1010-00004 · Arbor Health Technologies Inc · Analysis & Memos/MA Law Compliance

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

FROM: Nadia Petrov, Associate, Labor & Employment, Calderwood & Harkness LLP

TO: Bernard Crawford, Responsible Partner, Labor & Employment; Devon Archer, Lead Associate, Labor & Employment

DATE: August 8, 2022

RE: Enforceability of Proposed Non-Solicitation and Non-Disclosure Covenants — Dr. Marcus J. Elliston / Arbor Health Technologies Inc.

CLIENT: Arbor Health Technologies Inc. (Client No. 81-30294)

MATTER: 1010-00004

FIRM: Calderwood & Harkness LLP, One International Place, Suite 3400, Boston, MA 02110

This memorandum is a privileged and confidential attorney work product prepared in anticipation of litigation and for the purpose of providing legal advice to our client, Arbor Health Technologies Inc. It is not intended for distribution to, or reliance by, any third party.

I. Executive Summary

This memorandum analyzes the enforceability under Massachusetts common law of the proposed restrictive covenants set forth in the draft Executive Employment Agreement and the standalone Employee Non-Competition Agreement for Dr. Marcus J. Elliston, who is being recruited to serve as Chief Operating Officer of Arbor Health Technologies Inc. ("AHT" or the "Company"). Both agreements are dated August 5, 2022 (first drafts), and have been circulated to Dr. Elliston's counsel at Fielding & Rowe LLP for review and comment. This memorandum is intended to inform the team's negotiation strategy and to identify drafting refinements that will maximize enforceability while minimizing litigation risk.

Three restrictive covenants are analyzed in this memorandum:

1. Employee Non-Solicitation Covenant (18 months). This covenant prohibits Dr. Elliston, for a period of eighteen (18) months following the termination of his employment (regardless of the reason for termination), from directly or indirectly soliciting, recruiting, inducing, or encouraging any employee of AHT at the manager level and above to leave AHT's employment.

2. Customer/Partner Non-Solicitation Covenant (12 months). This covenant prohibits Dr. Elliston, for a period of twelve (12) months following the termination of his employment, from soliciting, diverting, or servicing any customer or business partner of AHT with whom the Executive had material contact during the last twenty-four (24) months of his employment with the Company.

3. Perpetual Confidentiality/Non-Disclosure Provision. This covenant imposes an indefinite obligation on Dr. Elliston not to use or disclose any Confidential Information (as defined in the agreement) of AHT, subject to standard carve-outs for legally compelled disclosure, information that becomes publicly available through no fault of the Executive, and information independently developed without use of Confidential Information.

It is important to note at the outset that the separate non-competition covenant — a twelve-month post-termination restriction on competitive employment, supported by a garden-leave payment of $287,500 — is governed primarily by the Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L (the "MNAA"), and is the subject of a companion memorandum dated July 25, 2022, which I prepared separately. The present memorandum is limited to the non-solicitation and non-disclosure covenants, which fall outside the scope of the MNAA and are instead governed by the traditional Massachusetts common law reasonableness framework.

Overall Assessment. The proposed covenants are, in my assessment, likely enforceable as drafted under Massachusetts common law. Each covenant advances a legitimate business interest of AHT, and each is generally within the range of scope, duration, and prohibited conduct that Massachusetts courts have sustained in comparable executive-level employment contexts. That said, certain refinements are recommended to reduce litigation risk and to improve the likelihood of full enforcement if the covenants are challenged — whether by Dr. Elliston himself, or by a future employer seeking to recruit him. In particular, I recommend careful attention to the following areas: (a) the eighteen-month duration of the employee non-solicitation covenant, which sits at the upper boundary of commonly upheld periods and presents a moderate risk of judicial reduction; (b) the breadth of the perpetual confidentiality obligation as applied to information that does not rise to the level of a protectable trade secret; and (c) certain definitional and drafting refinements that will enhance clarity, reduce ambiguity, and align the covenants with prevailing market practice and judicial expectations.

My specific recommendations are set forth in detail in Sections IV through IX below and are summarized in Section IX.

II. Background and Factual Context

A. The Parties and the Transaction

Arbor Health Technologies Inc. AHT is a Delaware corporation headquartered at 400 Brattle Commerce Park, Suite 1200, Cambridge, Massachusetts 02138. The Company operates in the healthcare services and software-as-a-service ("SaaS") sector, providing a cloud-based clinical workflow and revenue cycle management platform to hospital systems, physician practices, ambulatory surgery centers, and other healthcare organizations across the United States. For fiscal year 2021, AHT reported annual revenues of approximately $127.4 million. The Company employs approximately 620 individuals, the majority of whom are based in Massachusetts, with smaller offices in Nashville, Tennessee and Austin, Texas.

