant not to compete for key executive's lifetime tied to deferred compensation agreement was too broad only where company fired executive, without cause, seven years before anticipated retirement at age sixty-five).

We turn now to an analysis whether there was a legitimate business interest and whether the covenant's restrictions were reasonable and consonant with public policy.

a. Legitimate business interests. Legitimate business interests include protection of trade secrets, confidential information, and good will. Marine Contrs. Co. v. Hurley, supra at 287. A covenant not to compete designed to protect a party from ordinary competition does not protect a legitimate business interest. Id. Any good will was already protected in the geographically limited covenant not to compete the plaintiff signed with the buyer of his franchises. See note 5, supra.^[10] However, this case involves more than an issue of good will. Here, the defendant had an interest in protecting confidential [642] information. The judge found that the defendant's confidential information included operating manuals and similar information contained in videotapes, CD-ROMs, and websites; recipes for coffee and baked goods; financial information and data; marketing and promotion strategy; new product development; and the location of sites for new stores and building plans. The judge also found that district meetings were held several times a year, often involving the dissemination of confidential information such as financial data and profitability of particular stores, new product development, and marketing and promotion strategies. As discussed, the judge found that the plaintiff signed numerous documents acknowledging the confidential nature of the information he received.

Nevertheless, the plaintiff argues that the information was not truly confidential because parts of the meetings were open to employees other than franchisees. We disagree. On conflicting testimony, the judge found that some meetings were closed to employees other than franchisees. Furthermore, one witness said that only franchisees received binders containing information concerning sales in a district. In addition, the plaintiff himself testified that, at marketing, as opposed to district, meetings only franchisees would participate.^[11] We see no error in the judge's conclusion that, although the defendant may not have done all it possibly could have to guard the secrecy of the information, the information was nevertheless confidential. Cf. Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 843 (1972), S.C., 377 Mass. 159, 165 (1979); J.T. Healy & Son v. James A. Murphy & Son, 357 Mass. 728, 738 (1970); Woolley's Laundry, Inc. v. Silva, 304 Mass. 383, 386-390 (1939). Here, the judge did not err when he found that the plaintiff possessed "a substantial amount of information that is confidential [and] proprietary."

The plaintiff also argues that it is significant that the Dunkin' Donuts corporate employees, who also had access to the same [643] information as he did, were not required to sign a covenant not to compete. We disagree. All employees were bound by the defendant's code. Moreover, the fact that the defendant does not require all employees to sign a covenant not to compete is not relevant, because the defendant may reasonably decide which persons pose the greatest risk of using its confidential information competitively, and can reasonably conclude that all franchisees pose such a risk. In fact, the plaintiff did contact Honey Dew Donuts about a franchise within a short time after selling his franchise.^[12]

b. Reasonable limits on time and space. Although a business may protect its legitimate business interests, a covenant not to compete must be no more restrictive than necessary. Marine Contrs. Co v. Hurley, supra at 287-288. The plaintiff does not challenge the covenant's two-year limit. In any event, it is reasonable. See, e.g., Marine Contrs. Co. v. Hurley, supra at 288-290; All Stainless, Inc. v. Colby, 364 Mass. 773, 777 (1974); Edgecomb v. Edmonston, 257 Mass. 12, 21 (1926); Wells v. Wells, 9 Mass. App. Ct. 321, 327 (1980). Accordingly, we focus on whether a geographic limit of five miles from any other Dunkin' Donuts store is reasonable in the circumstances.

The defendant admitted that, in 2002, its franchisees operated approximately 1,400 stores outside the United States and approximately 3,700 stores in the United States, with approximately 704 stores in Massachusetts and 122 in New Hampshire. The plaintiff argues that the five-mile, essentially worldwide, geographic limit hampers his liberty to be [644] employed.^[13] He also argues that it is unreasonable to restrict his right to be employed by or own a competitive business in New Hampshire or Massachusetts.^[14]

Although Massachusetts has no decided cases concerning franchises in these particular circumstances, in other contexts the court has "rejected a rule which would arbitrarily limit the restriction to the geographical area of the place of employment." Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 718 (1961), citing New England Tree Expert Co. v. Russell, 306 Mass. 504, 510-511 (1940). Even applying the less liberal interpretation of covenants not to compete in the employment context, cases have held that restrictive covenants can apply to large geographic areas. See, e.g., Marine Contrs. Co. v. Hurley, supra at 289 (covenant not to compete covering area within one hundred miles of Boston reasonable); Novelty Bias Binding Co. v. Shevrin, supra at 714, 717-718 (covenant not to compete covering twenty-six named States, signed as part of defendant's restitution in criminal case, not unreasonable). Cf. All Stainless, Inc. v. Colby, supra at 777, 779-782, and cases cited (where salesman not in possession of confidential information, not reasonable for covenant not to compete to restrict him beyond his former sales territory). Moreover, where there is a sale of a business, geographic areas can be larger than in an employment context. See Alexander & Alexander, Inc. v. Danahy, 21 Mass. App. Ct. 488, 496 (1986); Wells v. Wells, supra at 326, and cases cited (with sale of business, "reasonable interest which a buyer may protect" expands).

Given that, even in the employment context, large geographic areas are deemed reasonable in some circumstances, we reject the plaintiff's argument that the portion of the covenant not to compete that prohibits his employment by a competitor in the five-mile area of a Dunkin' Donuts implicates a liberty right. The covenant not to compete did not prohibit employment altogether. Moreover, nothing precluded the plaintiff from working [645] at another Dunkin' Donuts, albeit in a different capacity, during the duration of the covenant. See, e.g., Marine Contrs. Co. v. Hurley, supra at 289-290 (one hundred-mile covenant not to compete enforceable where employee freely entered into covenant and where employee may engage in other employment and did not demonstrate extraordinary hardship because "[t]he consequence of every covenant not to compete, however, is that the covenantor is deprived of a possible means of earning his living, within a defined area and for a limited time").

As discussed, the plaintiff walked away from his franchises with a profit. He also admits that after he sold his franchises, the defendant offered to place him in another Dunkin' Donuts franchise if he could finance it. See Alexander & Alexander, Inc. v. Danahy, supra at 496 (in context of sale of business, covenant not to compete proper because seller receives proceeds from business). See also Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 102 (1979) (no concern for preserving individual's livelihood where covenant restrained business entity not individual; covenants "not rendered unenforceable merely because they protect an interest we might not recognize in any employment setting").^[15]

In these circumstances, we conclude that the five-mile limit is reasonable, not only because a number of our cases have held larger geographic areas to be reasonable, but also because we agree with the judge (and the defendant) that what the covenant not to compete was protecting was the defendant's franchise system. The issue is whether confidential information could be used by the plaintiff to harm other franchisees in other locations. The system is reasonable because it binds all other franchisees and is part of what the defendant sells. The system is part of what the plaintiff, as a franchisee, purchased and what protected him while he was a franchise owner. This conclusion is consonant with the principle that "a seller of a business interest may not derogate from the value of the business as sold by [646] competing with it . . . [because] the buyer is entitled to the full value of the `benefit and advantages' of his purchase" (citations omitted). Wells v. Wells, supra at 324, citing Auslyn, Inc. v. Rousseau, 321 Mass. 735, 736 (1947). See generally Alexander & Alexander, Inc. v. Danahy, supra at 496. See also Casey's General Stores, Inc. v. Campbell Oil Co., 441 N.W.2d 758, 761 (Iowa 1989); Sentilles v. Kwik-Kopy Corp., 652 So. 2d 79, 83 (La. Ct. App. 1995); AmeriSpec, Inc. vs. Metro Inspection Servs., Inc., No. 3:01-CV-0946-D (N.D. Tex. July 3, 2001).^[16]

For these reasons, there was no error in the judge's finding that the covenant not to compete was reasonable in part because other franchisees who sign identical restrictions in their franchise agreements "have a right equitably to enforce" the covenant.

c. Public interest. The plaintiff argues that the covenant not to compete harms the public interest in liberty of employment by essentially preventing the plaintiff from earning a living. We disagree. Our opinion has already addressed this point and it need not be repeated here. See generally Sherman v. Pfefferkorn, 241 Mass. 468, 472, 474, 475 (1922), quoting Nordenfeldt v. Nordenfeldt Guns & Ammunition Co., [1894] A.C. 535, 565 ("public have an interest in every person's carrying on his trade freely"; employee's three-year, within three towns, covenant not to compete reasonable). Cf. Economy Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 551, 553 (1935) (employee's covenant not to compete unenforceable where employee fired without cause, after employee alone built up employer's meat business and where public interest would be harmed during Depression if employee prevented from securing employment).

[647] 2. G.L. c. 93A and common-law claims. Because we conclude that the covenant not to compete is reasonable, it follows that the judge did not err in entering judgment for the defendant on the plaintiff's claims under G. L. c. 93A and the common law.

Conclusion. For the reasons set forth above, we conclude that, in the circumstances of this particular case, the franchise agreement's covenant not to compete is reasonable.

Judgment affirmed.

[1] Dunkin' Donuts is owned by Allied Domecq, PLC.

[2] The plaintiff operated under the name Upstate Donuts, Inc., and purchased the franchise with a partner. Although both the plaintiff and his partner signed relevant documents, we mention the partner only when necessary.

[3] Under the franchise agreements, the defendant reserved the right to open other franchises in the area of the franchisee's shop, even if it competed with the franchisee's business.

[4] At trial, two versions of the Code of Ethics were entered in evidence, one from 1999 and the other from 2002. The 2002 document was called the Code of Conduct. For simplicity, we shall refer to both as the code.

[5] According to the plaintiff, he sold his franchises when he ran into some difficulty with two of his franchise stores. The plaintiff's partner wanted to leave the business and the plaintiff did not have the money to buy him out, nor could he find another partner. The plaintiff also stated that he did not agree with the defendant about the development of one of the stores. The defendant wanted the store to include a Baskin Robbins (ice cream) and a Togo (sandwiches), as well as Dunkin' Donuts.

The plaintiff and his partner grossed over $1 million from the sale of their franchises. The plaintiff testified that they each "walk[ed] away" with $72,000 after all the bills and expenses were paid.

When he sold his franchises, the plaintiff's agreement with the buyer included a covenant not to compete with the buyer for five years in the area of his former franchises. The defendant had to approve the sale, as it approved all sales by its franchisees, including the sale of the first franchise the plaintiff purchased from another franchisee.

[6] Although there were three covenants not to compete, we shall refer to them in the singular.

[7] The court solicited amicus briefs in this case and we acknowledge receipt of the amicus brief from the International Franchise Association. We grant the defendant's motion to strike the amicus brief of the American Association of Franchisees and Dealers and American Franchisee Associations.

We acknowledge, but need not address, every argument made by the plaintiff and defendant.

[8] We reject the plaintiff's representation, offered with no citation to any authority, that because the defendant was not a "party" to the sale of his franchises, the defendant cannot enforce the covenant not to compete.

We also reject the defendant's argument that, because the two-year restriction in the covenant not to compete has passed, the plaintiff's challenge is moot. In addition to his claim for a declaratory judgment, the plaintiff sought to recover damages for alleged wrongful refusal to excuse him from his covenant not to compete.

[9] The contracts were for sixteen years for the first franchise and twenty years for the other two franchises.

[10] We leave open the question whether, in different circumstances, good will could extend beyond the area around a particular franchise.

[11] Moreover, when the plaintiff sold his franchises, his asset purchase agreement acknowledged that the buyer was receiving, among other things, "proprietary intellectual property" set out in the franchise agreement between the plaintiff and the defendant. Only the plaintiff and the buyer were parties to that agreement.

[12] The plaintiff argues that, because other provisions of the franchise agreements require the plaintiff to protect confidential information, the covenant is unenforceable because it goes beyond what is necessary to protect the defendant's legitimate business interests. The defendant argues that this argument is waived because the plaintiff makes it for the first time on appeal. The plaintiff's argument has no merit in any event. There is no legal reason the defendant cannot require franchisees to be bound by both a confidentiality agreement and a (reasonable) covenant not to compete. Moreover, working for a competitor of the defendant makes it likely that the information the plaintiff possesses will be used, yet it might be impossible to detect or prove. See generally Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (former employee will inevitably draw on special knowledge acquired during employment even if former employee made "scrupulous efforts" to avoid disclosing confidential information).

[13] We note that the plaintiff stated that he would have signed a franchise agreement with Honey Dew Donuts that contained a similar covenant: one year and within three miles of any then-existing Honey Dew Donuts shop.

[14] This argument concerns good will. As discussed, we conclude that more than good will is at stake in this case.

[15] The plaintiff argues, despite this case history, that the five-mile limit is unreasonable in terms of space. We disagree. We have examined cases from other jurisdictions concerning covenants not to compete that extend beyond the area of the former franchise. None has these precise facts, and their conclusions are mixed.

[16] As part of his argument concerning the reasonableness of the covenant not to compete, the plaintiff argues that the covenant is unenforceable because it is a contract of adhesion that is vague and overbroad. It is true that the defendant does not negotiate the standard franchise agreement. The defendant argues that this is because uniformity is necessary for a successful franchising system.

We assume, without deciding, that this was a contract of adhesion, but conclude that the agreement is not unconscionable, does not offend public policy, and is not unfair in the circumstances. See Chase Commercial Corp. v. Owen, 32 Mass. App. Ct. 248 (1992).

377 Mass. 141 (1979)
385 N.E.2d 961

Present: HENNESSEY, C.J., QUIRICO, BRAUCHER, WILKINS, & LIACOS, JJ.

Martin W. Fisher for the plaintiff.

Joseph H. Walsh for the defendant.

WILKINS, J.

The plaintiff, a former salesman, district manager, and regional vice president of the defendant corporation, brought this action to recover direct incentive payments and bonuses to which he claims entitlement under the defendant's compensation agreements [142] with him. The defendant filed a motion to dismiss under Mass. R. Civ. P. 12(b)(6), 365 Mass. 754 (1974), and, alternatively, presented a motion for a more definite statement under Mass. R. Civ. P. 12(e), 365 Mass. 754 (1974). A judge of the Superior Court allowed the motion for a more definite statement and took no action on the motion to dismiss. After the plaintiff filed a more definite statement, another judge allowed the defendant's motion to dismiss. We transferred the plaintiff's appeal to this court. We conclude that the plaintiff should have the opportunity to amend his complaint in light of the principles of law considered in this opinion.

The allegations of the complaint and of the more definite statement are as follows. The plaintiff worked for the defendant from November, 1956, until June, 1972. He started as a salesman, became a district manager in 1966, and later became the eastern regional vice president, responsible for the northeastern United States. Each year he signed a contract of employment in Massachusetts. A copy of the form of agreement executed by the plaintiff for the year 1966, when he was promoted to district manager, is annexed to the complaint. We infer that the language of the annexed agreement was in effect during each subsequent year of the plaintiff's employment, although the annexed agreement is limited to one year and apparently applies only to district managers.

The defendant's compensation plan for district managers supervising other salesmen provides three types of compensation: a base salary, a direct incentive payment based on a certain percentage of the annual operating profit of the employee's district, and a discretionary bonus. The agreement noted that direct incentive payments and discretionary bonuses presented "by far, the greatest opportunity for enhanced earnings." Any direct incentive payment for one year would be paid to the employee during the first quarter of the next year up to an amount equal to 50% of the employee's base salary. Any remaining unpaid direct incentive payment would be [143] paid in equal amounts during the first quarter of each of the next four years. The amount of any bonus was to be determined by a compensation committee and paid from a bonus fund established annually by the defendant's board of directors. One-fourth of any year's bonus was to be paid to the employee during the first quarter of each of the succeeding four years.

The agreement provided that the award of any direct incentive payment or of any bonus was wholly discretionary with the defendant.^[1] Any employee who dies, retires, or leaves the defendant "with the approval of the [directors is to] receive all direct incentive and bonus installments as described above." However, "[o]ne who is discharged for cause, terminates his employment, joins a competitor, or engages in activities which are harmful to the Corporation, will forfeit all installments which remain unpaid on the date of the occurrence of any of such events. However, final authority over the payment or forfeiture of direct incentive and bonus installments will be vested in the Compensation Committee." The defendant reserved the right to change or terminate the plan and to make final and binding decisions concerning the [144] interpretation and administration of the plan.^[2]

The defendant discontinued all direct incentive and installment payments when the plaintiff left its employment. The plaintiff claims that he is entitled to (a) $34,800 in unpaid direct incentive installments attributable to the years 1968 through 1971, and (b) $14,000 in unpaid bonus installments for the years 1968 through 1971.^[3] In his brief, but nowhere in his pleadings, the plaintiff represents that he resigned to form a competing corporation, and that the defendant was aware of this when it accepted the plaintiff's resignation. It makes no sense for us to consider the plaintiff's pleadings apart from his representation that he had formed a competing corporation, and, therefore, we will treat the pleadings as if they alleged that fact.

