Search form

Does Massachusetts Non-Compete Law Restrict Access to Federal Court or Arbitration?

By Erik J. Winton and Colin A. Thakkar
  • May 15, 2019

The Massachusetts Noncompetition Agreement Act (Non-Compete Act) has yet to be tested, but its venue provision likely will come under special scrutiny. The venue provision governs the geographical location and forum in which a non-compete lawsuit may be maintained. Due to its apparent conflicts with federal law, the venue provision will likely be unenforceable to limit federal jurisdiction over related lawsuits or to prohibit or otherwise regulate arbitration of such lawsuits.

For a general review of the Non-Compete Act, which went into effect on October 1, 2018, see our article, Massachusetts Legislature (Finally) Passes Non-Compete Law.

The Venue Provision

The venue provision of the Non-Compete Act provides:

All civil actions relating to noncompetition agreements subject to this section shall be brought in the county wherein the employee resides or, if mutually agreed upon by the employer and the employee, in the county of Suffolk; provided, however, that in any such action brought in the county of Suffolk, the superior court or the business litigation session of the superior court shall have exclusive jurisdiction.

This provision appears to conflict with federal law by limiting: (1) federal subject-matter jurisdiction; and (2) the ability of parties to enter into binding arbitration agreements.

Limitations on Federal Jurisdiction

The venue provision purports to partially bar parties from litigating Non-Compete Act claims in federal court. Such a restriction may violate the Supremacy Clause of the U.S. Constitution and is likely unenforceable.

By attempting to confer exclusive jurisdiction over Suffolk County statutory non-compete actions to the superior court (or its business litigation session), the venue provision appears to prohibit parties from commencing such actions in, or removing them to, federal court. Although the law oddly does not similarly restrict actions outside of Suffolk County, the question is whether the law can restrict federal jurisdiction at all.

Article III of the U.S. Constitution grants federal courts original jurisdiction over civil actions by two primary methods: (1) where the action arises under federal law (federal question jurisdiction); or (2) where the amount in controversy exceeds $75,000 and no plaintiff shares a state of citizenship with any defendant (diversity jurisdiction). Additionally, if an action includes certain claims that are subject to original jurisdiction and other claims that are not, federal courts may exercise “supplemental jurisdiction” over the additional claims if they “form part of the same case or controversy” as the claims that are subject to original jurisdiction.

The Non-Compete Act’s venue provision appears to bar Suffolk County non-compete actions from being brought in or removed to federal court, regardless of whether they trigger federal jurisdiction under Article III. In other words, the law unilaterally limits federal jurisdiction as granted by the Constitution and federal law, apparently violating the Supremacy Clause of the U.S. Constitution.

Courts have routinely rejected state efforts to limit federal jurisdiction. In Railway Co. v. Whitton’s Adm’r, 80 U.S. 270 (1872), the U.S. Supreme Court held that a state law’s venue provision could not prevent removal of a complaint to federal court on the basis of diversity jurisdiction. The Court stated that the federal court’s jurisdiction “is not subject to State limitation.” More recently, in City of Chicago v. Int’l College of Surgeons, 522 U.S. 156 (1997), the Supreme Court arrived at the same conclusion, upholding the district court’s exercise of supplemental jurisdiction over a state law claim. The federal district court in Massachusetts has followed this in at least two cases: Landworks Creations, LLC v. United States Fid. & Guar. Co., No. 05-40072-FDS (Dist. Mass. Nov. 15, 2005); and Monogram Indus., Inc. v. Zellen, 467 F.Supp. 122 (Dist. Mass. Mar. 27, 1979).

Where federal law permits parties to prosecute or defend an action in federal court, no state law may deprive the parties of that course of action. The venue provision of the Massachusetts non-compete law, therefore, will not be enforceable to the extent that it seeks to limit federal jurisdiction over related lawsuits.

Limitations on Arbitration

In addition to unilaterally limiting federal jurisdiction over certain claims, the Non-Compete Act’s venue provision appears to prevent parties from: (a) arbitrating covered claims, or (b) conducting such arbitrations in a forum of their choice. Here, the Non-Compete Act likely would be preempted by the Federal Arbitration Act (FAA).

One of the FAA’s primary purposes was to codify the liberal policy favoring arbitration agreements. If an action is brought on an issue governed by a binding written arbitration agreement, and the subject matter of the agreement implicates interstate commerce, the parties to the agreement are entitled, under the FAA, to proceed in arbitration, as opposed to a judicial forum. Further, the FAA requires that the arbitration be conducted in accordance with the terms of the agreement — including the forum-selection clause.

In Machado v. System4 LLC, 465 Mass. 508, 515 (Mass. 2013), the Massachusetts Supreme Judicial Court held that enforcing a state statutory provision to “requir[e] a judicial forum for a particular type of dispute [is] a result the FAA clearly prohibits.” Similarly, in KKW Enters. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F.3d 42 (1st Cir. 1999), the U.S. Court of Appeals for the First Circuit (which has jurisdiction over Massachusetts) held that where a state statute permits claims to be pursued in arbitration but prevents the arbitration from taking place outside the forum state (in that case, the arbitration agreement called for arbitrations to take place in Chicago), the statute’s forum limitation would be preempted by the FAA.

The Non-Compete Act’s venue provision confers exclusive jurisdiction over Suffolk County actions to the superior court (or its business litigation session) to the apparent exclusion of an arbitral forum. It also requires statutory non-compete cases to be brought in either Suffolk County or the county in which the party employee resides; thus, it bars the parties from contractually agreeing to a different location for arbitration. In these respects, the Non-Compete Act likely would be trumped by the FAA.

***

Companies with questions about the Massachusetts non-compete law are encouraged to contact a Jackson Lewis attorney for legal assistance.

©2019 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

Reproduction of this material in whole or in part is prohibited without the express prior written consent of Jackson Lewis P.C., a law firm that built its reputation on providing workplace law representation to management. Founded in 1958, the firm has grown to more than 900 attorneys in major cities nationwide serving clients across a wide range of practices and industries including government relations, healthcare and sports law. More information about Jackson Lewis can be found at www.jacksonlewis.com.

See AllRelated Articles You May Like

May 17, 2019

The EPL Insurance Advisor – May 2019

May 17, 2019

To assist underwriters and claims professionals in assessing emerging employment risks, we are pleased to provide the first issue of our newsletter. The EPL Insurance Advisor highlights topical issues in claims, defenses, and liability risk management developments. 2019 EPLI Trends Report – What Analysts and Underwriters Should... Read More

January 7, 2019

2019: The Year Ahead for Employers

January 7, 2019

Over the past year, state and local governments responded in a variety of ways to national policy, and the midterm elections painted a picture of what’s in store for employers in 2019 and beyond. Jackson Lewis’ annual report outlines upcoming issues, trends, legislation and regulations employers need to be aware of in the coming year... Read More

August 27, 2018

Non-Compete Covenants Must be Reasonable for Preliminary Injunction, Nevada Supreme Court Affirms

August 27, 2018

A non-compete agreement in Nevada “must be limited to the geographical areas in which an employer has particular business interests,” the Nevada Supreme Court has affirmed. Shores v. Global Experience Specialists, Inc., 134 Nev. Adv. Op. 61 (Aug. 2, 2018). The Court also concluded that when an employer seeks to enforce a non-compete... Read More