AHT is a portfolio company of Ridgeline Capital Partners, LP, a Boston-based private equity firm that holds approximately 68% of AHT's equity. Ridgeline acquired AHT in a take-private transaction that closed in December 2019, at an enterprise value of approximately $340 million. The remaining equity is held by Helix Ventures Fund III, LP (approximately 14%) and by management and other holders (approximately 18%). The Company's existing senior leadership team includes Priya Chandrasekaran, Chief Executive Officer; Aaron Whitfield, General Counsel; and Lisa Murakami, Chief Human Resources Officer.

Dr. Marcus J. Elliston. Dr. Elliston is the prospective incoming Chief Operating Officer of AHT, to report directly to CEO Chandrasekaran. His proposed start date is November 1, 2022. Dr. Elliston brings substantial and directly relevant experience to the role. He most recently served as Senior Vice President of Operations at Pinnacle Care Systems, Inc., a healthcare information technology company widely regarded as one of AHT's principal competitors in the clinical workflow and revenue cycle management space. Dr. Elliston holds a Doctor of Medicine degree from Johns Hopkins University School of Medicine and a Master of Business Administration from the Wharton School at the University of Pennsylvania. He has approximately eighteen years of experience in healthcare operations, spanning clinical operations management, technology implementation, and strategic business development. Dr. Elliston resides at 87 Laurel Hill Road, Wellesley, Massachusetts 02481.

Dr. Elliston is represented in the employment negotiation by Catherine A. Fielding, Partner, and Jonathan M. Pryce, Associate, at Fielding & Rowe LLP, 101 Federal Street, Suite 2600, Boston, Massachusetts 02110. Based on our preliminary interactions with Fielding & Rowe, we anticipate that they will scrutinize the proposed restrictive covenants closely, particularly given Dr. Elliston's senior-level experience and the breadth of the proposed restrictions.

Proposed Compensation. The proposed compensation package for Dr. Elliston includes: (i) an annual base salary of $575,000; (ii) an annual target bonus of $431,250 (75% of base salary); (iii) a one-time signing bonus of $250,000; and (iv) equity grants consisting of stock options representing 1.25% of AHT's fully diluted capitalization and restricted stock units ("RSUs") representing 0.50% of AHT's fully diluted capitalization, in each case subject to vesting over a four-year period. The total first-year compensation value, inclusive of the signing bonus and the annualized value of the equity grants at current fair market value, is estimated at approximately $1.85 million.

B. The Proposed Restrictive Covenants

The restrictive covenants that are the subject of this memorandum appear in two separate but overlapping documents: (i) the Executive Employment Agreement between AHT and Dr. Elliston (first draft dated August 5, 2022) (the "Employment Agreement"), and (ii) the standalone Employee Non-Competition Agreement between AHT and Dr. Elliston (first draft dated August 5, 2022) (the "NCA"). The three covenants addressed in this memorandum are set forth in both documents in substantially identical terms, and I analyze them based on the language as it appears in the current drafts.

Employee Non-Solicitation Covenant. Section 8(b) of the Employment Agreement and Section 3 of the NCA provide that, for a period of eighteen (18) months following the termination of Dr. Elliston's employment with AHT (the "Restricted Period" for employee non-solicitation purposes), Dr. Elliston shall not, directly or indirectly, solicit, recruit, induce, or encourage any employee of AHT at the manager level and above to leave AHT's employment, or hire or cause to be hired any such employee. The covenant is not limited by geography and applies regardless of the reason for Dr. Elliston's termination.

Customer/Partner Non-Solicitation Covenant. Section 8(c) of the Employment Agreement and Section 4 of the NCA provide that, for a period of twelve (12) months following the termination of Dr. Elliston's employment with AHT, Dr. Elliston shall not, directly or indirectly, solicit, divert, or service any customer or business partner of AHT with whom Dr. Elliston had material contact during the last twenty-four (24) months of his employment with AHT. As with the employee non-solicitation covenant, this provision is not geographically limited and applies regardless of the reason for termination.

Confidentiality/Non-Disclosure Provision. Section 9 of the Employment Agreement and Section 5 of the NCA provide that Dr. Elliston shall not, at any time during or after his employment with AHT, use or disclose any Confidential Information (as defined therein) of AHT, except as required in the performance of his duties for the Company. The definition of "Confidential Information" is broad, encompassing business plans, financial data, customer lists, product roadmaps, technical specifications, marketing strategies, pricing information, vendor relationships, and any other proprietary information of AHT. The provision includes standard carve-outs for: (a) information that becomes publicly available through no fault of the Executive; (b) information independently developed by the Executive without use of or reference to Confidential Information; (c) information received by the Executive from a third party without breach of any obligation of confidentiality; and (d) disclosure legally compelled by subpoena, court order, or governmental investigation, subject to prompt written notice to AHT (to the extent permitted by law), reasonable cooperation with AHT's efforts to obtain a protective order, and limitation of disclosure to the minimum information required to comply with the legal obligation.