From a literal reading of the plaintiff's compensation agreement, it is clear that he had no explicit right to unpaid incentive and bonus installments when he left the defendant's employ and went to work for a competitor. If the agreement presented an ambiguity, we would construe it in favor of the plaintiff because it tends indirectly to restrain employment. See Union Cent. Life Ins. Co. v. Coolidge, 357 Mass. 457, 459 (1970). However, we see no basis for interpreting the agreement as giving the plaintiff any rights in the circumstances. The agreement was not without consideration, nor was it illusory. If, for example, [145] an employee had died while still employed by the defendant, we would construe the agreement as assuring the payment of all installments then unpaid. The question is whether there is any theory under which, in the circumstances, the discretionary provisions of the agreement should not be enforced.

Our previous decisions have upheld agreements which have provided for the loss of unpaid compensation if a former employee went to work for a competitor. See Flynn v. Murphy, 350 Mass. 352 (1966) (interest in profit sharing fund lost where former employee went to work for a competitor although not engaged in competing work); Chase v. New York Life Ins. Co., 188 Mass. 271, 273 (1905) (renewal premiums lost by former employee who went to work for a competitor). See also Union Cent. Life Ins. Co v. Coolidge, 357 Mass. 457, 459 (1970), where the principle was recognized as valid, but inapplicable under the agreement as construed.

Our opinions have not assessed the right of a former employee to unpaid compensation in terms of the reasonableness of the indirect restraint on the employee's seeking other employment. Apart from statutory limitations, the majority view in this country seems to be that a forfeiture for competition clause in an employment agreement is enforceable without regard to the reasonableness of the restraint on the former employee. See, e.g., Woodward v. Cadillac Overall Supply Co., 396 Mich. 379, 383-384 (1976) (three to two plurality) (noncontributory pension plan);^[4] Rochester Corp. v. Rochester, 450 F.2d 118, 122-123 (4th Cir.1971) (Virginia law) (noncontributory pension plan), and cases cited.^[5] See generally Annot., 18 A.L.R.3d 1246 [146] (1968); Annot., 81 A.L.R.2d 1066 (1962). Some courts, however, have treated unreasonably broad forfeiture clauses as invalid and not subject to judicial modification to reasonable limits. See, e.g., Almers v. South Carolina Nat'l Bank, 265 S.C. 48, 56 (1975) (forfeiture clause in noncontributory pension plan invalid unless it contains reasonable time and geographic limitations); Union Cent. Life Ins. Co. v. Balistrieri, 19 Wis.2d 265, 270-271 (1963) (terms of the agreement unenforceable unless they are reasonable in time and place). Cf. Muggill v. Reuben H. Donnelley Corp., 62 Cal.2d 239, 242-243 (1965) (construing a statutory prohibition against contracts restraining people from engaging in a lawful profession, trade, or business).

Other courts have taken an intermediate ground and have assessed the facts of a particular forfeiture to determine whether it is reasonable. See, e.g., Food Fair Stores, Inc. v. Greeley, 264 Md. 105, 116-119 (1972) (forfeiture of rights under pension plan an invalid restraint where former employee's work for an indirect competitor created little, if any, hardship to his former employer); Lavey v. Edwards, 264 Or. 331, 337-340 (1973) (test of reasonableness as to forfeiture provision in profit-sharing retirement plan); Sheppard v. Blackstock Lumber Co., 85 Wash.2d 929, 933 (1975) (burden of proving reasonableness of forfeiture on the employer); Neuffer v. Bakery & Confectionery Workers Int'l Union, 307 F.2d 671, 673 (D.C. Cir.1962) (forfeiture of pension rights by retired employee who sponsored a rival union, a reasonable condition and not against public policy). Cf. Briggs v. R.R. Donnelley & [147] Sons Co., 589 F.2d 39, 41 (1st Cir.1978) (Illinois law) (forfeiture clause in deferred compensation, plan voluntarily joined by employee, now working for competitor, is a reasonable restraint in the circumstances).^[6]

We reject the suggestion that an employee in a case such as this has made an agreement to which he must be held in all instances. Agreements of the character involved here often are not arrived at by bargaining between equals. The employer normally presents the terms on a "take it or leave it" basis. This is particularly true where, as here, an annual agreement is presented to an employee whose options are to sign or to terminate his employment. We have not automatically held a former employee to the terms of his covenant not to compete. A test of reasonableness, based on the circumstances of the parties and the public interest, has been traditional in our cases involving covenants not to compete. We have enforced the covenants only to the extent that the restraint is reasonable in time and place and necessary to protect the former employer's trade secrets, confidential information, or good will. See New England Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 674 (1977), and cases cited. We see no reason not to enforce a forfeiture clause to the extent that it serves an appropriate interest of the former employer and is otherwise reasonable. Just as we have cut back on overbroad terms of a covenant not to compete (see All Stainless, Inc. v. Colby, 364 Mass. 773, 777 [1974]), we would enforce a forfeiture of deferred compensation only to the extent the restraint is reasonable.^[7]

[148] A number of considerations are appropriate in determining the reasonableness of a provision forfeiting post-termination financial benefits. The amount and nature of the forfeiture and the nature of the employee's duties and responsibilities in his former and current employment are important. If the former employee is not working in circumstances in which a covenant not to compete would be enforceable, the burden of justification of the forfeiture becomes particularly onerous on the former employer. In such a case, the former employee's loss may assume the character of a forfeiture in the classical sense. We do not discount, however, the possibility that a financial inducement to an employee, especially a key employee, to continue to work for his employer might be reasonable in particular instances.^[8] Even if the former employee is working in circumstances in which a covenant not to compete would be enforceable, the reasonableness of the employee's loss must still be weighed, and, in an appropriate case, it might be modified to a reasonable level.

The notion is not new that an employer may not be entitled to rely on the express terms of its agreement with an employee so as to avoid the payment of compensation attributable to past services. For example, we have recently [149] held that an employer may not in bad faith discharge an employee, employed at will, so as to prevent the employee from earning commissions which would have been payable in the normal course. Fortune v. National Cash Register Co., 373 Mass. 96, 105 (1977). There is no suggestion of bad faith by the defendant in this case.

We consider the plaintiff's allegations in light of these principles and in conjunction with his concession that he has formed a competing corporation. Count 1 claims a right to recover under the provisions of the contract. However, the plaintiff has no absolute right to incentive and bonus payments under the terms of the contract when he has gone to work for a competitor. Even reading the complaint sympathetically (see Charbonnier v. Amico, 367 Mass. 146, 152-154 [1975]), we find no allegation, or even a hint, of facts that would justify relief; that is, facts that suggest that the enforcement of the terms of the agreement would be unreasonable in the circumstances. The plaintiff does say in his more definite statement that the restrictions violate Massachusetts law because they do "not specify the scope of the restrictions as to time and place and specificity," and the fifth count alleges that the forfeiture provisions are unenforceable as an unreasonable restriction against competition. Our cases, however, have not automatically invalidated covenants not to compete where they did not express appropriate limitations, and, as we have said, the same principle applies to forfeiture for competition provisions.

The other counts of the complaint considered with the more definite statement fare no better. The second count alleges that the compensation plan is an illusory contract; the third count alleges that the plan is an adhesion contract and the forfeiture unconscionable and therefore unenforceable; and the fourth count alleges that the forfeiture is an unenforceable penalty clause. None of these conclusory allegations is supported by a reference to facts which would warrant the legal consequences asserted. The plaintiff has not cited supporting authority, concerning [150] the purported denial of deferred compensation, in which any of these theories have been accepted as automatically justifying the overriding of the terms of such an agreement.

In the absence of allegations of fact indicating (a) that the defendant acted in bad faith in denying further payments to the plaintiff or (b) that the provision denying benefits if the plaintiff went to work for a competitor was an unreasonable restraint on the plaintiff, the complaint and the more definite statement fail to allege a claim on which relief can be granted. In the circumstances, however, particularly because of our indication for the first time of the relevant considerations concerning the enforcement of a forfeiture for competition clause, we believe that the plaintiff should be given an opportunity to amend his complaint.^[9]

The judgment dismissing the complaint shall be reversed, and the plaintiff will have leave to file an amended complaint within forty days of the date of the rescript.

So ordered.

[1] The fourth paragraph of the agreement reads as follows:

"4. Discretionary Nature of Direct Incentive and Bonus

The award or payment of any direct incentive or bonus is entirely within the discretion of the Corporation and nothing contained herein will be construed to the contrary. Neither the award nor payment of any direct incentive or bonus is a condition of employment, and no person will be deemed to have earned or acquired any right thereto at any time prior to actual receipt of payment.

"One who dies, retires, or leaves the Corporation with the approval of the Board of Directors will receive all direct incentive and bonus installments as described above. One who is discharged for cause, terminates his employment, joins a competitor, or engages in activities which are harmful to the Corporation, will forfeit all installments which remain unpaid on the date of the occurrence of any of such events. However, final authority over the payment or forfeiture of direct incentive and bonus installments will be vested in the Compensation Committee."

[2] Paragraph 7 of the agreement provides (in part) as follows:

"7. Reservations of the Corporation

The Corporation reserves the right to change, modify, or amend this plan in order to correct inequities which may develop in the administration of the plan, or for any other reason. The Corporation also reserves the right upon 30 days written notice to terminate the plan with respect to any or all individuals who are or might be recipients thereunder. The Compensation Committee of the Board will have the authority to construe, interpret and administer the plan and its decisions will be final and binding on all employees."

[3] It would appear that any bonus attributable to the year 1968 should have been paid in full by the time of the plaintiff's resignation in June, 1972.

[4] This case has a strong dissent contending for a rule that a forfeiture clause in a retirement profit-sharing agreement, which was not the product of balanced bargaining power, is void where there are no limitations concerning competition in time and area. Woodward v. Cadillac Overall Supply Co., 396 Mich. 379, 384-407 (1976) (Williams, J., dissenting).

[5] The plaintiff makes no claim based on any statute. After the events involved in this case, regulatory legislation was enacted requiring vesting of certain rights in pension plans and in certain other plans. See G.L.c. 151D, § 13, inserted by St. 1973, c. 1169, § 1, as amended by St. 1974, c. 641, § 17, effective January 1, 1980 (St. 1973, c. 1169, § 2); Employee Retirement Income Security Act of 1974, § 203(a), 29 U.S.C. § 1053(a) (1976) (impliedly barring forfeiture of specified benefits if an employee goes to work for a competitor). See generally Riley v. MEBA Pension Trust, 570 F.2d 406, 408-409 (2d Cir.1977).

[6] The use of a reasonableness test is advocated by most commentators who have considered what principles appropriately should be applied. See Goldschmid, Antitrust's Neglected Stepchild: A Proposal for Dealing with Restrictive Covenants under Federal Law, 73 Colum. L. Rev. 1193, 1199 (1973); Koehn & Ptacek, Employer Protection Against Loss of the Key Employee, 57 Iowa L. Rev. 75, 88-89 (1971); Comment, Forfeiture of Pension Benefits for Violation of Covenants Not to Compete, 61 Nw. U.L. Rev. 290, 299 (1966). See generally 6A. A. Corbin, Contracts § 396 (1962); 14 S. Williston, Contracts § 1643, at 157 (3d ed. 1972).

[7] It has been suggested that an overbroad forfeiture for competition provision should not be cut back to reasonable limits and then enforced. Woodward v. Cadillac Overall Supply Co., 396 Mich. 379, 397-403 (1976) (Williams, J., dissenting). We, however, have been willing to reconstruct the limits of a covenant not to compete and see no reason to treat differently a forfeiture for competition clause. Each can have an inhibitory effect on present and former employees, in much the same way, but neither by itself is a less acceptable form of restraint than the other. If forfeiture for competition provisions were enforced without regard to the reasonableness of their terms while covenants not to compete were subjected to such a test, overreaching employers would be tempted to rely on the threat of forfeiture as a means of restraining employees from seeking employment with competitors.

[8] Of course, the careful negotiation of an agreement, particularly an initial agreement, expressing such an interest on the employer's part would do much to support the enforceability of a forfeiture.

[9] The plaintiff had been employed in key sales positions for the defendant, ending his employment in a position having responsibility for a wide geographical area. These circumstances tend to justify restraints on the plaintiff's assumption of competing employment, and they also may have given rise to a legitimate interest in encouraging the plaintiff to continue in the defendant's employ. The defendant may be able to demonstrate that the loss of compensation was reasonable in these circumstances and far less restrictive than a covenant not to compete which would have been enforceable had it been in the agreement. We are not prepared to say that every deferred compensation arrangement is unlawful when it makes the right to receive that compensation dependent on continued employment. If a former employer may reasonably deny such compensation, we see no reason why it may not reserve the right in its discretion to make such payments, in spite of the employee's termination of his employment. Good faith, however, must guide the employer's exercise of its discretion. See Fortune v. National Cash Register Co., 373 Mass. 96, 102 (1977).

368 Mass. 225 (1975)
331 N.E.2d 54

Present: TAURO, C.J., REARDON, QUIRICO, BRAUCHER, & HENNESSEY, JJ.

Talbot T. Tweedy, for the defendants.

Francis M. O'Boy for the plaintiff.

REARDON, J.

These are cross-bills for declaratory relief consolidated for hearing in the Probate Court for Bristol County sitting in equity. In one case Earle E. Blackwell sought to enjoin the defendants E.M. Helides, Jr., Inc. (Helides), and Ernest M. Helides, Jr., from restraining him from engaging in any phase of the real estate and brokerage business. The Probate Court dismissed this petition with prejudice. In the second case, Helides sought to enjoin Blackwell from engaging in the real estate brokerage business in certain cities and towns for a period of three years from January 29, 1973, in accordance with a restrictive covenant in an agreement which the parties executed on October 23, 1970. The trial judge made a report of material facts and the transcript of evidence is before us. Findings of fact made by the judge will therefore stand unless we conclude that they are plainly wrong. We may find facts not expressly found by the judge and we can reverse the judge's conconclusion if it is tainted by some error of law. Lowell Bar Assn v. Loeb, 315 Mass. 176, 178 (1943). Willet v. Willet, 333 Mass. 323, 324 (1955).

The issue in this case is the validity of paragraph 16 of the written agreement executed by the parties which, in pertinent part, reads as follows: "It is further expressly agreed and understood by the Sales Associate that in the event of the termination of this agreement (as set forth in [227] Paragraph # 12), the Sales Associate (Earle E. Blackwell) will not enter or engage in any phase of the real estate brokerage business which requires licensing as a Sales Associate, Salesman, or Broker, as defined by the Massachusetts Board of Registration of Real Estate Brokers and Salesmen in any capacity whatsoever in the towns and cities of Taunton, Raynham, Berkley, Norton, Dighton, Rehoboth, Seekonk, Bridgewater, West Bridgewater, East Bridgewater, Easton, Brockton, Lakeville and Middleboro, for a period of thirty-six months following the termination of this agreement."

The judge's report of material facts, in brief, indicates that Blackwell, who was a childhood friend of Ernest M. Helides, the managing officer of the corporate defendant Helides, was eventually employed by Helides following the execution of the aforementioned agreement. He also found that Blackwell fully understood the agreement and its specific restrictions. He further found the terms of the agreement to be "reasonable in content and not overly broad as to scope, territory, and duration," and that there was no fraud or duress involved. It was known to Blackwell that the Helides real estate business was most successful, with a dollar volume in 1970, 1971 and 1972 of $8,333,000, comprising 327 sales in the communities referred to in the restrictive covenant. Helides in its operation had compiled listing cards containing valuable and confidential information about various properties, which information was very worthwhile to Helides and which could be amply utilized by any competitor in the area. Blackwell, toward the end of 1972, became discontented in his employment and tried to get Helides "to fire him" notwithstanding Helides' endeavor to persuade him to remain. Helides declined to discharge him, whereupon Blackwell quit its employ. During the period of his affiliation with Helides, Blackwell handled in excess of $600,000 of the firm's sales in the year 1972 alone and, in addition, earned certain commissions for real estate sales he made [228] on Cape Cod in which the Helides firm did not participate. The judge found also that the firm "would suffer irreparable harm and damage and a large potential loss of sales if the covenant contained in paragraph # 16 is not enforced as against Blackwell."

