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Marine Contractors Co. Inc. v. Hurley

Massachusetts Supreme Judicial Court
365 Mass. 280, 1974 Mass. LEXIS 653, 310 N.E.2d 915 (1974)
ELI5:

Rule of Law:

A post-employment covenant not to compete is enforceable if it is supported by adequate consideration, such as the accelerated payment of vested trust benefits, and is ancillary to the employment relationship by being reasonably designed to protect the employer's legitimate business interests, such as goodwill.


Facts:

  • Thomas F. Hurley was a permanent employee and general superintendent for Marine Contractors Co., Inc. (Marine) from 1963 until April 1, 1971.
  • Marine had an Employee Retirement Plan and Trust which required a five-year waiting period after termination before an employee could receive their vested share.
  • By 1971, Hurley had accumulated a vested share of approximately $12,000 in the trust.
  • In March 1971, Hurley announced his intention to leave Marine to start his own business.
  • Marine's president offered to pay Hurley his vested trust benefits immediately in exchange for Hurley's promise not to compete with Marine.
  • On April 1, 1971, Hurley signed an agreement promising not to compete with Marine for five years within a 100-mile radius of Boston and, on the same day, received his full $12,000 share from the trust.
  • Beginning in August 1971, Hurley began performing marine work for Marine's customers within the restricted area.
  • Hurley also hired away two other key supervisory employees from Marine to work for his new corporation.

Procedural Posture:

  • Marine Contractors Co., Inc. filed a suit in a Massachusetts trial court to enjoin Thomas F. Hurley from violating an agreement not to compete.
  • The case was referred to a master, who conducted a hearing and submitted a report.
  • The case was recommitted to the master at Hurley's request for summaries of evidence.
  • The trial court judge denied Hurley's second motion to recommit, confirmed the master's report, and entered a final decree granting the injunction sought by Marine.
  • Hurley (appellant) appealed the trial court's final decree to the Supreme Judicial Court of Massachusetts.

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Issue:

Is a post-employment agreement not to compete, signed upon termination in exchange for the immediate payment of vested retirement benefits that would otherwise be delayed for five years, an enforceable contract?


Opinions:

Majority - Tauro, C.J.

Yes, a post-employment agreement not to compete under these circumstances is an enforceable contract. The court found that the agreement was supported by valid consideration on two independent grounds. First, under Massachusetts law, an instrument under seal is presumed to have consideration, a rule that applies in equity as well as at law. Second, the five-year acceleration of the payment of Hurley's $12,000 trust share constituted sufficient consideration in fact, as it was a substantial benefit to the promisor, Hurley. The court rejected the argument that consideration must move directly from the promisee (Marine), holding that a benefit conferred upon the promisor is sufficient. The court also determined the agreement was a reasonable restraint of trade because it was ancillary to the employment relationship, even though signed at termination. Its purpose was to protect Marine's legitimate business interest—its goodwill with customers—not merely to stifle ordinary competition. The geographic and temporal restrictions were also found to be reasonable.



Analysis:

This case affirms that a non-compete agreement does not need to be executed at the inception of employment to be considered 'ancillary' to it. By upholding an agreement signed at termination, the court provided a clear precedent that the key factor is whether the covenant protects a legitimate interest arising from the employment, such as goodwill. Furthermore, the decision solidifies that providing a tangible, immediate financial benefit—like waiving a waiting period for retirement funds—constitutes valid consideration for such a post-employment restriction. This gives employers a viable way to secure a non-compete agreement from a departing key employee who did not have one previously.

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