Governing Law. Both the Employment Agreement and the NCA specify that they are governed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws principles.

C. Scope of This Memorandum

This memorandum is limited in scope to the three covenants described above: the employee non-solicitation covenant, the customer/partner non-solicitation covenant, and the confidentiality/non-disclosure provision. Several related legal issues are addressed in companion memoranda prepared by other members of the team, and I note them here for completeness and cross-reference purposes:

• The 12-month post-termination non-competition covenant (with garden-leave payment of $287,500) is governed primarily by the MNAA and is analyzed in my companion memorandum dated July 25, 2022. That memorandum addresses the statutory requirements for enforceability under M.G.L. c. 149, § 24L, including the garden-leave or other mutually agreed consideration requirement, the 12-month maximum duration, the exclusions for certain categories of employees, and the statutory enforceability limitations.

• Section 409A and Section 280G implications of the compensation and severance arrangements are addressed in separate memoranda prepared by Gregory Tan, Partner, Tax, the most recent of which is dated August 3, 2022.

• Massachusetts Wage Act implications (M.G.L. c. 149, § 148 et seq.) relating to the severance and compensation provisions of the Employment Agreement are addressed in a memorandum prepared by Devon Archer dated August 1, 2022.

I have reviewed each of these companion memoranda and do not believe that any of the analyses contained therein are inconsistent with the conclusions and recommendations set forth in this memorandum. Where relevant, I note interactions between the covenants analyzed here and the non-competition covenant analyzed in my July 25 memorandum. See Section VIII, infra.

III. Legal Framework: Massachusetts Common Law Enforceability of Non-Solicitation and Non-Disclosure Covenants

A. Distinction from Non-Competition Agreements Under the MNAA

As a threshold matter, it is critical to distinguish the covenants analyzed in this memorandum from non-competition agreements governed by the MNAA. The Massachusetts Noncompetition Agreement Act, codified at M.G.L. c. 149, § 24L, took effect on October 1, 2018, and imposes a comprehensive set of statutory requirements on "noncompetition agreements" entered into on or after that date. Among other things, the MNAA requires that noncompetition agreements be supported by garden-leave payments or other mutually agreed consideration, limits their duration to a maximum of twelve months (or twenty-four months in limited circumstances), prohibits their use for certain categories of employees (including nonexempt employees, undergraduate or graduate students, employees terminated without cause or laid off, and employees under the age of 18), and requires that the agreement be in writing and signed by both parties.

Critically, however, the MNAA expressly excludes several categories of restrictive covenants from the definition of "noncompetition agreement." Section 24L(a) provides:

"'Noncompetition agreement' shall not include: (i) a nondisclosure or confidentiality agreement; (ii) a non-solicitation agreement; (iii) a non-recruitment agreement; (iv) an invention assignment agreement; (v) a garden leave clause that otherwise satisfies the requirements of this section; (vi) an agreement made in connection with the sale of a business entity or substantially all of the operating assets of a business entity or partnership, membership, or equity interest in a business entity[;] (vii) an agreement made in connection with the cessation of or separation from employment if the employee is expressly provided seven business days to rescind acceptance; or (viii) forfeiture agreements."

The import of this exclusion is clear: non-solicitation agreements (whether directed at employees, customers, or both) and non-disclosure or confidentiality agreements are not subject to the MNAA's statutory requirements. They are not required to include garden-leave payments, they are not subject to the MNAA's twelve-month durational cap, and they are not subject to the MNAA's categorical prohibitions on use with certain employee types. Instead, these covenants continue to be governed by the traditional Massachusetts common law framework for the enforcement of restrictive covenants — a framework rooted in the equitable "rule of reason" that Massachusetts courts have applied for well over a century.

This distinction is particularly significant in the context of Dr. Elliston's agreements. Because the non-solicitation and non-disclosure covenants are not governed by the MNAA, they are not required to be supported by garden-leave payments and may, in principle, extend beyond twelve months in duration (subject to the common law reasonableness analysis). The garden-leave payment of $287,500 included in the proposed agreements is allocated exclusively to the separate non-competition covenant, and the non-solicitation and non-disclosure covenants must be independently supported by adequate consideration under common law principles — a requirement that is readily satisfied in the context of a new hire, as discussed further in Section IV.D below.

B. The Common Law Reasonableness Test

Massachusetts courts enforce post-employment restrictive covenants that satisfy the common law "rule of reason." Under this framework, a restrictive covenant will be upheld if it is: (1) necessary to protect a legitimate business interest of the employer; (2) reasonably limited in scope, duration, and geographic area in relation to the interest protected; (3) consonant with the public interest; and (4) supported by adequate consideration.