The matter went to the Appeals Court which modified the decrees to the extent that Blackwell was enjoined only from engaging in the real estate brokerage business prior to January 29, 1976, "with respect to any property in the area which was sold by or through the respondent's office (as set out on a list to be prepared under the supervision of the court and appropriately impounded in the records of the cases) pursuant to a listing received by the office during the period of the petitioner's employment." Blackwell v. E.M. Helides, Jr., Inc. 2 Mass. App. Ct. 860, 861 (1974). We are of opinion that the decrees of the Probate Court were correct and that the Appeals Court was in error in the variations which it made in the Probate Court decrees. It is well settled here and elsewhere that a provision in an employment contract restricting an employee's ability to compete following the conclusion of his contract is not illegal per se as a restraint of trade. Becker College of Business Admn. & Secretarial Science v. Gross, 281 Mass. 355, 358 (1933), and cases cited. As stated in the Becker case, "a covenant restraining trade or competition, inserted in a contract for personal service, is not in itself invalid if the interest to be protected is consonant with public policy and if the restraint is limited reasonably in time and space. What is reasonable depends upon the facts." Ibid.

These guidelines have received recent confirmation in the cases of All Stainless, Inc. v. Colby, 364 Mass. 773 (1974), and Marine Contractors Co. Inc. v. Hurley, 365 Mass. 280 (1974). In addition to the considerations to which allusion has been made, it is said in the All Stainless case at 778: "In determining whether a covenant will be enforced, in whole or in part, the reasonable [229] needs of the former employer for protection against harmful conduct of the former employee must be weighed against both the reasonableness of the restraint imposed on the former employee and the public interest." A covenant too broad in any respect will be enforced "only to the extent that is reasonable and to the extent that it is severable for the purposes of enforcement." Id. at 778. No good purpose would be served by further citation of law for the lines of authority are amply set forth in the cases cited above, and we thus proceed to examine the reasonableness of this particular covenant.

In terms of geography, the covenant closely coincided with the area in which good will had been developed by Helides in the careful operation of its business, which it was entitled to protect. All Stainless, Inc. v. Colby, supra, at 779. It is apparent from what is before us that Blackwell's intention was to work the same area for a competitor which he had previously covered as a part of the Helides operation. It does not seem to us that the geographical area which the covenant set forth was too broad. See Marine Contractors Co. Inc. v. Hurley, supra, at 289. Nor was the covenant too extensive in time. A three-year restriction in the circumstances was not unreasonable. See Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 718 (1961); Marine Contractors Co. Inc. v. Hurley, supra.

The difficulty with the Appeals Court opinion is that Blackwell is restricted only as to properties listed by the Helides office while he was associated there and which properties were then sold. This restriction would allow Blackwell to move in areas which might adversely affect the Helides business, i.e., by exploiting his previous contacts with individuals who employed the Helides office and whose properties were either not listed or listed but not sold. See All Stainless, Inc. v. Colby, supra, at 779-780. Cf. Richmond Bros. Inc. v. Westinghouse Bdcst. Co. Inc. 357 Mass. 106, 110 (1970). Also, we believe that the Appeals Court opinion protects Helides [230] insufficiently with respect to confidential information which came into the hands of Blackwell about the many properties which had been listed with Helides over the years.

We see no merit in Blackwell's argument that the restrictive covenant is inoperative because no written notice of termination was sent as the written agreement provided. As the judge found, Blackwell left the Helides office on his own choice after trying to get Helides to discharge him. It follows that the equity decrees of the Probate Court are to be affirmed.

So ordered.

[1] E.M. Helides, Jr., Inc. vs. Earle E. Blackwell.

364 Mass. 773 (1974)
308 N.E.2d 481

Present: TAURO, C.J., REARDON, QUIRICO, HENNESSEY, & WILKINS, JJ.

Verne W. Vance, Jr. (Allan A. Fishman with him) for the plaintiff.

Donald J. Wood for the defendant.

WILKINS, J.

The plaintiff (All Stainless) appeals from a final decree dismissing its bill in equity which sought injunctive relief against a former employee (Colby) for violation of a covenant not to compete.

The judge made findings from which the following facts are taken. All Stainless made sales to industrial purchasers of stainless steel fasteners, "including nuts, bolts, screws, as well as stainless steel pipe valves and fittings." It made distribution in all the New England States and New York. In January, 1961, Colby entered into an employment agreement with All Stainless. That agreement contained a covenant providing generally that on termination of his employment Colby would not compete with All Stainless in New England and New York for a period of two years. That agreement further provided that, following a six months' trial period, the contract of employment would be for a period of two years and thereafter from month to month, terminable then by either party upon thirty days' written notice.

In July, 1966, a new employment agreement was executed between Colby and All Stainless. It contained a restrictive covenant substantially the same as that appearing in the earlier agreement.^[1] The new agreement provided further that [775] the "contract of employment shall be from month to month and terminable by either party upon thirty day's written notice." On or about May 30, 1968, Colby left the employment of All Stainless and went to work for a manufacturing company which was not a competitor of All Stainless.

In November, 1969, approximately seventeen months after he left the employ of All Stainless, Colby went to work as an outside salesman for a company in South Boston, Accurate Fasteners, Inc. (Accurate). Accurate was a competitor of All Stainless. When the plaintiff learned of Colby's employment by Accurate, it filed this bill in equity on November 21, 1969, seeking preliminary and permanent injunctions to enforce the covenant not to compete and also seeking damages as a result of Colby's acts. On December 4, 1969, a preliminary injunction was issued generally enjoining Colby from engaging in any business which was in competition with All Stainless within New England and New York. On December 19, 1969, in response to Colby's motion for a bond to cover any lost earnings, attorney's fees and consequential expenses "in the event that the Bill of Complaint is dismissed," a judge ordered that the preliminary injunction be dissolved unless by December 24, 1969, a surety company bond should be filed by the plaintiff "conditioned to indemnify the defendant [Colby] for loss of earnings and or attorneys fees in the event the bill of complaint is dismissed." Such a bond was seasonably filed.

The case was tried in January, 1970, and on February 10, 1970, the judge filed a document entitled "Findings, Rulings and Order." He ruled that the restrictive covenant was unenforceable, dissolved the preliminary injunction and stated that the bill was dismissed. All Stainless appeals from a final decree dismissing the bill of complaint.

Although no report of material facts was requested, the parties have rightly treated the judge's voluntary findings, which appear to be all the facts found by him, as if they were a report of material facts under G.L.c. 214, § 23. See Birnbaum [776] v. Pamoukis, 301 Mass. 559, 561 (1938); Sulmonetti v. Hayes, 347 Mass. 390, 391 (1964); Reed, Equity Pleading & Practice § 1104 (1952). Where the evidence is reported, as it is here, and there is a statutory report of material facts, findings of facts made by the judge must stand unless we are satisfied that they are plainly wrong; we can find facts not expressly found by the judge; and we can reverse the judge's conclusion if it is tainted by some error of law. Willett v. Willett, 333 Mass. 323, 324 (1955). Richmond Bros. Inc. v. Westinghouse Bdcst. Co. Inc. 357 Mass. 106, 109 (1970).

For us to determine whether the decree dismissing the bill was appropriate, we have found facts, additional to those found by the judge, concerning the nature of Colby's work for All Stainless and for Accurate, the geographical area of his activities for each and the consequences, if any, of Colby's employment by Accurate on any interest of All Stainless which might be entitled to protection in equity.

When employed as an outside salesman by All Stainless, Colby covered southern Maine, southeastern New Hampshire and northeastern Massachusetts. He acted as a salesman making personal contact with old and potential customers of All Stainless. He started working for Accurate in October, 1969, and first became an outside salesman for it on November 12, 1969. The sales territory assigned to Colby by Accurate included that portion of New Hampshire which he had not covered during his latter years at All Stainless, a portion of eastern Massachusetts lying westerly of the area he had covered for All Stainless and five towns (Billerica, Burlington, Belmont, Watertown and Arlington) which he had covered for All Stainless. The inference is clear that, with the exception of those five towns, the territory assigned to Colby by Accurate was carefully selected so as to avoid the territory served by Colby while he was selling for All Stainless. During the three weeks prior to the issuance of the preliminary injunction Colby called on some accounts within the five town area which he had covered for All Stainless and made some sales in that five town area. It is not clear on the record whether any such sale was of a product competitive [777] with a product also sold by All Stainless.

Colby's work for All Stainless and Accurate involved gaining and maintaining the good will of his employer's customers in a competitive sales environment. He was not assigned any managerial functions. There was no evidence that in November, 1969, Colby had any business secrets or confidential information acquired while employed by All Stainless which would have aided him in making sales outside his former sales area or would have aided Accurate in competing generally with All Stainless. It is clear, however, that All Stainless and Accurate were competitors and that because All Stainless's principal contact with customers was through its outside salesmen, the good will of All Stainless could be harmed by a former salesman's calling on an All Stainless customer, with whom he had previously dealt, to solicit purchases on behalf of a new employer.

The judge concluded that the restrictive covenant was "entirely too broad and unreasonable as to time and space in that it encompasses the New England states and part of the State of New York, and it provides for a two-year restriction, whereas the contract was a month-to-month agreement." He then ruled "[f]or these reasons" that the covenant was unenforceable and therefore void.

We hold that the geographical area covered by the covenant was too broad; that the two year limitation was not unreasonable; that, especially in these circumstances, the fact that the employee's employment was terminable from month to month was not an adequate ground to deny the plaintiff relief; that the restrictive covenant should have been enforced to the extent it was reasonable; that, because the period of the two year restriction has expired, All Stainless is left to the recovery of any damages arising from Colby's solicitation of customers within the sales territory covered by him immediately prior to cessation of his employment by All Stainless; and that, as an offset to any such damages, Colby is entitled to prove his financial losses attributable to the preliminary injunction restraining him (from December 4, 1969, to February 10, 1970) from selling in areas outside of [778] his last area of sales activity for All Stainless.

A covenant not to compete contained in a contract for personal services will be enforced if it is reasonable, based on all the circumstances. Sherman v. Pfefferkorn, 241 Mass. 468, 474 (1922). Becker College of Business Admn. & Secretarial Science v. Gross, 281 Mass. 355, 358 (1933). New England Tree Expert Co. Inc. v. Russell, 306 Mass. 504, 510 (1940). See Saltman v. Smith, 313 Mass. 135, 142-143 (1943), and cases cited; Williston, Contracts (3d ed.) § 1638 (1972). In determining whether a covenant will be enforced, in whole or in part, the reasonable needs of the former employer for protection against harmful conduct of the former employee must be weighed against both the reasonableness of the restraint imposed on the former employee and the public interest. Walker Coal & Ice Co. v. Westerman, 263 Mass. 235, 238 (1928). Economy Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 553 (1935). Cedric G. Chase Photographic Labs. Inc. v. Hennessey, 327 Mass. 137, 139 (1951). Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716 (1961). Richmond Bros. Inc. v. Westinghouse Bdcst. Co. Inc. 357 Mass. 106, 110 (1970). See Restatement: Contracts, §§ 515, 516 (1932); Corbin, Contracts, § 1394 (1962); annotation, 43 A.L.R.2d 94, 116 (1955). If the covenant is too broad in time, in space or in any other respect, it will be enforced only to the extent that is reasonable and to the extent that it is severable for the purposes of enforcement. Edgecomb v. Edmonston, 257 Mass. 12, 19-21 (1926). New England Tree Expert Co. Inc. v. Russell, 306 Mass. 504, 509 (1940). Cedric G. Chase Photographic Labs. Inc. v. Hennessey, supra, 139. Novelty Bias Binding Co. v. Shevrin, supra, 718.

The judge apparently concluded that the covenant was not enforceable in any respect. This conclusion seems to have been based, at least in part, on the circumstance that Colby was subject to discharge on thirty days' notice, while the expressed restraint against competition extended for a period of two years. Here, however, under two successive agreements Colby was potentially subject to the same noncompetition [779] provision throughout employment of more than seven years. During the first portion of that employment he was extended a two year term of employment. In these circumstances, clearly the month to month nature of Colby's employment is not a factor militating against enforcement of the covenant for a period of two years. Although the enforcement of a restrictive covenant of this type requires a weighing of all the circumstances and a brief term of employment might appropriately be a factor in determining whether to enforce a restrictive covenant in whole or in part, we are aware of no authority which would support the denial of injunctive relief because the contractual term of employment was short in relation to the duration of the intended noncompetitive restraint. The term of employment has not been a factor in our cases involving enforcement of noncompetition agreements of this type. See, e.g., Chandler, Gardner & Williams, Inc. v. Reynolds, 250 Mass. 309 (1924) (ten year restriction in employment agreement terminable on thirty days' notice); Brannen v. Bouley, 272 Mass. 67 (1930) (two year restriction in agreement terminable on one week's notice); Walker Coal & Ice Co. v. Love, 272 Mass. 564 (1931) and Southern New England Ice Co. v. Ferrero, 295 Mass. 446 (1936) (each involving a five year restriction and weekly employment); Cedric G. Chase Photographic Labs. Inc. v. Hennessey, 327 Mass. 137 (1951) (contract at will, five year restriction). Coupled with the geographical limitation which we adopt below, we conclude that the two year restriction is reasonable.

Clearly the geographical limitations on Colby's sales activities were far too broad. A former employer is not entitled by contract to restrain ordinary competition. Club Aluminum Co. v. Young, 263 Mass. 223, 226-227 (1928). Richmond Bros. Inc. v. Westinghouse Bdcst. Co. Inc. 357 Mass. 106, 111 (1970). Any restraint must be consistent with the protection of the good will of the employer. The former employee must be in a position where he can harm that good will, perhaps (unlike the situation here) because of his knowledge of some business secret or confidential information [780] (see Club Aluminum Co. v. Young, supra, 226; Slade Gorton & Co. Inc. v. O'Neil, 355 Mass. 4, 10 [1968]) or perhaps (as here) because the former employee's close association with the employer's customers may cause those customers to associate the former employee, and not the employer, with products of the type sold to the customer through the efforts of the former employee. See Blake, Employee Agreements not to Compete, 73 Harv. L. Rev. 625, 658-659 (1960). All Stainless has shown that it had good will in the sales area served by Colby. Compare Slade Gorton & Co. Inc. v. O'Neil, supra, 9.

The plaintiff has failed, however, to show that its good will could have been harmed through sales activity by Colby outside of the sales territory formerly assigned to him. We see, therefore, no justification for enforcement of the restriction beyond Colby's former sales territory. Such has been the general nature of the geographical limitations imposed by injunction on route salesmen pursuant to covenants not to compete. Sherman v. Pfefferkorn, 241 Mass. 468 (1922). Boston & Suburban Laundry Co. v. O'Reilly, 253 Mass. 94 (1925). Walker Coal & Ice Co. v. Love, 273 Mass. 564 (1931). Compare Southern New England Ice Co. v. Ferrero, 295 Mass. 446 (1936). We believe that the sales function performed by Colby, involving repeated attempts to sell to potential customers in the same geographical area, is similar to the function of a route salesman in terms of its potential effect on the employer's good will with its customers.

Those of our cases which apply a broader restraint than the area of the employee's customer contact are inapplicable. In some of those cases the threat to the employer's good will came from the employee's confidential knowledge of the employer's business and from the nature of the employee's duties for his new employer. See Walker Coal & Ice Co. v. Westerman, 263 Mass. 235, 239 (1928); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 717-718 (1961). Other cases which have imposed a restraint broader than the area of former activity for the employer reached that result because the plaintiff proved that such restraint was both reasonable [781] and necessary to protect the good will of the employer. New England Tree Expert Co. Inc. v. Russell, 306 Mass. 504, 510-511 (1940). Saltman v. Smith, 313 Mass. 135, 144-145 (1943).^[2]

Our cases have generally not limited the enforcement of a former salesman's restrictive covenant so as only to bar sales (a) to persons formerly solicited by the salesman within a geographical area or (b) to those to whom sales were in fact made in that geographical area through the salesman. But see Whiting Milk Cos. v. O'Connell, 277 Mass. 570, 574 (1931). Practical considerations tend to militate against the entry of such a decree.^[3] Therefore, if we were now dealing with the form of a final decree enjoining Colby from certain activities, we would conclude that he should be restrained from competing against All Stainless within his former sales territory for All Stainless. Such a restraint would on the facts be reasonable and, therefore, the restrictive covenant should have been enforced to that extent. The two year period of restraint has, however, expired. Any relief to which All Stainless may be entitled must come in the form of monetary damages. This case must, therefore, be remanded for a trial on the question of damages.

