First Circuit Rules on Post-employment Restrictions as COVID-19 Restrictions Ease and Employees Return to Work

As employers reopen their businesses following closures or reductions in operations required during the COVID-19 pandemic, many are grappling with the fraught and complex task of bringing laid-off or furloughed employees back to the workplace. Among the many issues that such employers will need to deal with in onboarding those employees is whether and to what extent they will need to renew their restrictive covenants agreements with employees who had such agreements before the pandemic. A recent decision issued by the United States Court of Appeals for the First Circuit—Russomano v. Novo Nordisk Inc., No. 20-1173 (June 2, 2020)—provides an important reminder to employers that, if they want their post-employment restrictions on employees to be enforceable, they may need to require that the employees sign new agreements.

Background

Thomas Russomano began working for Novo Nordisk Inc. in January 2016 as a hemophilia community specialist. The company laid off Russomano in October 2016, and then rehired him in November 2016 as a “Hemophilia Therapy Manager” in its “Penn West” region, which encompassed New York, Pennsylvania, and West Virginia. In December 2016, as a condition of his new employment, Novo Nordisk required Russomano to sign a confidentiality and noncompetition agreement that barred him from competing with the company during his employment “and for a period of twelve months following the termination of [his] employment for any reason, voluntary or involuntary.”

In June 2018, Novo Nordisk informed Russomano by letter that his position was being eliminated and that his employment with the company would end on August 3, 2018. In the letter, Novo Nordisk encouraged Russomano to apply for open positions within the company; he did so, and received an offer to work in a different position—“Senior Hemophilia Community Liaison”—in New York City. In its letter to Russomano offering him the new position, Novo Nordisk referred to it as a “transfer,” and set August 6, 2018—three days after the termination of his previous position—as the start date for his new role. Novo Nordisk did not require Russomano to sign a new confidentiality and noncompetition agreement in connection with the new job.

Russomano began working in the new position on August 6, 2018, as scheduled. On January 6, 2020, he resigned from that position and, approximately two weeks later, began working for Novo Nordisk’s competitor, BioMarin Pharmaceutical, Inc., as a “Senior Account Manager – Hemophilia Gene Therapy.” Because Novo Nordisk refused to provide Russomano with written assurance that it would not seek to enforce the noncompetition provisions of his December 2016 agreement, Russomano filed a lawsuit against the company on January 9, 2020, seeking a declaratory judgment that his employment with BioMarin would not violate the agreement. Novo Nordisk countersued Russomano, asserting claims under Massachusetts law for breach of contract, unfair competition, and misappropriation of trade secrets, and added third-party claims against BioMarin for tortious interference with contract, unfair competition, and misappropriation of trade secrets. Novo Nordisk then filed a motion for preliminary injunction asking the district court to issue an injunction barring Russomano from working for BioMarin in violation of his noncompetition agreement.

The District Court’s Decision

The district court denied Novo Nordisk’s motion, holding that the company had terminated Russomano’s employment on August 3, 2018, and thus the 12-month noncompetition period provided for in the December 2016 agreement had expired on August 3, 2019—months before his new employment at BioMarin commenced. The court rejected Novo Nordisk’s argument that its termination of Russomano’s employment had been conditioned on his inability to find a new position with the company, ruling that the language in its June 2018 letter terminating his employment had been “unambiguous.”

The First Circuit’s Decision

Novo Nordisk appealed the district court’s denial of the preliminary injunction motion to the First Circuit. The court of appeals affirmed the district court’s ruling, holding that the 12-month noncompetition period had been triggered on August 3, 2018, when Russomano’s employment ended under the plain and unambiguous terms of Novo Nordisk’s June 2018 letter. The court rejected Novo Nordisk’s “efforts to find ambiguity” in the letter, observing that the only “conditional language” in the letter was in reference to his potential severance benefits, which it made conditional on (among other things) “not accept[ing] an alternate position with Novo Nordisk prior to the Separation Date.” The court also held that the company’s reference to Russomano’s new position as a “transfer” in its 2018 offer letter was not sufficient “to undermine its clear reference to the ‘end’ of his employment with the company in the termination letter and later his ‘new position.’”

Key Takeaways for Employers

In the wake of the COVID-19 pandemic, many employers have been compelled to lay off or furlough employees. As those employers reopen and bring back laid-off or furloughed employees, the Russomano decision is a timely reminder that if those employees had agreements containing post-employment restrictive covenants, the employees’ restrictions may have been triggered and new agreements may be required. In several states, furthermore, merely requiring employees to sign new versions of the agreements that they had signed before will not be sufficient. In Massachusetts, for example, new noncompetition agreements that do not comply with the procedural safeguards and other provisions of the Massachusetts Noncompete Law, which applies to all noncompetition agreements entered into after October 1, 2018, will not be enforceable.

Accordingly, among the many things that employers in Massachusetts and elsewhere may want to consider in reopening their businesses and bringing employees back is whether they will need to require new restrictive covenants agreements with those employees—and also whether they will need to update their agreements in order to ensure that the restrictions are enforceable.

Ogletree Deakins will continue to monitor and report on developments with respect to the COVID-19 pandemic and will post updates in the firm’s Coronavirus (COVID-19) Resource Center as additional information becomes available. Important information for employers is also available via the firm’s webinar programs.