This four-part test has deep roots in Massachusetts jurisprudence. The Supreme Judicial Court has consistently recognized that restrictive covenants in employment agreements are disfavored as restraints on trade and on an individual's right to pursue a livelihood, but that they are nevertheless enforceable where they serve legitimate protective purposes and are tailored to do no more than is reasonably necessary to achieve those purposes. The inquiry is inherently fact-specific and requires a case-by-case assessment of the particular circumstances of the employment relationship, the nature and scope of the restriction, and the legitimate interests at stake.

Legitimate Business Interests. Massachusetts courts have recognized several categories of legitimate business interests that may support the enforcement of non-solicitation and non-disclosure covenants. These include:

• Protection of trade secrets and confidential information. This is the most widely recognized basis for restrictive covenants and is particularly relevant to the confidentiality/NDA provision. Massachusetts courts have consistently held that employers have a protectable interest in preventing the unauthorized use or disclosure of trade secrets, proprietary technology, customer data, pricing information, and other confidential business information.

• Protection of goodwill and customer relationships. Employers have a legitimate interest in preventing departing employees from leveraging personal relationships developed during their employment to divert customers, clients, or business partners to a competitor. This interest is particularly strong where the employee held a senior role with direct customer-facing responsibilities and where the employer invested significant resources in developing those relationships.

• Prevention of competitive injury through use of proprietary knowledge. Where a departing employee possesses specialized knowledge of the employer's business strategies, competitive positioning, or operational methods, the employer has a legitimate interest in preventing the use of that knowledge to gain an unfair competitive advantage during a reasonable transition period.

• Maintenance of workforce stability. Massachusetts courts have recognized that employers have a legitimate interest in protecting against the targeted recruitment or solicitation of their employees by departing executives, particularly where the departing executive occupied a leadership role and had personal influence over subordinates who might be inclined to follow the executive to a new employer.

Each of these interests is directly implicated by the proposed covenants in Dr. Elliston's agreements, given his seniority, his access to confidential and proprietary information, and the customer-facing and employee-supervisory dimensions of the COO role.

Reasonableness of Scope, Duration, and Geographic Area. Courts assess reasonableness along multiple dimensions. For non-solicitation covenants, the critical variables are typically duration (how long the restriction lasts post-termination), scope (which employees, customers, or partners are covered), and the nature of the prohibited conduct (what the executive is prohibited from doing). Geographic limitations are less commonly at issue in non-solicitation covenants than in non-competition agreements, because non-solicitation covenants by their nature restrict conduct directed at specific individuals or entities rather than broad categories of competitive activity in a geographic market.

Public Interest. Courts also consider whether enforcement of the covenant would be contrary to the public interest. This inquiry is most commonly relevant in cases involving healthcare professionals, where enforcement of a restrictive covenant could limit patient access to medical care, or in cases involving critical public services. In the present context, the public interest is not likely to present a significant obstacle to enforcement, given that the covenants restrict solicitation and disclosure rather than the practice of medicine or the provision of healthcare services.

C. Burden of Proof

Under Massachusetts law, the employer bears the burden of demonstrating that a restrictive covenant is reasonable and necessary to protect a legitimate business interest. The employer must establish that the restriction is no broader than reasonably necessary to achieve its legitimate protective purpose, and a court will not enforce a covenant that imposes a burden on the employee that is disproportionate to the benefit conferred on the employer. Courts apply a fact-specific, case-by-case analysis, and the enforceability of a particular covenant will depend on the totality of the circumstances, including the nature of the employer's business, the employee's role and responsibilities, the scope and duration of the restriction, and the extent to which the employee had access to confidential information or customer relationships during the employment.

This burden-of-proof allocation is an important consideration in drafting. Because AHT will bear the burden of justifying each covenant if challenged, it is in the Company's interest to draft covenants that are clearly tailored to identifiable, legitimate business interests and that are no broader than necessary to protect those interests. Overreaching in the initial drafts invites judicial skepticism and increases the risk of non-enforcement.

IV. Analysis of the 18-Month Employee Non-Solicitation Covenant

A. Duration — 18 Months

The proposed employee non-solicitation covenant restricts Dr. Elliston from soliciting AHT employees at the manager level and above for a period of eighteen (18) months following the termination of his employment. The question of duration is among the most significant enforceability variables, and it warrants careful analysis.

Massachusetts courts have upheld employee non-solicitation periods ranging from twelve to twenty-four months in the context of senior executive employment, but the weight of authority suggests that twelve months is the most commonly upheld and least controversial duration. An eighteen-month period is within the range of enforceability but sits at the upper boundary of what courts have sustained, and it will invite closer judicial scrutiny than a twelve-month period would.

Several Massachusetts decisions are instructive on this point. Courts have generally recognized that the appropriate duration of a non-solicitation covenant should be calibrated to the time reasonably necessary for the employer to stabilize its workforce, replace the departing executive's relationships and influence, and mitigate the competitive harm that could result from targeted solicitation. Where the departing executive occupied a senior leadership position with broad supervisory authority and strong personal relationships with key employees, courts have recognized that a somewhat longer restriction may be warranted. However, where the restriction extends significantly beyond the period necessary to achieve these protective goals, courts have declined to enforce the full duration and have, in some cases, reduced the period to one that the court deemed reasonable.