One further matter must be considered. As a condition of the continuance of the preliminary injunction against Colby, [782] All Stainless filed a surety bond to indemnify Colby for any loss of earnings and for counsel fees "in the event the Bill of Complaint ... is dismissed." We construe that bond as entitling Colby to recovery on it if it were ultimately determined that no injunction should be issued against him. Because we have held that an injunction should have issued, although narrower in scope than expressed in the restrictive covenant and in the preliminary injunction, recovery on the bond is not indicated.^[4] In the absence of a bond on which to base his claim, a person in the position of Colby is not entitled to recover for losses sustained by reason of the pendency of a preliminary injunction. American Circular Loom Co. v. Wilson, 198 Mass. 182, 211 (1908). It is true, however, that Colby was restrained from competitive sales activity throughout New England and New York from the date of the entry of the preliminary injunction (December 4, 1969) until its dissolution on February 10, 1970. As we have held here, that restraint was broader than it should have been. Although, because of the terms of the bond, Colby may not use this circumstance offensively as a sword to collect damages, we think that he should be entitled to use this circumstance defensively as a shield to reduce the amount of damages, if any, established by All Stainless.

The decree is reversed, and the case is remanded to the Superior Court for a hearing on damages.

So ordered.

[1] The restrictive covenant read: "The Employee further covenants that upon the cessation of his employment he will not compete with the Employer in the Employer's business directly or indirectly, as a principal, agent, commission man, factor, salesman, consultant, or Employee in any business directly competing with the Employer's business within the New England States and the state of New York for the period of two full years following the termination of his employment."

[2] We do not mean to suggest that all of our decisions can easily be related one to the other. These cases turn on their facts. Some of our older cases seem to rest in part on the assumption that a former employee should be held to the dimensions of his bargain, however uneven the bargaining power of the parties, without a substantial analysis of the employer's need for protection. See, e.g., Becker College of Business Admn. & Secretarial Science v. Gross, 281 Mass. 355, 356 (1933) ("The defendant, a man of full age, married and a father, contends that he is not bound ..."). Other decisions may be explained in relation to each other by the economic circumstances prevailing at the time of the exercise of the court's equity power. Compare a wartime decision imposing a broad restraint (Saltman v. Smith, 313 Mass. 135 [1943]) with decisions during an economic depression where no restraint was imposed (Economy Grocery Stores Corp. v. McMenamy 290 Mass. 549, 552 [1935]) or a narrow restraint was imposed (Whiting Milk Cos. v. O'Connell, 277 Mass. 570 [1931]). These latter decisions reflect the effect of considerations of the public interest and of the impact of the decisions on the former employee.

[3] The problems of enforcement of such a decree are far greater than where the decree speaks in terms of a geographical area. Moreover, a former employee is not apt to argue for such a decree because his new employer would not be likely to retain him to work in an area in which all or a portion of the potential customers could not be solicited by him.

[4] If the bond had provided protection to Colby against any loss sustained by him because the restraint imposed by the preliminary injunction was broader than it should have been, it would have been of some value to Colby in this situation. Colby does not argue, however, that recovery on the bond is available to him if an injunction of some sort should properly have issued. See, however, annotation, 40 A.L.R. 990 (1926).

Superior Court of Massachusetts,

Suffolk County.

EMC CORPORATION

v.

David A. DONATELLI.

No. 091727BLS2.

May 5, 2009. 

MEMORANDUM AND ORDER ON APPLICATION FOR PRELIMINARY INJUNCTION

STEPHEN E. NEEL, Justice.

Plaintiff EMC Corporation (EMC) seeks an order enjoining its departing employee, defendant David A. Donatelli (Donatelli), from commencing employment with Hewlett-Packard Company (HP), on the basis that such employment would violate a non-compete covenant which Donatelli signed after commencing employment with EMC.

The Court heard the parties on EMC's motion on Friday, May 1, 2009. Donatelli's scheduled commencement date with HP is Tuesday, May 5. After hearing, the Court concludes that the covenant which Donatelli signed is an enforceable contract, is not unreasonably broad (at least on its face), and serves legitimate business interests of EMC. The Court further concludes that Donatelli's intention to work for HP in California, which has a statutory prohibition on covenants not to compete, does not warrant denial of EMC's request for injunctive relief in the circumstances of this case. Finally, the Court will permit Donatelli, if he wishes, to supplement the record with regard to whether he may be employed by HP in a manner which will not prejudice business interests of EMC which are legitimately protected by the non-compete covenant.

BACKGROUND 

Donatelli began his employment with EMC in Massachusetts in 1987. He has been and is presently a Massachusetts resident, and worked at EMC's headquarters in Hopkinton. His most recent title is EMC Executive Vice President and President, EMC Storage Division. The Storage Division produces hardware and software products enabling the storage of information, and accounts for 80% of EMC's revenue. Donatelli oversaw development of the Storage Division's key products: EMC Symmetrix and CLARiiON families of networked storage systems, EMC Celerra network-attached storage (NAS) systems, and EMC Centera content addressed storage (CAS) systems.

On May 13, 2002, Donatelli signed an EMC “Key Employee Agreement” (Agreement) which contains, inter alia, a covenant not to compete (“non-competition covenant” or “covenant”). The covenant states, at paragraph 1(b):

For the twelve month period following the effective date of your termination, for any reason, from the Company, you agree not to directly or indirectly compete with the Company ... [including] (i) the provision of any services ... as an employee ... to any entity that is developing, producing, marketing, soliciting or selling products or services competitive with products or services being developed, produced, marketed or sold by the Company as of the effective day of your termination.

On Monday, April 27, 2009, Donatelli informed EMC that he was resigning from EMC and that he intended to commence employment with HP on May 5. In a press release dated April 28, HP announced that Donatelli will “serve as executive vice president, Enterprise Servers, Storage and Networking ... His responsibilities will include the Enterprise Storage and Server (ESS) business unit, which had fiscal year 2008 revenues of $19.4 billion.”

Also on April 27, Donatelli commenced an action against EMC in California Superior Court. The complaint seeks to enjoin EMC from “enforcing the non-competition ... provision[ ] of the Key Employee Agreement in California,” on the basis that the provision violates the California Business and Professions Code, § 17200 et seq.

On April 28, EMC commenced this action against Donatelli. The complaint seeks judgment that Donatelli be restrained and enjoined “from working for Hewlett-Packard, for [sic] disclosing or using any of EMC's confidential and proprietary information, from destroying, discarding or altering, directly or indirectly, any EMC Property,” and that he be required to return all “EMC Property.”[1]

On April 30, after hearing, the California Superior Court denied Donatelli's application for temporary restraining order, and scheduled a May 15 hearing on Donatelli's motion for preliminary injunction, and motion to stay this Massachusetts action. 

DISCUSSION 

The general principles governing enforceability of non-competition covenants in Massachusetts are well established. As stated in Boulanger v. Dunkin' Donuts, Inc., 442 Mass. 635, 639 (2004):

A covenant not to compete is enforceable only if it is necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest. See Marine Contrs. Co. v. Hurley, 365 Mass. 280, 287-88, 289, (1974); All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974). Covenants not to compete are valid if they are reasonable in light of the facts in each case. See Marine Contrs. Co. v. Hurley, supra at 287; Saltman v. Smith, 313 Mass. 135, 145 (1943).

There is little doubt that EMC's non-competition covenant is necessary to protect its legitimate business interests in this case, in light of Donatelli's knowledge, by virtue of his position and responsibilities, of EMC's proprietary and trade secret information; Donatelli does not seriously argue to the contrary. Nor does he contest the reasonableness of the covenant's one-year restriction.

Instead, Donatelli argues that EMC's motion for injunctive relief enforcing the non-competition covenant should be denied on several grounds, which the Court addresses below.

I. California Law

Donatelli contends that California law renders the covenant unenforceable because “California's stronger interests require the Court to set aside the noncompete's choice-of-law clause” (Opposition at 4), and “EMC's motion is futile because no California court would enforce the noncompete” ( id. at 7). In any event, he argues, “this Court should stay these proceedings pending the outcome in the first-filed California declaratory action .” Id. at 9. 

A. Choice of Law

The Agreement provides, at paragraph 7(h): “You [i.e., Donatelli] agree that the appropriate venue for such action [commenced by EMC to enforce the Agreement] is in the state and/or federal courts located in Massachusetts, and you consent to personal jurisdiction in such courts”; and at 7(j): “This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the doctrine of conflicts of law.”

Relying primarily on Massachusetts federal and California state decisions Donatelli argues that Massachusetts courts will invalidate a choice of law provision “(1) when it conflicts with the fundamental policy of another state, (2) when that state has a materially greater interest than the chosen state in the determination of the particular issue, and (3) when the law of that state would apply in the absence of an effective choice-of-law clause.” Opposition, at 4-5.

In support of his first point, Donatelli asserts that “California famously has a fundamental policy against the enforcement of restrictive covenants, while Massachusetts does not.” Id. at 5. It is true that Section 16,600 of the California Business and Profession Code (Section 16,600) voids any contract “by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind ...” It is also true, as noted above, that Massachusetts common law provides for enforcement of the very same contracts, to the extent that they reasonably protect legitimate business interests of employers. The Court does not agree that California's legislative policy, at least in this case, is somehow more “fundamental” than, and therefore trumps, Massachusetts' common law.

With regard to which state has a “materially greater interest” in resolving this dispute, Donatelli cites Roll Systems, Inc. v. Shupe, No. 97-12689-GAO, 1998 U.S. Dist. LEXIS 3142, at *4-6 (D.Mass. Jan. 22, 1998), a case “with similar facts to this one.” Opposition at 5. While acknowledging that, unlike this case, the employee in Roll Systems had actually been working in California for Roll Systems, a Massachusetts company, Donatelli nevertheless argues that, as in Roll Systems, “any ‘performance’ of the noncompete restriction would be in California. California's strong public policy requires its workers to be free to move around. Thus, California has a greater interest in having its laws govern this dispute than does Massachusetts.” Opposition at 5-6 (emphasis added).

The problem with Donatelli's argument is that, unlike the employee in Roll Systems, he is not, even now, a California resident, and therefore is not yet one of “its workers” whose freedom of movement California has a strong interest in protecting. The distinction is noted in Roll Systems:

... California has a materially greater interest than Massachusetts has in resolving this dispute. Shupe is a California resident working out of California. Since leaving Roll Systems, Shupe has continued to work and live in California. In these circumstances, California has a strong interest in enforcing its fundamental policy regulating attempted limits on the ability of its citizens to change employment without restriction.

Roll Systems, supra, at 7[2] (emphasis added). Where as here the employee has at all relevant times up to the filing of the complaint lived and worked in Massachusetts, the Court concludes that California's interest in regulating limits on his future activities there does not outweigh Massachusetts' interest in applying Massachusetts law to determine the enforceability of his employment agreement with a Massachusetts company. 

Finally, Donatelli argues that California law would apply in the absence of a choice of law provision. As EMC points out, however, “Massachusetts courts will enforce [the parties' choice of law] except where it would result in violation of the fundamental public policy of a state with a materially greater interest in the dispute, and whose law would have applied absent the parties' contractual choice of law.” EMC's Memorandum in Support, at 9, citing Hodas v. Morin, 442 Mass. 544, 550 (2004). Where (1) EMC is based in Massachusetts, (2) Donatelli is a resident of and domiciled in Massachusetts, (3) Donatelli entered the Agreement in Massachusetts, (4) Donatelli has worked for EMC in Massachusetts for 21 years, and has performed under the Agreement for the past seven, and (5) California does not have a materially greater interest in the dispute than does Massachusetts, Donatelli's argument that California law should apply is unavailing. 

B. Futility of Enforcing a Massachusetts Injunction in California

Donatelli argues that EMC's motion is futile because no California court would enforce an order of this Court enforcing the noncompetition covenant. He cites a BLS decision in Aware, Inc. v. Ramirez-Mireles, 2001 Mass.Super. LEXIS 221, *5, [13 Mass. L. Rptr. 257] in which the court, allowing defendant's motion to dismiss on grounds of forum non conveniens, “doubted the propriety of a Massachusetts court entering a ‘judgment against a California resident, that seems contrary to California public policy, but will have to be enforced in some ancillary proceeding in California.’ “ Opposition at 8, quoting Aware, supra at *5. In Aware, as in Roll Systems, the employee had lived and worked in California, pretermination, for his Massachusetts employer. Those cases therefore presented circumstances in which Massachusetts' interest was not as strong as in this case, for the reasons noted above.

Where Massachusetts has an interest in the employment relationship of Massachusetts employers and employees that is significant, this Court should not deny an otherwise meritorious motion for injunctive relief simply because another state may not enforce the injunction should the Massachusetts employee move to that state. Equitable considerations come into play here. It is one thing for a person who has lived and worked in California to wish to continue to live and work in California, only with a different employer. It is quite another for a Massachusetts resident who has agreed to a non-competition covenant, enforceable in Massachusetts, to choose for his new residence and place of employment the one state where the likelihood of his defeating his non-competition covenant may be the greatest. As Donatelli's attorney argued at the hearing, “he can escape to California,” and by doing so can escape the obligations of the covenant. While California's courts may ultimately agree with him, the argument underscores the inferiority of Donatelli's fairness claim[3] compared with those asserted by California residents in Aware, Roll Systems, and similar cases which he cites. 

Donatelli's claim is further diminished when the Court examines the reasonable expectations of the parties at the time the non-competition covenant was executed. A Massachusetts employer who obtains a non-competition covenant from an employee who at the time lives and works in California is on notice that, should that employee later resign and seek employment with a competitor, the California court will likely strike the covenant. Where the employee lives and works in Massachusetts, however, there is much less reason for the employer, at the time the employee executes the covenant, to expect that it will be unenforceable. Similarly, the Massachusetts employee, unlike his California counterpart, upon signing the covenant has reason to expect that it will be enforced.[4] 

C. Stay Pending the Outcome of Donatelli's California Declaratory Action

Donatelli argues that the Court should stay this case to avoid “piecemeal litigation” and the “real possibility that the two courts might issue contradictory preliminary injunctions.” Opposition, at 9-10. He relies on a summary “Memorandum, Preliminary Injunction and Order Staying Further Proceedings” entered in E Ink Corp. v. Drzaic, SUCV No. 01-1617-BLS (April 19, 2001) (van Gestel, J.).

It goes without saying that different cases in the Superior Court presenting similar issues may be decided differently, depending on the circumstances particular to each case.[5] As the Court has concluded above, the circumstances of this case do not lead to the conclusion that the interest of California in this dispute is so predominant that this Court should stay its decision.

Moreover, the California Supreme Court has acknowledged the interests of foreign states in such disputes, and rejected the argument that a first-filed case in California should operate to stay a later-filed case in the enforcing state. In Advanced Bionics Corporation v. Medtronic, 29 Cal.4th 697 (2002), the employee had resigned from Medtronic and gone to California to work for Advanced Bionics. The latter sued in California, and Medtronics sued in Minnesota. The California Supreme Court observed that, “even assuming a California court might reasonably conclude that the contractual provision at issue here is void in this state, this policy interest does not, under these facts, justify issuance of a TRO against the parties in the Minnesota court proceedings. A parallel action in a different state presents sovereignty concerns that compel California courts to use judicial restraint ...” Id. at 706-07. The court goes on to hold that the first-filed rule “was never meant to apply where the two courts involved are not courts of the same sovereignty.” Id. at 707.

II. Enforceability of the Covenant under Massachusetts Law

Donatelli's second basis for opposing injunctive relief is that the non-competition covenant is not enforceable under Massachusetts law, and therefore that EMC has failed to demonstrate a sufficient likelihood of success on the merits. Specifically, he argues that (1) the covenant was not supported by consideration, and (2) that the covenant is broader than necessary to protect EMC's interests.

A. Consideration

As Donatelli points out, he signed the agreement not when he was hired by EMC in 1987, but in 2002, after fifteen years of employment. Relying on IKON Office Solutions, Inc. v. Belanger, 59 F.Sup.2d 125, 128 (D.Mass.1999), and several Superior Court decisions, he argues that “an at will employee who receives a noncompete after the start of the employment relationship must get something more than just continued employment for the noncompete to be enforceable.” Opposition at 11-12. 

It is fair to observe that the state of Massachusetts law is not crystal clear with regard to whether continued employment alone provides sufficient consideration for a non-competition covenant. However, to the extent that IKON stands for the proposition that, on the facts of that case, mere continuation of defendant's existing employment was not sufficient, the Court concludes that IKON does not reflect current Massachusetts law. See Economy Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 552 (1935); Sherman v. Pfefferkorn, 241 Mass. 468, 473 (1922); Wilkinson v.. QCC, Inc., 53 Mass.App.Ct. 1109 (2001) (unpublished decision) (“To the extent new consideration was required [to support a non-competition agreement ‘imposed on’ plaintiff when he was already employed], continued employment was the consideration”). Id. at *1.

As this court observed in Lunt v. Campbell, 2007 WL 2935864 (Mass.Superior 2007) (Fabricant, J.) [23 Mass. L. Rptr. 145], cases such as IKON, which “express[es] doubt” about the adequacy of continued employment as sole consideration for a post-employment non-competition agreement, highlight circumstances which “weigh in the Court's evaluation of equitable factors in deciding whether to enforce by means of the grant of an injunction.” They do not abolish the doctrine that continued employment alone may suffice to support such covenants. 

Moreover, there is other evidence of consideration in this case. The cover page of the Agreement, signed by EMC's president and CEO, states that “[i]n consideration of your employment by EMC and in recognition of the fact that as an employee of EMC you have access to confidential information, I ask that you please review and sign” the Agreement. The second page of the Agreement states that, “in consideration for being provided with access to certain trade secrets and/or confidential and proprietary information in conjunction with your employment with the company, you agree as follows: ...”

Finally, paragraph 7(j) of the Agreement states: “This Agreement is executed under seal.” In Marine Contractors Co. v. Hurley, 365 Mass. 280, 284-85 (1974), the court concluded that a promise not to compete, signed under seal, was enforceable. The court noted that “[t]he rule that consideration is unnecessary when an instrument is under seal has been applied in both actions at law and suits in equity.” Id. at 285. The court also concluded that, apart from the seal, the acceleration of a benefit for the employee provided sufficient consideration.

While the Supreme Judicial Court has since abandoned the doctrine that a seal imports consideration sufficient, without more, with regard to option contracts and contracts executed on behalf of an undisclosed principal, see Knott v. Racicot, 442 Mass. 314, 319-20 (2004), it has not yet done so with regard to non-competition agreements. Indeed, in Knott, the court cites Marine Contractors as an example of cases involving contracts as to which, “over time, simply the words ‘under seal’ or a similar phrase appearing in a mass-produced, form contract became sufficient to invest that document with the privileged status of a sealed instrument.” Id.

Although Massachusetts law regarding the consideration required to support covenants not to compete is not free from doubt, the Court concludes from the foregoing discussion that, in the circumstances of this case, EMC has demonstrated the necessary likelihood of success on the merits of its claim that the non-competition covenant is supported by adequate consideration.

B. Breadth 

Donatelli contends that the covenant is broader than necessary to protect EMC's legitimate business interests, because “EMC seeks to prevent Donatelli from working at HP at all even though only 20 percent of his job overlaps with his previous EMC job duties.” Opposition at 14. Specifically, he argues that, “[w]hile it is true that EMC and HP compete in the storage sector, storage-related responsibilities will make up only about 20 percent of Donatelli's position at HP, the majority of his responsibilities will relate to servers and networking gear-two areas EMC does not occupy.” Id., at 15.

At the hearing, EMC argued that Donatelli's argument fails because it is the very integration of EMC's storage products with servers and networking equipment that gives EMC's products a competitive edge; in counsel's words, “it's all linked.” The Court's understanding of those facts, let alone the relative merits of the parties' arguments, is at this stage rudimentary at best. It is beyond dispute, however, that a non-competition covenant must be no broader than necessary to protect an employer's legitimate business interests. See Boulanger v. Dunkin' Donuts, Inc., supra, 442 Mass. at 639. 

Accordingly, if Donatelli seeks to do so, the Court will permit the parties to develop the record with regard to the following question: of the services that Donatelli would, if permitted, provide as an employee of HP, which constitute services in respect of “products or services competitive with products or services being developed, produced, marketed or sold by” EMC (Agreement, paragraph 1(b)(i)), and which do not? 

ORDER

For the reasons stated above, the Court concludes that EMC has demonstrated a sufficient likelihood of success on the merits of its claim seeking to enforce the non-competition covenant agreed to by defendant David A. Donatelli when he signed the EMC Key Employee Agreement; that the balance of harms favors EMC; and that the relief sought is not against public policy. Accordingly, the Court enters the following preliminary injunction:

Defendant Donatelti is RESTRAINED AND ENJOINED from commencing employment at Hewlett-Packard Company. Donatelli may move to modify this order upon a showing, described in Part II.B. above, that the services which he would provide to Hewlett-Packard do not overlap with products or services being developed, produced, marketed or sold by EMC.

It is further ORDERED that counsel shall schedule and conduct limited written and deposition discovery regarding:

1. the individuals at Hewlett-Packard with whom Donatelli communicated in connection with the possibility of employment at Hewlett-Packard; 

2. the responsibilities Donatelli presently understands he would have in connection with his anticipated employment at Hewlett-Packard;

3. documents in Donatelli's possession, custody or control concerning his anticipated employment at Hewlett-Packard, including but not limited to any employment agreement or written offer of employment, including any drafts thereof, and any response thereto or draft of any such response; 

4. (at Donatelli's option) additional discovery relating to the issue set out in Part II.B. above.

MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION

Richard F. Connon, J.

This matter comes before the Court on a motion by the Plaintiff, Merchant Business Solutions, LLC (Merchant) seeking preliminary injunctive relief against the Defendant Jonathan D. Arst.

BACKGROUND

In October of 2004, the Plaintiff Merchant Business Solutions hired the Defendant Jonathan Arst, promising that during the first year of employment he could earn upwards to $ 100,000. Within the year, the Defendant earned approximately $ 13,000 and was dismissed by the Plaintiff who now seeks an injunction prohibiting the Defendant from a career in sales by virtue of a non-compete agreement that was executed at the beginning of his employment.

The Plaintiff in its Independent Sales Agent Agreement acknowledged that it currently possessed certain recruiting and sales contracts and registrations known as ISO Agreements with MasterCard International, VISA and First National Bank of Omaha, as well as other financial transaction processors. The Plaintiff had authorized Defendant and Defendant had accepted full responsibility of controlling all of Defendant's own business activities, including but not limited to all contracts of vendors, suppliers, et cetera. However, at no time should Defendant or any of Defendant's agents be in contact either directly or indirectly with the banks and/or processors unless otherwise directed by the Plaintiff. As part of the Independent Sales Agreement, there was contained under clause number 7, titled "Non-Competition" that Defendant acknowledged the importance of maintaining the absolute confidentiality or information relating to the Plaintiff's business and agrees not to disclose to anyone other than the Plaintiff the trade secrets and confidential proprietary information of the Plaintiff, included but not limited to this agreement, all devices, processes, records, business relationships, lists or other data pertaining to customers, distributors or suppliers, formulas, improvements and any other such information regarding the operation of the Plaintiff's business. Under 7.2 that Defendant agrees that during the term of Defendant's relationship with Merchant that Defendant shall not without the Plaintiff's express prior written consent directly or indirectly engage in any activity which is or may be competitive with or which might place Defendant in a competing position to that of the Plaintiff in any activity where the Plaintiff does business. Under clause 7.4, Defendant agrees that in the event Defendant voluntarily or involuntarily violates any of the provisions contained in this non-competition agreement, as herein stated, then the Plaintiff shall be immediately entitled to injunctive relief against Defendant, whether damages, real or actual, can be proved. Furthermore, the Plaintiff shall be entitled to any and all reasonable attorneys fees or court costs incurred as a result of any action against Defendant for such action. Under clause 7.5, the provisions within this non-compete provision are void if the Plaintiff violates terms of this agreement and fails to remedy such violation within 60 days after being notified per section 15 herein. This is the agreement that was signed by Jonathan Arst as the Independent Sales Agent. The Agreement was not signed by the Plaintiff.

Shortly after his involuntary termination from the Plaintiff, the Defendant involved himself in a competing business, establishing his own company, where he was designed as president. 

DISCUSSION

In order to prevail on its request for a preliminary injunction, the Plaintiff bears the burden of showing its likelihood of success on the merits; that it will suffer irreparable harm if the injunctive relief sought is not granted; and that its harm, without the injunction, outweighs any harm to the Defendant from him being enjoined. GTE Products Corp. v. Stewart, 414 Mass. 721, 722-23, 610 N.E.2d 892 (1993); Packaging Industry Group, Inc. v. Cheney, 380 Mass. 609, 616-17, 405 N.E.2d 106 (1980). Before assaying these issues, it is appropriate to canvas the relevant elements of the Massachusetts law dealing with the enforcement of non-competition agreements.

Employee covenants not to compete generally are enforceable only to the extent that they are necessary to protect the legitimate business interests of the employer. Novelty Bias Binding Company v. Shevrin, 342 Mass. 714, 175 N.E.2d 374 (1961). Such legitimate business interests might include trade secrets, other confidential information or the good will of the employer that was acquired through dealings with its customers. See All Stainless, Inc. v. Colby, 364 Mass. 773, 308 N.E.2d 481 (1974). Protection of the employer from ordinary competition, however, is not a legitimate business interest and a covenant not to compete designed solely for that purpose will not be enforced. Richmond Brothers, Inc. v. Westinghouse Broadcasting Company, Inc., 357 Mass. 106, 111, 256 N.E.2d 304 (1970).

A non-competition agreement to be enforceable also must be reasonable in geological scope and length of time, in other words, must be reasonable in time and space. See Blackwell v. E.M. Helides, Jr., Inc., 368 Mass. 225, 228, 331 N.E.2d 54; Becker College of Business Administration and Secretarial Science v. Gross, 281 Mass. 355, 183 N.E. 765 (1933). Here, the protection for the Plaintiff was that the agent or the Defendant for a period of two years would not compete with the Plaintiff. However, the agreement itself has no geological limits. An unlimited, country-wide area, or the area where the Plaintiff does business, is simply not acceptable. The net effect would be that the Defendant would be enjoined from competing with the Plaintiff within the Continental United States and beyond.

The Court must also consider and balance the harm to the Plaintiff from failure to grant the injunctive relief it seeks. Contracts like the one before me here, "are scrutinized with particular care because they are often the product of unequal bargaining power and because the employee is likely to give scant attention to the hardship he may suffer later on through the loss of his livelihood." Sentry Insurance v. Firnstein, 14 Mass.App.Ct. 706, 442 N.E.2d 46 (1982). The burden is on the Plaintiff to show that the non-competition part of the agreement is necessary to achieve some protectable purpose other than a mere shelter from ordinary competition. See Richmond Brothers, Inc. v. Westinghouse Broadcasting Corp., 357 Mass. 106, 256 N.E.2d 304 (1970). It would appear that all the Plaintiff is seeking is to prevent the Defendant from ordinary competition. In considering all of the circumstances before this Court, the Defendant is an employee of some eleven months who earned a salary of approximately $ 13,000, had a customer base of approximately 30 customers, all the non-competition agreement achieved was to protect Plaintiff from ordinary competition. Moreover, the Defendant signed the Merchants Bankcard Independent Sales Agreement; however, the agreement was not signed by Merchant Business Solutions, LLC. Additionally, it would appear from the documentation that was submitted by the Plaintiff that the Defendant was an employee of Tender Corp. LLC, with a location at East Falmouth, Massachusetts, and not an employee of the Plaintiff Merchants Business Solutions.

For all these reasons, the Plaintiff's Motion for a Preliminary Injunction is DENIED.

787 F.Supp.2d 118 (2011)

[121] Lawrence P. Murray, Michael V. Samarel, Burns & Levinson, Boston, MA, for Plaintiff.

Russell Beck, Stephen B. Reed, Beck Reed Riden LLP, Boston, MA, for Defendant.

MEMORANDUM AND ORDER

CASPER, District Judge.

I. Introduction

Plaintiff Aspect Software, Inc. has sued Gary Barnett ("Barnett"), its former Executive Vice President and Chief Technology Officer, alleging that Barnett breached his contract with Aspect Software when he accepted a position with a rival corporation. Aspect Software has moved for a preliminary injunction. For the reasons discussed below, Aspect Software's motion is GRANTED.

II. Burden of Proof and Standard of Review

In ruling on a preliminary injunction, courts must state the factual findings or conclusions that support the court's ruling. Fed.R.Civ.P. 52(a)(2). The burden of providing a factual basis sufficient to justify a preliminary injunction rests with the party seeking the injunction. Nieves-Marquez v. Puerto Rico, 353 F.3d 108, 120 (1st Cir.2003). Unless the parties' competing versions of events are "in sharp dispute such that the `propriety of injunctive relief hinges on determinations of credibility,'" Rohm & Haas Elec. Materials, LLC v. Elec. Circuits Supplies, Inc., 759 F.Supp.2d 110, 117 (D.Mass.2010) (quoting Campbell Soup Co. v. Giles, 47 F.3d 467, 470 (1st Cir.1995)), the Court is free to accept as true "well-pleaded allegations [in the] complaint and uncontroverted affidavits." Id. at 114 n. 2 (quoting Elrod v. Burns, 427 U.S. 347, 350 n. 1, 96 S.Ct. 2673, 49 L.Ed.2d 547 (1976)).

III. Factual Background

A. Employment at Aspect

Aspect Software is a Delaware corporation formed in 2005 with its principal place of business in Massachusetts. Aspect Software develops, licenses and sells customer [122] contact center products and services to customers around the world. Their products and services allow businesses to provide customer service, collections, sales and telemarketing directly to customers through contact centers. Aspect Software maintains substantial volumes of confidential information and trade secrets relating to its existing and potential customers and to the development of Aspect Software's product line.

Barnett was the President and CEO of a telecommunications company called Aspect Communications. In 2005, Barnett's company was acquired by Concerto Software and the two companies formed Aspect Software (hereinafter "Aspect"). On September 30, 2005, Aspect hired Barnett to be its Executive Vice President of Research and Development, Chief Technology Officer, and Executive Vice President of Global Support. Barnett served on Aspect's Executive Management team and was one of the company's four Executive Vice Presidents. Barnett's job responsibilities at Aspect were described at length in the record, see Affidavit of Aspect's Chief Executive Officer James Foy, D. 1-2, 44-45 at ¶ 17,^[1] but to summarize, he was responsible for managing all aspects of the customer contact center business, including software and hardware development, technology standards, employee recruitment and retention, and customer relations, as well as general strategic and business management with regard to the customer contact center business. His home base was an Aspect office in Tennessee, but he also had an office at Aspect's headquarters in Massachusetts.

Barnett signed an employment agreement ("Agreement") with Aspect that contained a provision entitled "Noncompete; Non-Solicitation" at section seven. The provision included the following language:

(a) Employee acknowledges that Employee's services to the Company require the use of information including a formula, pattern, compilation, program, device, method, technique, or process that the Company has made reasonable efforts to keep confidential and that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use ("Trade Secrets"). Employee further acknowledges and agrees that the Company would be irreparably damaged if Employee were to provide similar services requiring the use of [the Company's] Trade Secrets to any person or entity competing with the Company or engaged in a similar business. Therefore, Employee agrees that during the Employment Period and during the twelve (12) month period immediately thereafter (the "Protection Period"), he or she will not, either directly or indirectly, for himself or herself or any other person or entity ... (iv) Participate in any business in which he would be reasonably likely to employ, reveal, or otherwise utilize Trade Secrets used by the Company prior to the Executive's termination in any geographical area in which the Company or any of its affiliates conducts business. "Participate" includes any direct or indirect interest in any enterprise, whether as officer, director, employee ... [or] executive....