An eighteen-month period is defensible in the context of a COO hire of Dr. Elliston's stature and seniority. The COO role at AHT will involve direct oversight of a significant portion of the Company's operations and personnel, and Dr. Elliston will develop deep working relationships with senior managers, directors, and vice presidents who are critical to the Company's operations. The loss of even a small number of senior employees to a competitor through targeted solicitation could cause significant competitive harm and disrupt ongoing business initiatives. An eighteen-month cooling-off period is not unreasonable in this context.

That said, a twelve-month period would present materially lower litigation risk and would align with the duration most commonly upheld by Massachusetts courts. If the covenant is challenged, there is a moderate risk that a court would reduce the eighteen-month period to twelve months, particularly if the court concludes that the additional six months of protection is not demonstrably necessary to protect AHT's legitimate interests. This risk is not disqualifying, but it should be weighed against the incremental benefit of the additional six months of protection.

Risk Assessment: The eighteen-month duration presents a moderate litigation risk. The covenant is defensible, but a court may reduce it to twelve months if challenged. A twelve-month duration would present minimal litigation risk and would be the safest drafting choice.

B. Scope — Manager Level and Above

The limitation of the employee non-solicitation covenant to employees at the "manager level and above" is a significant narrowing that substantially enhances enforceability. Courts look favorably on non-solicitation covenants that are limited to categories of employees with whom the executive had meaningful interaction, who possess specialized skills or institutional knowledge, and whose departure would cause disproportionate competitive harm to the employer. A blanket prohibition on soliciting all employees — including entry-level or administrative staff with whom the COO had little or no direct interaction — would face greater scrutiny and would be more difficult to justify as necessary to protect a legitimate business interest.

AHT has approximately 620 employees. The manager-and-above universe is a readily ascertainable subset of that total workforce, and the restriction is reasonably tailored to the employees with whom Dr. Elliston, as COO, would be expected to develop the most significant working relationships and exercise the greatest personal influence. This narrowing is consistent with the approach favored by Massachusetts courts and is a positive enforceability factor.

However, the current draft does not define "manager level" with precision. The term could encompass different populations depending on whether it is understood to refer to employees with a specific title, a specific grade or compensation level, a specific set of supervisory responsibilities, or some other criterion. Ambiguity in the scope of the covered population could become the subject of a factual dispute, which would complicate enforcement.

Recommendation: Define "manager level" with specificity in the agreement. For example, the covenant could refer to "employees classified at or above Grade Level M-4 in the Company's compensation structure" or "employees who hold the title of Manager, Senior Manager, Director, Vice President, or any title senior to these, or who have direct reports and budgetary or operational authority over a functional area of the Company." The specific definition should be developed in consultation with Lisa Murakami (CHRO) to ensure that it accurately captures the intended population and aligns with AHT's internal classification system.

C. Prohibited Conduct — "Directly or Indirectly Solicit, Recruit, Induce, or Encourage"

The covenant prohibits Dr. Elliston from "directly or indirectly solicit[ing], recruit[ing], induc[ing], or encourag[ing]" covered employees to leave AHT's employment. This is standard language that Massachusetts courts have generally upheld in the non-solicitation context, and it appropriately covers the full spectrum of solicitation activity — from direct personal outreach to indirect solicitation through intermediaries, recruiters, or other third parties.

The inclusion of "indirectly" is particularly important in the executive context, where a departing COO might seek to circumvent a non-solicitation restriction by using a recruiter, a colleague, or a subordinate at a new employer to reach out to AHT employees on his behalf. Courts have recognized that indirect solicitation can be just as harmful as direct solicitation and have upheld covenants that encompass both forms of conduct.

One area of potential concern, however, is the breadth of the prohibition as applied to entirely passive conduct. As currently drafted, the covenant could arguably be read to encompass situations in which an AHT employee independently and without any solicitation or encouragement from Dr. Elliston applies for a position at Dr. Elliston's new employer through a general job posting, and Dr. Elliston — in his capacity as an executive at the new employer — is involved in the hiring decision. While Massachusetts courts have generally interpreted non-solicitation covenants to require some affirmative act of solicitation or inducement (as opposed to merely accepting an unsolicited application), the current language does not explicitly address this distinction, and the absence of a clarification could create ambiguity.

Recommendation: Consider adding a clarification that the covenant does not prohibit: (a) general solicitations of employment (e.g., publicly posted job advertisements, career fair participation, or social media postings) that are not specifically targeted at AHT employees; or (b) hiring an AHT employee who independently and without solicitation or encouragement from the Executive applies for employment. This type of carve-out is consistent with prevailing market practice for senior executive non-solicitation covenants and improves enforceability by demonstrating that the covenant is carefully tailored to targeted solicitation rather than sweeping in ordinary, non-harmful conduct.