The Agreement also included the following provision, titled "Choice of Law," at section 17:

All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the schedules hereto shall be governed by, and construed in accordance with, the [123] laws of the Commonwealth of Massachusetts, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts.

During the course of his employment, Barnett generated and was given access to information Aspect's complaint describes as trade secrets, including 1) strategic decisions concerning Aspect's "roadmap" for future technological advancement, 2) the design of Aspect's flagship "Unified IP" product and the timeline for its release to the public, 3) details of the relationship between Aspect and the Microsoft corporation as to both technical and strategic matters, 4) the internal structure of Aspect products' components as well as the strengths and weaknesses of individual components, 5) negotiations between Aspect and Aspect's clients, 6) marketing strategies and specific customer targeting objectives, 7) Aspect products' ability to deploy across multiple servers, 8) the interfaces used to connect Aspect products to third-party products, 9) functionality, strengths and weaknesses of Aspect products, 10) cloud computing technology strategies, 11) Aspect's use of Microsoft's SQL server for reporting and analytics and plans for future use, 12) Aspect's use of other Microsoft software and platforms, and 13) Aspect's research and development budgets and resources, including the quality of Aspect's individual employees and Aspect's fiscal constraints.

B. Employment at Avaya

Avaya is a global telecommunications company that, according to an affidavit submitted by Alan Baratz, Avaya's Senior Vice President and President, Global Communications Solutions, self-identifies as "the world leader in the contact center business." Avaya is one of Aspect's main competitors.^[2] On April 17, 2011, Baratz offered Barnett the position of Avaya's Vice President and General Manager, Contact Center Business Unit. Baratz offered the position to Barnett because Baratz "consider[ed] Mr. Barnett to be a worldwide authority and luminary on contact center technology and solutions."^[3] The position included an annual base salary of $500,000 and annual target bonus of $350,000. On April 18, 2011, Barnett accepted the offer, informed Aspect that he was going to work for Avaya and resigned from Aspect.

Barnett and Avaya both claim that they took steps to protect Aspect's trade secrets before Barnett started his new job. [124] Barnett turned off his Aspect-issued Blackberry immediately after tendering his resignation, left his laptop computer in his office, and boxed all Aspect property in his home and made arrangements for a representative from Aspect to retrieve the boxes. Avaya included language in its employment offer to Barnett that specifically forbade him from using any Aspect trade secrets in the course of his employment with Avaya and, separately, incorporated by reference Barnett's Agreement with Aspect.^[4] Avaya and Barnett subsequently entered into an "Employee Agreement Regarding Intellectual Property" that included similar protections. Additionally, on April 21, 2011, Alan Baratz, Avaya's Senior Vice President and President, Global Communication Solutions, sent Barnett an e-mail that provided, in relevant part:

Given your current obligations to Aspect, I have put together the "ground rules" below, which I need you to follow:

1. Do not retain any documents or information relating to Aspect's business, in any form, that you obtained in your role as an Aspect employee.

2. Do not disclose any document or information relating to Aspect's business to anyone at Avaya and do not use such documents or information in your employment with Avaya.

3. If Aspect comes up in any discussion or meeting that you are attending in your role as an Avaya employee, you should not provide any input.

4. If, in the course of your employment with Avaya, you are asked for information relating to Aspect's business, you must refrain from providing the information.

5. Until April 19, 2012, do not have any communications with any Aspect employee about leaving his or her employment with Aspect.

6. Until April 19, 2012, do not play any role in hiring anyone who was employed with Aspect in the 180 days prior to your involvement in the hiring process.

7. Until April 19, 2012, do not have any communications with any Aspect customer, supplier, licensee, licensor or business relation about doing business with Aspect or Avaya.

8. Until April 19, 2012, do not make any negative statements about Aspect to [125] any Aspect customer, supplier, licensee, licensor or business relation.^[5]

On April 21, 2011, after resigning from Aspect, Barnett relocated with his family to San Jose, California. On April 25, 2011, he started working in Avaya's Santa Clara, California office.

IV. Procedural History

On April 27, 2011, Aspect filed the instant lawsuit in Suffolk Superior Court against Barnett alleging breach of contract and seeking injunctive relief and declaratory judgment. On May 3, 2011, Barnett removed the action to this Court. On May 9, 2011, Aspect submitted to this Court a draft injunctive order that would enjoin Barnett from working for Avaya for a period of one year (consistent with the "Protection Period" discussed in §§ 7(a) and (d) of the Agreement), from contacting Aspect's customers or potential customers for the same period of time, and from disclosing or using any of Aspect's trade secret information. On May 11, 2011, the Court permitted Avaya to participate in the case as an amicus curiae. That same day, the Court held a hearing on Aspect's motion for a preliminary injunction at which counsel for Aspect, Barnett and Avaya all appeared.

V. Discussion

A. Preliminary Injunction

To obtain a preliminary injunction, Aspect "bear[s] the burden of demonstrating (1) a substantial likelihood of success on the merits, (2) a significant risk of irreparable harm if the injunction is withheld, (3) a favorable balance of hardships, and (4) a fit (or lack of friction) between the injunction and the public interest." Nieves-Marquez, 353 F.3d at 120 (1st Cir. 2003). "The sine qua non of this four-part inquiry is likelihood of success on the merits: if the moving party cannot demonstrate that he is likely to succeed in his quest, the remaining factors become matters of idle curiosity." New Comm Wireless Servs., Inc. v. SprintCom, Inc., 287 F.3d 1, 9 (1st Cir.2002).

1. Likelihood of Success on the Merits

a. Choice-of-Law

Aspect and Barnett dispute whether Massachusetts law or California law should govern the analysis of the merits of Aspect's complaint. In a diversity action, the choice-of-law rules that apply are those of the forum state, in this case, Massachusetts. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). As a general rule, Massachusetts courts will give effect to a choice-of-law clause included in the contract itself. See, e.g., Morris v. Watsco, Inc., 385 Mass. 672, 674, 433 N.E.2d 886 (1982) ("Massachusetts law has recognized, within reason, the right of the parties to a transaction to select the law governing their relationship"). However, "Massachusetts courts will not honor the parties' choice-of-law if the application of that provision: `[1] would be contrary to a fundamental policy of a state; which has [2] a materially greater interest than the chosen state in the determination of the particular issue; and which ... [3] would be the state of the applicable law in the absence of an effective choice of law by the parties.'" Roll Sys., Inc. v. Shupe, 1998 WL 1785455, at *2 (D.Mass. Jan. 22, 1998) [126] (quoting RESTATEMENT (SECOND) OF CONFLICT OF LAW § 187(2)(b) (1971)).

Here, the Agreement includes a specific choice-of-law provision identifying the laws of the Commonwealth of Massachusetts as the relevant substantive law governing the Agreement. Barnett argues that this Court should not honor the choice-of-law provision because doing so would be contrary to what he characterizes as a fundamental policy of California, namely section 16600 of the California Business and Professional Code, which states that "[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Barnett's argument fails to satisfy any of the three prongs which must be met before this Court may disregard a contractual choice-of-law clause.

First, while California's policy against non-competition covenants has been characterized as "fundamental," Roll Sys., 1998 WL 178455, at *2, that fundamental policy does not extend to contractual clauses that are designed to protect an employer's trade secrets. See Shipley Co., LLC v. Kozlowski, 926 F.Supp. 28, 30 (D.Mass. 1996) (citing to Muggill v. Reuben H. Donnelley Corp., 62 Cal.2d 239, 242, 42 Cal. Rptr. 107, 398 P.2d 147 (1965)) (Section 16600 "invalidates provisions in employment contracts prohibiting an employee from working for a competitor ... unless the[ provisions] are necessary to protect the employer's trade secrets"); see also Roll Sys., 1998 WL 1785455, at *2 n. 1 (discussing Shipley and the trade secret exception in California policy).^[6] Here, the Agreement's non-compete clause is clearly designed to protect Aspect's trade secrets. It rests on two separate acknowledgments by Barnett of the threat his competition could pose to the security of Aspect's trade secrets. The restrictions it places on Barnett's future employment are limited to employment that would threaten Aspect's trade secrets, and, conversely, it does not prohibit Barnett from working for Aspect's competitors as long as any such work does not involve a reasonable likelihood that Barnett would misuse Aspect's trade secrets. The non-compete clause here is tailored in such as way as to avoid implicating California's fundamental policy against broad non-competition agreements.

Second, California's interest in the determination of the particular issue at bar is either weaker than or, at best, equal to Massachusetts' interest. The non-compete clause was negotiated between a company with its principal place of business in Massachusetts and its employee, who worked at least in part in Massachusetts; any harm caused by a violation of the non-compete clause will be felt in Massachusetts. Even if the Court chose to credit in [127] full the position, put forward in Avaya's amicus brief, that California has an interest in the freedom of its residents to seek employment regardless of trade-secret-related non-compete clauses and has a separate and distinct interest in the freedom of its employers to hire an employee regardless of any trade-secret-related covenants not to compete that employee may have entered into in other states, California's twin interests in pursuing its non-fundamental policy would not materially outweigh Massachusetts' interest in ensuring that Massachusetts contracts are enforced.

Third and finally, California would not be the state of the applicable law in the absence of an effective choice-of-law by the parties. In cases where no choice-of-law provision applies, the Supreme Judicial Court has decided "not to tie Massachusetts conflicts law to any specific doctrine, but seek[s] instead a functional choice-of-law approach that responds to the interests of the parties, the States involved, and the interstate system as a whole," and looks to the Restatement (Second) of Conflict of Laws (1971) as an "obvious source of guidance." Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 631-32, 473 N.E.2d 662 (1985). The Restatement sets forth seven factors relevant to the choice of the applicable rule of law in absence of a contractual choice-of-law clause or statutory guidance from the forum state. One of those factors is "the protection of [the parties'] justified expectations" when entering into the contract. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2)(d) (1971). Here, the Agreement was entered into by a Tennessee resident beginning work at a Massachusetts firm, with his work duties largely split between Massachusetts and Tennessee. Even absent the explicit Massachusetts choice-of-law clause in the Agreement, there is no basis for finding an expectation, justified or otherwise, that the Agreement would be governed by California law rather than the laws of Massachusetts or even Tennessee. Without engaging in a step-by-step analysis of the remaining six factors,^[7] this Court simply notes that, even considering the fact that Barnett is now a California resident and is working at his new employer's place of business in California, a holistic examination of the factors set forth in the Restatement does not suggest that the appropriate substantive law here in the absence of any choice-of-law by the parties would be the law of California rather than Massachusetts.

Accordingly, the Court will enforce the choice-of-law clause agreed to by the parties and will interpret the Agreement pursuant to the substantive law of Massachusetts.

b. Underlying Breach of Contract Claim

Aspect's underlying complaint rests on a breach of contract claim, coupled with requests for injunctive and declaratory relief that are derivative of the breach of contract claim. Under Massachusetts law, to prove a breach of contract claim, a plaintiff must show: 1) existence of a valid and binding contract, 2) that the defendant breached the terms of the contract, and 3) the plaintiff has suffered damages [128] from the breach. Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115, 1122 (1st Cir.1995) (applying Massachusetts law). At issue here is the Agreement's non-compete clause. "Non-[c]ompetition [a]greements are enforceable only if they are `necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest.'" Lombard Med. Tech., Inc. v. Johannessen, 729 F.Supp.2d 432, 438 (D.Mass.2010) (quoting Boulanger v. Dunkin' Donuts, Inc., 442 Mass. 635, 639, 815 N.E.2d 572 (2004)). "Courts will not enforce non-competition agreements meant solely to protect employers from run-of-the-mill business competition[, b]ut the protection of trade secrets, other confidential information, and the good will the employer has acquired through dealings with his customers constitute legitimate business interests." Id. at 439 (citations and quotation marks removed). Barnett does not challenge the necessity of the covenant, the reasonableness of its scope or that the provision is in the public interest.^[8] Moreover, the Court notes that courts have upheld non-compete terms significantly longer than one year, see, e.g., Blackwell v. E.M. Helides, Jr., Inc., 368 Mass. 225, 331 N.E.2d 54 (1975) (finding three-year restriction to be reasonable); Marine Contractors Co., Inc. v. Hurley, 365 Mass. 280, 289-90, 310 N.E.2d 915 (1974) (finding that non-compete lasting less than three years was not excessive); All Stainless, Inc. v. Colby, 364 Mass. 773, 779, 308 N.E.2d 481 (1974) (finding two-year restriction to be reasonable), and Barnett acknowledges that the covenant is not as broad in scope as to amount to an "outright ban" of work for a competitor. Def.'s Memo. at 13. The provision also explicitly was drafted to protect Aspect's trade secrets, which is a goal consistent with the public interest. Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 166 n. 8, 385 N.E.2d 1349 (1979).

Here, the Agreement prohibits Barnett from "participat[ing] in any business in which he would be reasonably likely to employ, reveal or otherwise utilize trade secrets." Instead of quarreling with the scope and breadth of the non-compete clause, Barnett argues that the phrase "reasonably likely" is either vague and therefore unenforceable or ambiguous and therefore requiring the Court to resort to extrinsic evidence to determine the phrase's meaning. Barnett argues in the alternative that his employment with Avaya does not breach the Agreement's prohibition.

"In order to create an enforceable contract, `[i]t is a necessary requirement that [the] agreement ... be sufficiently definite to enable the courts to give it an exact meaning.'" Armstrong v. Rohm & Haas Co., Inc., 349 F.Supp.2d 71, 78 (D.Mass.2004) (quoting WILLISTON ON CONTRACTS § 4:18 (4th ed. 1990)); Hastings Assocs., Inc. v. Local 369 Bldg. Fund, Inc., 42 Mass.App.Ct. 162, 165, 675 N.E.2d 403 (1997) (noting that "a contract is not held to be unenforceable `if, when applied to the transaction and construed in light of the attending circumstances, the meaning can be ascertained with reasonable certainty'"). "Whether an alleged contract is legally enforceable in light of indefinite terms is a question of law for the court." Armstrong, 349 F.Supp.2d at 78. Similarly, "[w]hether a contract is ambiguous is a question of law. But a contract is not ambiguous merely because a party to it, often with a rearward glance colored by [129] self-interest, disputes an interpretation that is logically compelled." Muskat v. U.S., 554 F.3d 183, 190 (1st Cir.2009) (citations and quotation marks removed). "Rather, a contract is ambiguous only if the language is susceptible to more than one meaning and reasonable persons could differ as to which meaning was intended." Id. (citations and quotation marks removed). At this preliminary stage of the litigation, the Court finds little support for Barnett's position that the phrase "reasonably likely" as used in the Agreement is vague or ambiguous. Courts and the parties have no trouble understanding and applying the concept of reasonable likelihood. Indeed, here, the analysis of the phrase arises in the context of this Court's determination of whether Aspect has a "reasonable likelihood of success on the merits" of its claim. Jean v. Mass. State Police, 492 F.3d 24, 25 (1st Cir.2007). Barnett has not cited to any authority suggesting that the phrase "reasonably likely" is vague or ambiguous per se when used in a contract, and the Court declines to reach such a novel holding at this stage of the litigation.^[9] Thus, for the limited purpose of its preliminary injunction analysis, the Court finds a likelihood that Aspect will prevail with regard to its assertion that the Agreement is neither vague or ambiguous.

The Court also finds that Aspect has carried its burden of showing that it is reasonably likely to prevail with regard to its assertion that Barnett breached the Agreement by accepting a position as Avaya's Vice President and General Manager, Contact Center Business Unit. As the Foy and Baratz declarations make clear, Aspect and Avaya are intense competitors in the customer contact center business, precisely the field in which Barnett has encyclopedic knowledge of Aspect's trade secrets. Avaya hired Barnett to work in that same field. Whether or not Barnett actually has "employ[ed], reveal[ed] or otherwise utilize[d]" Aspect's trade secrets in the course of his work with Avaya (or whether he will do so in the future), Aspect has established that at the time of his departure from Aspect it was at the very least "reasonably likely" that he would do so. That likelihood is sufficient to establish a breach of the Agreement.

The Court appreciates Barnett and Avaya's efforts to protect the integrity of Aspect's trade secrets. But even if these scrupulous efforts are wholly successful, they will merely reduce the harm that will flow from Barnett's breach of the Agreement; they will not erase the fact of the breach. Further, some of these efforts, such as those set forth in Baratz's e-mail to Barnett, lack the force of law; others, such as the trade secret protections written into Barnett's employment agreement, are backed by the force of contract law as to the bilateral relationship between Avaya and Barnett but cannot be enforced by Aspect.^[10] These efforts, while admirable, [130] do not alter the analysis that Aspect is likely to succeed on its claim that Barnett breached the Agreement.