D. Consideration. For an employee hired after October 1, 2018, the non-solicitation covenant does not require the garden-leave payment or other mutually agreed consideration mandated by the MNAA for noncompetition agreements. Non-solicitation agreements remain subject to the traditional common law consideration analysis, which requires that the covenant be supported by adequate consideration at the time of its execution.

In the context of a new hire — and Dr. Elliston is a new hire, not an existing employee being asked to sign a new restriction mid-employment — the offer of employment itself constitutes legally sufficient consideration for a restrictive covenant entered into as a condition of employment. This is a well-established principle of Massachusetts contract law, and it applies directly here.

Moreover, the comprehensive compensation package offered to Dr. Elliston — including a base salary of $575,000, a target annual bonus of $431,250, a one-time signing bonus of $250,000, and equity grants consisting of 1.25% stock options and 0.50% RSUs — provides substantial and ample consideration that further supports the enforceability of the non-solicitation covenant. Although courts do not require that the consideration be proportional to the burden of the restriction, the generosity of the compensation package is a relevant factor that weighs in favor of enforcement, particularly if Dr. Elliston attempts to argue that the covenant is unconscionable or unfairly burdensome.

The consideration analysis does not present a significant risk in this context.

E. Recommendations on the Employee Non-Solicitation Covenant

Based on the foregoing analysis, I offer the following recommendations with respect to the employee non-solicitation covenant:

1. Duration. Consider reducing the duration from eighteen (18) months to twelve (12) months to align with the most commonly upheld period under Massachusetts common law and to minimize litigation risk. If the client, after consultation with Ridgeline Capital Partners and CEO Chandrasekaran, determines that the eighteen-month duration is a business priority, the covenant is defensible at that duration but carries a moderate risk of judicial reduction to twelve months. In my assessment, the incremental protection afforded by the additional six months is unlikely to justify the incremental litigation risk, and the eighteen-month duration may also become a point of significant resistance in negotiations with Fielding & Rowe.

2. Definition of "Manager Level." Define "manager level" with specificity in the agreement, using either AHT's internal grade classification system, a title-based definition, or a functional definition (e.g., employees with direct reports and authority over a business operation or functional area). The definition should be developed in consultation with CHRO Lisa Murakami to ensure accuracy and administrability.

3. General Solicitation Carve-Out. Add a carve-out clarifying that the covenant does not prohibit general, non-targeted solicitations of employment (e.g., publicly posted job advertisements, participation in career fairs, or general social media postings) and does not prohibit the hiring of AHT employees who apply independently without solicitation or encouragement from Dr. Elliston. This carve-out improves enforceability by demonstrating tailoring and is consistent with market practice.

4. Termination Trigger. Confirm that the covenant applies regardless of the reason for termination (termination for Cause, termination without Cause, voluntary resignation, death, disability, or otherwise) and that the triggering event — the "termination of employment" — is clearly and consistently defined across the Employment Agreement and the NCA to avoid ambiguity.

V. Analysis of the 12-Month Customer/Partner Non-Solicitation Covenant

A. Duration — 12 Months

The proposed customer/partner non-solicitation covenant restricts Dr. Elliston from soliciting, diverting, or servicing covered customers and business partners for a period of twelve (12) months following the termination of his employment. This duration is the most commonly upheld period for customer non-solicitation covenants in Massachusetts and is well within the range of reasonableness under the common law framework.

Massachusetts courts have consistently sustained twelve-month customer non-solicitation periods in the executive employment context, recognizing that this duration provides the employer with a reasonable opportunity to solidify its customer relationships, transition account management responsibilities to a successor, and mitigate the risk that a departing executive will leverage personal relationships to divert business. A twelve-month period strikes an appropriate balance between the employer's legitimate interest in protecting customer goodwill and the employee's interest in pursuing new professional opportunities.

Risk Assessment: The twelve-month duration presents minimal litigation risk. I do not recommend any change to this term.

B. Scope — Customers/Partners with Whom Executive Had "Material Contact" During Last 24 Months

The covenant is limited to customers and business partners of AHT with whom Dr. Elliston had "material contact" during the last twenty-four (24) months of his employment. This limitation is a significant and favorable narrowing of the covenant's scope.

Massachusetts courts strongly favor non-solicitation covenants that are tied to actual customer relationships developed or maintained by the departing employee, as opposed to blanket prohibitions on soliciting all of the employer's customers — including customers with whom the departing employee had no contact whatsoever. A covenant limited to customers and partners with whom the executive had material contact is far more likely to be upheld as reasonable because it is directly tied to the specific relationships that the employer has a legitimate interest in protecting.

The twenty-four-month look-back period for determining "material contact" is also reasonable and commonly used. This window is broad enough to capture the full scope of customer and partner relationships that Dr. Elliston would develop and maintain during his tenure as COO, while also ensuring that the covenant does not reach back to encompass stale or attenuated contacts from the distant past.