2. Irreparable Harm

The likelihood of irreparable harm is a necessary threshold showing for awarding preliminary injunctive relief. Matos v. Clinton Sch. Dist., 367 F.3d 68, 73 (1st Cir.2004). As a general rule, a breach of non-compete agreements tied to trade secrets concerns triggers a finding of irreparable harm. Lombard Med. Tech., 729 F.Supp.2d at 442 (D.Mass.2010). Under that general rule, Aspect's successful showing that it is likely to prevail on claim that Barnett violated the Agreement's non-compete clause designed to protect trade secrets would be sufficient to establish a significant risk of irreparable harm.

Barnett argues that he and Avaya have already taken sufficient steps to protect Aspect's trade secrets, removing the threat of irreparable harm and, accordingly, any need for preliminary injunctive relief. He points to the April 21, 2011 e-mail between Baratz and Barnett, the "Proprietary Information" and "Existing Restrictive Covenants" clauses in Avaya's employment offer to Barnett, and clause "F" of Barnett's Avaya Employment Agreement Regarding Intellectual Property. He has also offered to provide monthly confirmation to Aspect that he has neither used nor disclosed any non-public Aspect information.

The Court fully credits the sincerity of Barnett and Avaya's intent and the scrupulousness of their efforts. But given the extent of Barnett's experience at Aspect and the similarity between his positions at Aspect and at Avaya, "it is difficult to conceive how all of the information stored in [Barnett]'s memory can be set aside as he applies himself to a competitor's business and its products." Marcam Corp. v. Orchard, 885 F.Supp. 294, 297 (D.Mass. 1995). "On the contrary, what [Barnett] knows about [Aspect] is bound to influence what he does for [Avaya], and to the extent it does, [Aspect] will be disadvantaged." Id. Other courts in this district, faced with similar circumstances, have concluded that even sincere, scrupulous efforts by an employee and his or her new employer to protect a prior employer's trade secrets are insufficient to remove the threat of irreparable harm via disclosure of trade secrets. See id. at 297-98; see also Lombard Med. Tech., 729 F.Supp.2d at 442 (finding threat of irreparable harm from inevitable disclosure even where defendant "fully intended to protect [plaintiff's] confidential information"); C.R. Bard, Inc. v. Intoccia, 1994 WL 601944, at *3 (D.Mass. 1994) (holding former employee "could not and did not leave behind his special knowledge of plaintiff's operation, and in serving his new employer he will inevitably draw upon that knowledge").^[11] Accordingly, even taking into account Barnett and Avaya's commendable efforts to protect the integrity of Aspect's trade secrets, Aspect has carried its burden of establishing a [131] significant risk of irreparable harm absent preliminary injunctive relief.

3. Balance of Hardships

"Any potential harm caused to [Aspect] by a denial of its motion must be balanced against any reciprocal harm caused to [Barnett and Avaya] by the imposition of an injunction." TouchPoint Solutions, Inc. v. Eastman Kodak Co., 345 F.Supp.2d 23, 32 (D.Mass.2004). "Non-competition agreements by their nature impose some burden on former employees. That fact alone does not make such covenants unenforceable." Lombard Med. Tech., 729 F.Supp.2d at 442 (citation and quotation marks removed). Here, Barnett acknowledged in clause 7(b) of his Agreement with Aspect that the Agreement's non-compete restrictions "do not impose an undue hardship on him ... due to the fact that he ... has general business skills which may be used in industries other than those in which [Aspect] and its affiliates conduct their business and do not deprive [Barnett] of his livelihood." Even setting this acknowledgment to one side, and taking seriously the disruption a preliminary injunction temporarily precluding Barnett from working for Avaya would cause to Barnett, his family, and (to a lesser extent) Avaya, the Court nonetheless finds that the harm a preliminary injunction would cause to Barnett is outweighed by the significant risk of irreparable harm to Aspect absent an injunction.

4. Public Interest

A preliminary injunction is not appropriate unless there is "a fit (or lack of friction) between the injunction and the public interest." Nieves-Marquez, 353 F.3d at 120. Massachusetts has a clear public policy in favor of strong protections for trade secrets. See Jet Spray Cooler, 377 Mass. at 166 n. 8, 385 N.E.2d 1349. The parties have not disputed Massachusetts' policy on this point and the Court finds no friction between the public interest and the issuance of a preliminary injunction in this case.

VI. Conclusion

For the reasons discussed above, Plaintiff Aspect's Motion for Preliminary Injunction is GRANTED. Accordingly, it is hereby ordered that Defendant Gary Barnett shall be enjoined and restrained until further order of the Court from:

(1) Continuing his present employment with Avaya, Inc., its subsidiaries or affiliates for the duration of the "Protection Period" as defined by Section 7(a) of the Agreement;

(2) Violating Section 7(a) of the Agreement. Accordingly, Barnett is prohibited from directly or indirectly, for himself or any other person or entity,

(i) inducing or attempting to induce any employee of Aspect or any of Aspect's affiliates to leave Aspect or such affiliate, or in any way interfering with the relationship between Aspect or any affiliate and any employee thereof;

(ii) hiring any person who is (or in the case of a former employee, was an employee of Aspect or any affiliate at any time during the 180 day period prior to any attempted hiring by Barnett) an employee of Aspect or any affiliate;

(iii) inducing or attempting to induce any customer, supplier, licensee, licensor or other business relation of Aspect or any affiliate to cease doing business with Aspect or such affiliate, or in any way interfere with the relationship between any such customer, supplier, licensee, licensor or business relation and Aspect or any affiliate (including, without limitation, making [132] any negative statements or communications about Aspect or its affiliates);

(iv) participating in any business in which he would be reasonably likely to employ, reveal, or otherwise utilize Trade Secrets used by Aspect prior to Barnett's termination; and

(3) Disclosing or using Aspect's confidential information, proprietary information, or Trade Secrets (as that term is defined in the Agreement).

For the issuance of this injunctive relief, the plaintiff is required to post a bond pursuant to Fed.R.Civ.P. 65. In the exercise of its discretion, the Court imposes a bond of $500,000. The order of preliminary injunction will become effective upon the filing of the $500,000 bond by Aspect and its notice to Barnett of such filing. Because the parties have not yet stated their positions as to the appropriate amount of bond, the Court allows each party leave to file a motion to modify the bond amount within seven days. Once the order of preliminary injunction becomes effective, it will remain in effect while the Court considers any motion to modify the bond amount.

So ordered.

MEMORANDUM AND ORDER

I. Introduction

On May 27, 2011, the Court entered a preliminary injunction and order ("the Preliminary Injunction") in this case.^[12] Currently before the Court is Defendant Barnett's Motion to Amend the Preliminary Injunction. Barnett asserts that amendment is necessary "so as to allow [Barnett] to avoid `unwitting contempt.'" Def. Memo, D. 22 at 12 (quoting Regal Knitwear Co. v. Nat'l. Labor Relations Bd., 324 U.S. 9, 15, 65 S.Ct. 478, 89 L.Ed. 661 (1945)).

II. Legal Standard

Barnett brings his motion pursuant to Federal Rules of Civil Procedure 52(b), 59(e) and 60(b)(6). Barnett asserts that the standards governing motions filed pursuant to these various rules are functionally similar, at least in the context of addressing the risk he fears of so-called "unwitting contempt."

Pursuant to Rule 52(b), "[o]n a party's motion filed no later than 28 days after the entry of judgment, the court may amend its findings — or make additional findings — and may amend the judgment accordingly." Fed.R.Civ.P. 52(b). "A Rule 52(b) motion is meant `to correct, clarify or amplify the [Court's] findings [and] is not meant to provide an avenue for relitigating issues on which the moving party did not prevail....'" Dash v. Chi. Ins. Co., 2004 WL 2337021, at *1 (D.Mass. Oct. 18, 2004) (quoting 9 Moore's Federal Practice § 52.60) (second alteration by the Dash court). Under Rule 59(e), "[a] motion to alter or amend a judgment must be filed no later than 28 days after the entry of the judgment." Fed.R.Civ.P. 59(e). "Rule 59(e) motions are granted only where the movant shows a manifest error of law or newly discovered evidence." Kansky v. Coca-Cola Bottling Co. of New Eng., 492 F.3d 54, 60 (1st Cir.2007). Finally, under Rule 60(b) (6), "[o]n a motion and just terms, the court may relieve a party or its legal representative from a final judgment, order or proceeding for ... any other reason that justifies relief." Fed.R.Civ.P. 60(b)(6). "[R]elief under Rule 60(b)(6) should be granted only under exceptional [133] circumstances." Rivera v. P.R. Tel. Co., 921 F.2d 393, 395 (1st Cir.1990).

Barnett argues that these standards are more relaxed when a party's motion for an amendment is motivated by an intent to avoid "unwitting contempt" and relies upon Regal Knitwear in support of his proposition. Def. Memo, D. 22 at 12. But Barnett has not offered, and the Court cannot find, any examples of a court in the First Circuit discussing either Regal Knitwear or the concept of "unwitting contempt" in conjunction with a motion under Rules 52(b), 59(e), or 60(b), let alone such a court in the Circuit relying on Regal Knitwear to alter the standard under which it reviews a motion brought under those rules.^[13] In this Court's estimation, the "best" case in this Circuit for Barnett's position may be Williams v. Lesiak, 822 F.2d 1223 (1st Cir.1987), where the First Circuit, reviewing a motion under Rule 60(b), noted that "where [a court] order has proved to be a faulty method for accomplishing the goal for which it was designed, it would be error for a district court to refuse to grant a modification." Id. at 1227. But the Williams court also took pains to reiterate that where "the danger that motivated the provisions" of a court's order are "still present, a request for modification or vacation [of the order] faces a very heavy burden," and that "[n]othing less than a clear showing of grievous wrong evoked by new and unforeseen conditions should lead us to change what was decreed ...." Id. (citations and quotations omitted).

Thus, even taking full account of Regal Knitwear, Barnett's burden is steep, regardless of which specific rule governs his motion: he may not relitigate issues on which he has failed to prevail in earlier proceedings before the Court, and he must either 1) persuade the Court that granting his motion would merely amplify (rather than alter) the intent behind the Preliminary Injunction, or 2) show that exceptional circumstances, a manifest error of law or newly discovered evidence cast doubt on the Preliminary Injunction as it currently stands.

III. Discussion

Barnett does not argue that exceptional circumstances, a manifest error of law or newly discovered evidence require altering the Preliminary Injunction. Instead, Barnett argues that because the Preliminary Injunction prohibits him from "participating in any business in which he would be reasonably likely to employ, reveal [134] or otherwise utilize Trade Secrets used by [Plaintiff] Aspect prior to Barnett's termination," Preliminary Injunction, D. 16 at 2^[14], but does not "set forth explicit criteria or boundaries for determining" what kind of work Barnett can do, Def. Memo, D. 22 at 13, the Preliminary Injunction should be amended "so that he receives predictability and certainty regarding his role at Avaya, and does not unwittingly face a motion for contempt." Id. at 4.

The Court is familiar with this argument. Barnett made a nearly identical argument four months ago when he opposed Aspect's Motion for a Preliminary Injunction enforcing Barnett's employment agreement with Aspect, see, e.g., Def. Memo in Opp., D. 6 at 19 (arguing that the language in Section 7 of the Agreement was too vague to be enforceable), 21 (arguing that given the vagueness and ambiguity in the Agreement, the Court should not enforce it against Barnett); Transcript of Motion Hearing, D. 8 at 40-41 (arguing that the "reasonably likely" language in the Preliminary Injunction, mirroring the language in the Agreement, is too vague to provide guidance to Barnett), 44 (discussing enforceability of the Agreement). This argument was unavailing, at least in the preliminary injunction context. See 787 F.Supp.2d at 128-29. To the extent Barnett is dissatisfied with the level of specificity regarding the restrictions on his work, the source of his dissatisfaction in the first instance is the employment agreement he entered into with Aspect, not the Preliminary Injunction. Barnett is precluded from using Rules 52(e), 59(b) or 60(b) to relitigate whether that agreement can be effectively enforced as a preliminary injunction. Dash, 2004 WL 2337021, at *1.

Additionally, Barnett's fear of "unwitting contempt" should be at least somewhat allayed by the procedural posture of this case. Aspect has not moved for an order of contempt. Were it to do so, it would have the burden of "establish[ing] by clear and convincing evidence that the putative contemnor violated the relevant court order," Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F.3d 63, 77 (1st Cir.2002), a determination that is committed to the Court's discretion, see Project B.A. S.I.C. v. Kemp, 947 F.2d 11, 15-16 (1st Cir.1991) (stating that "[t]he trial court's ultimate finding on contempt is reviewed for abuse of discretion"), and will be made in regard to a concrete, non-hypothetical, set of facts. See Regal Knitwear, 324 U.S. at 15-16, 65 S.Ct. 478 ("No concrete case is before us. We have here an abstract controversy over the use of these words, and it is as sterile as abstract controversies usually are.... The Board is not here attempting to reach or to hold anyone in contempt by virtue of [the court] orders [at issue].... No one can be punished for contempt because of these words [in the order] until after a judicial hearing, in which their operation could be determined on a concrete set of facts").

VI. Conclusion

For the reason set forth above, Barnett's Motion to Amend the Preliminary [135] Injunction is DENIED.^[15]

So ordered.

[1] References to docketed material are abbreviated as "D. ___."

[2] The nature of the competition between Aspect and Avaya is set out in detail in paragraphs 29-32 of the Foy Affidavit, and is discussed briefly in the affidavit of Alan Baratz, Avaya's Senior Vice President and President, Global Communications Solutions, D. 6-2, at ¶ 2. According to the affidavits, the competition is particularly intense with regard to customer contact center products.

[3] The parties dispute the exact work responsibilities that Barnett's new position at Avaya entails. Aspect asserts in its complaint that "Barnett's responsibilities in his new position with Avaya will likely be substantially similar to his responsibilities while employed at Aspect." Barnett asserts in his affidavit that his responsibilities at Avaya would not include 1) the use or protection of Avaya's trade secrets, 2) defining Avaya's standards for developing and acquiring technology, 3) enforcing technology standards on a company-wide basis, 4) monitoring staff and vendor performance, or 5) ensuring that Avaya's internal technological processes are legal. Barnett's affidavit does not affirmatively state what his job responsibilities at Avaya would include, but it is undisputed that Avaya is a competitor of Aspect's in the customer contact center business and that Barnett would be the executive in charge of that specific business at Avaya.

[4] The employment offer Avaya made to Barnett included the following language:

Proprietary Information: By acceptance of this offer, you agree that (1) no trade secret or proprietary information belonging to any of your previous employers will be disclosed or used by you at the Company, and that no such information, whether in the form of documents, memoranda, software, drawings, etc. will be retained by you or brought with you to Avaya other than those items explicitly permitted by your previous employers, and (2) you have brought to Avaya's attention and provided it with a copy of any agreement which may impact your future employment at Avaya including non-disclosure, non-competition, non-solicitation, invention assignment agreements or agreements containing future work restrictions.

Existing Restrictive Covenants: You have provided Avaya with a copy of the Employment Agreement, dated September 30, 2005, as amended, between Aspect Software, Inc. ("Aspect Software") and you ("Aspect Employment Agreement")[] which contains certain restrictive covenants, which prohibit you from, among other things, soliciting either employees and/or customers or other business associates of Aspect Software to terminate or decrease their business relationship with Aspect Software, and prohibit you from participating in any business in which you would be reasonably likely to employ, reveal, or otherwise utilize Aspect's "Trade Secrets," as defined in the Aspect Employment Agreement. By signing this letter, you affirm that you can and will perform your duties as GM, Contact Centers without violating the Aspect Employment Agreement.

[5] Additionally, Barnett submitted an affidavit to this Court, D. 6-1, stating that he has offered to take additional steps to protect Aspect's trade secrets, including "provid[ing] Aspect a periodic declaration — at the end of each month through April 2012 — certifying under oath my non-use and non-disclosure of any non-public Aspect information."