One area of concern, however, is the definition of "material contact." The current draft uses this term without defining it, which could give rise to factual disputes regarding whether Dr. Elliston's interactions with a particular customer or partner rise to the level of "material contact." For example, did a brief introduction at an industry conference constitute "material contact"? What about a single email exchange? The absence of a clear definition introduces ambiguity that could complicate enforcement and provide Dr. Elliston with a basis for challenging the covenant's applicability to particular customer or partner relationships.

Recommendation: Define "material contact" in the agreement with sufficient precision to put the Executive on notice of what is covered and to provide a workable standard for adjudicating disputes. A reasonable definition might include: "direct business dealings, negotiations, contract discussions, account management activities, strategic planning sessions, or substantive communications concerning AHT products, services, or business relationships." The definition should be broad enough to capture the full range of meaningful interactions that a COO would have with customers and partners, while excluding purely incidental or trivial contacts.

C. Prohibited Conduct — "Soliciting, Diverting, or Servicing"

The covenant prohibits Dr. Elliston from "soliciting, diverting, or servicing" covered customers and business partners. The inclusion of "soliciting" and "diverting" is standard and uncontroversial — these terms clearly describe the affirmative conduct that the covenant is designed to prevent, namely, the targeted outreach to AHT's customers and partners for the purpose of redirecting their business to a competitor.

The inclusion of "servicing," however, warrants closer attention. A servicing restriction goes beyond prohibiting active solicitation and extends to situations where Dr. Elliston would be providing services to a covered customer or partner at a new employer, even if the customer independently and without solicitation sought out Dr. Elliston at his new employer. Massachusetts courts have upheld servicing restrictions in certain contexts, particularly where the departing executive was the primary relationship holder and where the restriction is necessary to protect the employer's investment in developing the customer relationship. However, broader servicing bans — those that apply even where the customer independently and without solicitation contacts the executive at a new employer — have faced greater scrutiny, and some courts have expressed concern that such restrictions effectively function as non-competition covenants by preventing the executive from performing the core functions of his or her profession.

The distinction between solicitation and servicing is particularly significant in the healthcare SaaS context. AHT's customers — hospital systems, physician practices, and other healthcare organizations — may have strong institutional reasons for following a trusted executive to a new technology platform, independent of any solicitation by the executive. If Dr. Elliston joins a competitor and a hospital system that previously worked with him at AHT independently reaches out to his new employer seeking his involvement in their account, a broad servicing restriction would prevent Dr. Elliston from serving that customer, even though he took no affirmative steps to divert the business.

Recommendation: Consider one of two approaches to address this issue. First, AHT could narrow the "servicing" language to situations where Dr. Elliston affirmatively solicited or diverted the customer, eliminating the prohibition on servicing customers who independently seek out the Executive. Alternatively, AHT could retain the servicing restriction but add a carve-out for customer-initiated contact — i.e., a provision specifying that the covenant does not prohibit Dr. Elliston from servicing a covered customer or partner where the customer or partner independently and without solicitation or encouragement from the Executive contacts Dr. Elliston at his new employer. This approach preserves the full scope of the solicitation and diversion prohibition while accommodating customer autonomy and reducing the risk that the covenant will be viewed as an impermissible restraint on Dr. Elliston's ability to practice his profession.

D. Legitimate Business Interest — Customer Goodwill

The customer/partner non-solicitation covenant is supported by a clear and well-established legitimate business interest: the protection of AHT's customer goodwill and the prevention of competitive diversion of customer relationships.

AHT's SaaS and healthcare services business is fundamentally relationship-driven. The Company's revenue model depends on long-term customer contracts, multi-year platform implementations, and ongoing service relationships with hospital systems and physician practices. The COO role, in particular, involves significant exposure to key customers and strategic partners, including direct involvement in contract negotiations, implementation oversight, customer success initiatives, and strategic partnership development. Over the course of his tenure, Dr. Elliston will inevitably develop deep personal relationships with AHT's most important customers and partners, and he will gain intimate knowledge of their needs, preferences, and decision-making processes.

The risk that a departing COO could leverage these relationships to divert customers to a competitor is real and substantial, and Massachusetts courts have consistently recognized the protection of customer goodwill as a legitimate basis for enforcing non-solicitation covenants. This interest is further reinforced by the significant investment that AHT makes in acquiring, onboarding, and retaining its customers. The cost of customer acquisition in the healthcare SaaS market is substantial, and the loss of even a single large hospital system customer could have a material impact on AHT's revenue and competitive positioning.

E. Recommendations on the Customer/Partner Non-Solicitation Covenant

Based on the foregoing analysis, I offer the following recommendations with respect to the customer/partner non-solicitation covenant:

1. Duration. The twelve-month duration is appropriate and well within the range of enforceability. No change is recommended.