[6] More recently, some California courts have questioned the vitality of the Muggill line of cases defining the trade secrets exception to Section 16000. See Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 946 n. 4, 81 Cal. Rptr.3d 282, 189 P.3d 285 (Cal.2008) ("[T]his court generally condemns non-competition agreements .... [but w]e do not here address the applicability of the so-called trade secret exception to section 16600"); Dowell v. Biosense Webster, Inc., 179 Cal.App.4th 564, 577, 102 Cal.Rptr.3d 1 (Cal.Ct.App.2d Dist., 2009) ("Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here"); Retirement Group v. Galante, 176 Cal.App.4th 1226, 1233-39, 98 Cal.Rptr.3d 585 (Cal.Ct.App. 4th Dist., 2009) (holding that no trade secrets exception exists to Section 16600, and that abuse of trade secrets must be redressed in tort rather than in contract). None of these courts have gone so far as to assert that Section 16600 admits no distinction between non-compete agreements tailored to protect trade secrets and broader non-compete agreements, or that any emergent prohibition on the former is as fundamental to California's policy as California's longstanding prohibition on the latter.

[7] The seven factors set forth in the Restatement are: (a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability and uniformity of result; and (g) ease in the determination and application of the law to be applied. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (1971).

[8] Indeed, it would be difficult to do so now, since in section 7(b) of the Agreement Barnett acknowledged and agreed to the necessity and reasonableness of the "duration, geographical area and scope" of the non-compete provision.

[9] Perhaps as a way of explaining the dearth of authority supporting his position on this point, Barnett asserts that the phrase "reasonably likely" is "unusual" language for a restrictive covenant, Def. Memo at 1, 13, and implies that unusual language is more likely to be vague and ambiguous. The Court disagrees with this implication. If the phrase at issue in the Agreement is indeed unusual drafting — and the Court takes no position as to whether this is so — that may, contrary to the defendant's argument, alternatively suggest that the Agreement was unusually well drafted.

[10] Barnett makes much of the fact that, as he claims, Aspect has allowed other employees to leave and join competitors and has not filed suit to prevent them from doing so. (D. 6 at 4-5; Barnett Aff. ¶¶ 42-45). Even accepting such allegations as true, it is not relevant to whether Aspect is likely to succeed on the merits in its case against Barnett. See Boulanger, 442 Mass. at 643, 815 N.E.2d 572 (noting that "the fact that the defendant does not require all employees to sign a covenant not to compete is not relevant because the defendant may reasonably decide which persons pose the greatest risk of using its confidential information competitively, ...").

[11] Barnett argues that "[t]he heyday of so-called `inevitable disclosure' [jurisprudence] was in the mid-1990s to the early 2000s, and the tide has since turned," and points to recent cases from sixteen different states. Def.'s Memo. at 6, 6 n. 5. Whether or not Barnett's position is correct as a general matter, it does not describe the current state of Massachusetts law. The Court finds Lombard Med. Tech., Marcam, and C.R. Bard more persuasive authority as to Massachusetts law than the out-of-district cases interpreting out-of-state law cited by Barnett.

[12] The Court has recounted the background of this case elsewhere, see 787 F.Supp.2d at 121-27; D. 16 (Preliminary Injunction and Order).

[13] Perhaps this is not surprising. Barnett offers an excerpt from Regal Knitwear, Def. Memo, D. 22 at 12 (quoting Regal Knitwear, 324 U.S. at 15, 65 S.Ct. 478), that read in context suggests that the Regal Knitwear court was predicting, nor prescribing, how courts would handle motions to modify: "If defendants enter upon transactions which raise doubts as to the applicability of the injunction, they may petition the court granting it for a motion for a modification or construction of the order. While such relief would be in the sound discretion of the court, we think courts would not be apt to withhold a clarification...." Regal Knitwear, 324 U.S. at 15, 65 S.Ct. 478. Additionally, Regal Knitwear did not involve a motion to modify an injunction; instead, it involved (among other things) the limitations on a court's power to enforce an injunction-specifically, an "injunction so broad as to make punishable the conduct of persons who act independently and whose rights have not been adjudged according to law." Id. at 13, 65 S.Ct. 478. A full reading of Regal Knitwear suggests that the case may be relevant to, but clearly does not control, the legal standards governing motions under Rules 52(b), 59(e) or 60(b) — and especially not Barnett's instant motion, since Barnett is the Defendant in this case, not a person "whose rights have not been adjudged according to law."

[14] This language in the Preliminary Injunction was taken nearly verbatim from Barnett's employment agreement with Aspect: "Employee agrees that ... he or she will not ... (iv) Participate in any business in which he would be reasonably likely to employ, reveal, or otherwise utilize Trade Secrets used by the Company prior to the Executive's termination...." Employment Agreement, D. 1-1 at 20 (Section 7 ("Noncompete; Non-Solicitation"), subsection (a) (iv)).

[15] Earlier in this litigation, Aspect had filed a multi-part motion that sought: 1) an extension in the briefing schedule on the instant motion, 2) a request for in camera review of certain documents, and 3) for a Court order requiring Barnett to cease his employment with Avaya pending the resolution of Barnett's motion to modify the preliminary injunction. D. 27. The Court has already resolved the scheduling issue, see D. Entry for 7/21/11, and resolved the issue regarding review of documents without resorting to in camera review. See D. Entries for 7/5/11 and 7/15/11. Aspect has not pressed the third part of its motion, and in light of this order denying Barnett's motion to amend, the remainder of Aspect's multi-part motion, D. 27, is now DISMISSED AS MOOT.

MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

R. MALCOLM GRAHAM, Justice.

The plaintiff Boch Toyota, Inc./Boch Honda (Boch) brings this action to enforce an employment agreement (Agreement) containing certain nondisclosure, confidentiality, and noncompetition provisions, signed by one of its former employees, the defendant Kim Klimoski (Klimoski). This court previously granted plaintiff a preliminary injunction as to the nondisclosure provision of the Agreement. Remaining before this court is plaintiff's motion for preliminary injunction as to the noncompetition provision of the Agreement. For the reasons discussed below, the motion is allowed.

Background

The record before this court includes a verified complaint for breach of contract (Count I) and a request for equitable relief (Count II) in the form of an injunction, plaintiff's motion for preliminary injunction with accompanying memorandum and affidavits, and an opposition memorandum and other materials in support of the opposition from which the following facts are found.

Boch Toyota, Inc. and Boch Honda are affiliated Massachusetts companies which operate multi-line automotive sales and leasing car dealerships in the Boston area. Boch's line-makes are Honda and Toyota. Boch is currently the top-ranking car dealership in the Greater Boston area in terms of sales. A competing dealership, Herb Chambers, also sells and leases Hondas and Toyotas and now ranks second in sales behind Boch in the Greater Boston area.

Prior to accepting a position as Finance Manager at Boch Toyota, Klimoski was a Finance Manager at Herb Chambers. On May 6, 2004, Klimoski interviewed for a Finance Manager position with Michael Shafman, the Vice President of Operations for Boch. Boch hired Klimoski into Boch Toyota on May 8, 2004 as a Finance Manager. Klimoski originally was seeking the position of Finance Manager at Boch Honda.

Among other things, Finance Managers are responsible for arranging financing options and lending rates with car buyers in a way that maximizes profits for the dealership. In order to make the best deal for the dealership and not lose the customer, Finance Managers are given full access to a Rate Book which contains the varying lending rates from banks, the rates at which Boch buys financing from banks and the mark-up at which it sells the financing to the customer, and the various split-rates (how Boch and the various banks have agreed to divide the profits from the financing mark-up). Boch attempts to preserve the confidentiality of this information by (1) restricting employee access to the information (only Finance Managers and senior management, not sales staff, have access to the Rate Book); (2) requiring Finance Managers to keep copies of the Rate Book locked up and not to remove them from the premises; and (3) requiring Finance Managers to sign nondisclosure agreements promising to not divulge any of the information contained in the Rate Book.

Boch also developed a computerized "sales methodology program" and database to streamline the sales process, capture sales and profits information by car line, and generate daily operating reports. Boch trains its staff, including its Finance Managers, to use this program and considers it one of the means by which it maintains its market position. Boch attempts to keep this information confidential through special password access that changes every twenty-one days.

Before beginning to work for Boch, and as a condition of employment, Klimoski was required to execute a "Confidentiality, Non-Competition and Non-Solicitation Agreement." The covenant regarding confidentiality prohibited Klimoski from, at any time during or after her employment disclosing or in any way using confidential and proprietary information, at any time after or during her employment at Boch that she learned in the course of her employment at Boch.^[1]

The noncompetition provision sets forth the following restrictions:

As a material inducement to Boch to employ and/or continue to employee (sic.) the Employee and to pay compensation to the Employee for services rendered, and in order to protect Boch's Confidential, Consumer and Third-Party Information obtained by or disclosed to the Employee during his or her employment as well as to protect Boch's good will, the Employee agrees that during his or her employment by Boch and for a period of twelve (12) months immediately following the last day of his or her employment with Boch for any reason, whether the termination was voluntary or involuntary, with or without reason or cause, the Employee will not:

(i) render services, directly or indirectly, either for his or her own account or as a partner, shareholder (except shares publicly traded in a recognized market), officer, employee or agent, or otherwise be employed by, connected with, participate in or consult for or with any other automobile dealership within a seven (7) mile radius of the Boch entity for whom he or she worked;

(ii) render services, directly or indirectly, either for his or her own account or as a partner, shareholder (except shares publicly traded in a recognized market), officer, employee or agent, or otherwise be employed by, connected with, participate in or consult for or with any other entity which includes within its family of companies, whether directly or indirectly, a dealership of the same line-makes as the Boch entity for whom he or she worked, or any other multi-line dealership that includes the same line-make as the Boch dealership for whom the Employee worked, within a thirty-five (35) mile radius from the Boch dealership for whom he or she worked.

Klimoski resigned her position at Boch on May 17, 2004, abruptly and without notice, and was immediately re-employed as a Finance Manager at Herb Chambers.

Boch filed the Verified Complaint and Motion for Preliminary Injunction on June 9, 2004 to enforce the confidentiality and noncompetition covenants in Klimoski's employment agreement. Boch's breach of contract claim alleges Klimoski breached the noncompetition provision of the Agreement by working for Herb Chambers and that she will inevitably breach the confidentiality/nondisclosure provision by continuing to work there.

In its motion for preliminary injunction, Boch specifically asks the court to enjoin Klimoski from (1) working directly or indirectly for Herb Chambers for a period of twelve months following the date of the court's order; (2) enjoin Klimoski from working directly or indirectly for any automotive dealership within seven miles of Boch Toyota for a period of twelve months from the date of the court's order; (3) enjoin Klimoski from working directly or indirectly for any multi-line dealership selling Toyotas within thirty-five miles of Boch Toyota for a period of twelve months from the date of the court's order; and (4) enjoin Klimoski from using or disclosing any confidential or proprietary information or trade secret of Boch (including but not limited to pricing information, lending rate information, vendor rate information, and proprietary business and sales methods).

Discussion

In order to prevail on a motion for preliminary injunction to enjoin Klimoski from working at Herb Chambers or at any other dealership prohibited by the noncompete covenant, Boch must show a likelihood of success on the merits of its claims, that it will suffer irreparable harm without the injunctive relief requested, and that the harm to Boch, without the injunction, outweighs any harm to Klimoski for being enjoined. GTE Products Corp. v. Stewart, 414 Mass. 721, 722-23 (1993); Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 616-17 (1980).

In the present case Boch has shown a likelihood of success on the merits of its claims against Klimoski. When Boch hired Klimoski as a Finance Manager she signed the Agreement and agreed to be bound thereby. Employee covenants not to compete are enforceable if reasonable based on all the circumstances. All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974). A covenant not to compete is reasonable if its purpose is to protect an employer's legitimate business interests. Marine Contractors Co., Inc. v. Hurley, 365 Mass. at 287 (1974).

Legitimate business interests include goodwill, trade secrets, or other types of confidential information. Id. If any or all of these interests are present in a given case in which a noncompetitive covenant is part of a contractual agreement ... a court will not deny enforcement of a reasonable covenant." New England Canteen Services, Inc. v. Ashley, 372 Mass. 671, 674 (1977). Courts will not enforce covenants designed to protect against ordinary competition. Marine Contractors Co., Inc. v. Hurley, 365 Mass. at 287 (1974); Richmond Bros., Inc. v. Westinghouse Broadcasting Co., Inc., 357 Mass. 106, 111 (1970).

A departing employee may cause harm to his former employer's goodwill by possessing confidential or proprietary business information of the former employer. All Stainless, Inc., 364 Mass. at 779-80. Whether an employee actually takes any customer or supplier lists with him is not dispositive; the employee may still be enjoined if the appropriated confidential information is merely in his or her memory. Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972). In the court case at bar, Klimoski cannot leave behind her recently gathered special knowledge of plaintiff's operation, and in serving her new (and previous) employer she will inevitably draw upon that knowledge. In Marcom Corp. v. Orchard, 885 F.Sup. 294, 297 (D.Mass.1995), the court noted that "the harm to [the former employer] cannot be avoided simply by the former employee's intention not to disclose confidential information, or even by his scrupulous efforts to avoid disclosure ... he does not go with a tabula rasa with respect to [the former employer's] products, its development strategies, its marketing plans, its customers and other significant business information ... what [the employee] knows about [the former employer] is bound to influence what he does for [the new employer], and to the extent it does, [the former employer] will be disadvantaged."

Once it is established that an employer has protectable and legitimate business interests, the employer's reasonable need to protect its business interests must then be weighed against the reasonableness of the restraints imposed by the noncompete covenant as well as any public interests that may be at stake. Richmond Bros., Inc., 357 Mass. at 110. Restrictive covenants in the employment context will be enforced to the extent that the restrictions are reasonably limited in time and geographic scope and are consistent with the public interest. All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716 (1961).

Klimoski does not argue that the Agreement's restrictions are unreasonable, nor has she demonstrated any harm to any public interest by the enforcement of the Agreement's noncompetition covenant, an Agreement she freely entered into. Indeed, the restraints set forth in Klimoski's Agreement are reasonable because of the narrow geographic scope and relatively short time frame. By its terms, she is only restricted for twelve months from working for (1) any dealership selling Toyotas/Hondas within 35 miles of Boch Toyota; (2) any dealership at all within 7 miles of Boch Toyota.

In sum, the plaintiff has demonstrated 1) a likelihood of success on the merits of its claim, 2) that the use of confidential information obtained by Klimoski would cause it irreparable harm, and 3) that the potential irreparable damage to Boch's legitimate business interests is greater than any damage to Klimoski's ability to find comparable employment for a period of twelve months.

ORDER

For the reasons stated above, it is hereby ORDERED that for twelve months from the date of entry of this injunction, defendant Kim Klimoski is preliminarily enjoined from:

1. Working directly or indirectly for Herb Chambers;

2. Working directly or indirectly for any automotive dealership within seven miles of Boch Toyota;

3. Working directly or indirectly for any multi-line dealership selling Toyotas within thirty-five miles of Boch Toyota;

4. Using or disclosing any confidential or proprietary information or trade secret of Boch (including but not limited to pricing information, lending rate information, vendor rate information, and proprietary business and sales methods).

[1] Types of confidential information outlined in the agreement for illustrative purposes include: "any company, proprietary, secret, or other privileged information, technical data, compilation, research, data, trade secrets, know-how ... concerning: (a) research and development information; (b) the company's customers, suppliers, and/or prospective customers and suppliers, including their identity, special needs, job orders, preferences, transaction histories, contacts, characteristics, agreements and prices; (c) markets; (d) hardware configuration information, software developments, or computer processed data; (e) inventions, processes, formulas, technology, designs, drawings or engineering information; (f) systems and procedures, including but not limited to the Boch Signature Book; (g) pricing structures, profitability, costs, finances, tax, projections, sales information or estimating processes; (h) product, service or marketing information, plans, studies, proposals, specifications, activities, promotions, compensation structures, incentive programs, or operations; (i) business development center computer processes or dealer communication system information; and (j) Boch policies, procedures, litigation activity or other business information disclosed to the Employee by Boch, either directly or indirectly, in writing, orally or by drawings or inspections of parts or equipment, or otherwise acquired by the Employee during his/her employment with Boch. Notwithstanding anything to the contrary in this Agreement, however, Confidential Information also includes any and all information that the Company is obligated to maintain as confidential or that the Company may receive or has received from others with any understanding, express or implied, that it will not be disclosed."