2. Definition of "Material Contact." Define "material contact" with precision in the agreement, using language such as: "direct business dealings, negotiations, contract discussions, account management activities, strategic planning sessions, or substantive communications concerning AHT products, services, or business relationships." This definition will reduce ambiguity, provide the Executive with clear notice of what is covered, and facilitate enforcement.

3. Servicing Language. Consider narrowing the "servicing" prohibition to situations involving affirmative solicitation or diversion by the Executive, or alternatively add a customer-initiated contact carve-out that permits the Executive to service covered customers or partners who independently and without solicitation contact the Executive at a new employer. This refinement reduces the risk that the covenant will be viewed as a de facto non-compete and improves the overall enforceability of the provision.

4. Termination Trigger. As with the employee non-solicitation covenant, confirm that the customer/partner non-solicitation covenant applies regardless of the reason for termination and that the triggering event is clearly and consistently defined.

VI. Analysis of the Perpetual Confidentiality/NDA Provision

A. Enforceability of Perpetual Duration

The proposed confidentiality/non-disclosure provision imposes an indefinite obligation on Dr. Elliston not to use or disclose Confidential Information of AHT. The perpetual duration of this obligation is a common feature of executive confidentiality agreements, and Massachusetts courts have generally upheld perpetual confidentiality obligations — but with an important caveat.

Trade secrets, by their very nature, retain their protected status indefinitely, so long as the information remains secret and continues to derive economic value from its secrecy. A perpetual obligation not to disclose or use trade secret information is therefore coextensive with the underlying right and is fully enforceable. Massachusetts courts, consistent with both the common law of trade secrets and the Uniform Trade Secrets Act (as adopted in Massachusetts at M.G.L. c. 93, § 42 et seq.), have recognized that an employer's interest in protecting trade secrets does not diminish over time and that an indefinite confidentiality obligation is appropriate and enforceable with respect to information that qualifies as a trade secret.

However, the analysis is more nuanced with respect to confidential business information that does not rise to the level of a trade secret. Not all information that an employer may legitimately wish to protect qualifies as a trade secret under Massachusetts law. Information such as annual business plans, short-term strategic initiatives, current pricing information, marketing campaigns, and organizational charts may be confidential and competitively sensitive, but it also has a natural expiration of competitive value over time. A business plan from 2022, for example, may be highly sensitive in 2023 but largely irrelevant by 2027. Pricing information may be competitively valuable for the duration of a contract cycle but may lose its significance once the contract is renewed or replaced.

Massachusetts courts may be skeptical of perpetual confidentiality obligations that sweep in this type of time-sensitive business information, on the theory that a perpetual restriction on the use or disclosure of information that no longer has competitive value is not "necessary to protect a legitimate business interest" and imposes an undue burden on the departing employee. While there is no bright-line rule, courts have in some cases distinguished between trade secret information (for which perpetual protection is appropriate) and other confidential business information (for which a time-limited obligation may be more appropriate).

Recommendation: Consider bifurcating the confidentiality obligation into two tiers. For information that constitutes a trade secret under Massachusetts law (M.G.L. c. 93, § 42), the perpetual obligation should be retained. For other confidential business information that does not rise to the level of a trade secret, consider imposing a time-limited obligation of three to five years following the termination of employment, or alternatively, tying the obligation to the period during which the information retains its competitive economic value. This bifurcated approach is increasingly common in executive employment agreements, is consistent with judicial expectations, and reduces the risk that a court will strike the entire confidentiality provision as overbroad.

B. Definition of "Confidential Information"

The current draft defines "Confidential Information" broadly to include "business plans, financial data, customer lists, product roadmaps, technical specifications, marketing strategies, pricing information, vendor relationships, and any other proprietary information of AHT." This definition is expansive, and while breadth is generally appropriate in the executive context — particularly for a COO who will have access to virtually all categories of AHT's proprietary information — the definition must be carefully calibrated to avoid overreaching.

Massachusetts courts require that the definition of Confidential Information be specific enough to put the employee on reasonable notice of what information is covered by the restriction. An overly vague or catch-all definition — particularly one that could be read to encompass information that is truly general knowledge, publicly available, or commonly known in the industry — risks being found unenforceable as overbroad.

The current draft's reference to "any other proprietary information of AHT" is a common catch-all, but it is also the phrase most likely to be challenged as vague and overbroad. Courts have sustained catch-all provisions where they are preceded by sufficiently specific illustrative examples, but a catch-all provision standing alone, without adequate specificity, may not survive scrutiny.

Recommendation: Refine the definition of "Confidential Information" in the following respects:

(a) Retain the illustrative categories (business plans, financial data, customer lists, product roadmaps, technical specifications, marketing strategies, pricing information, vendor relationships) and consider adding additional specific categories relevant to AHT's business, such as: proprietary algorithms and software code; clinical workflow methodologies; data analytics models and outputs; customer utilization and performance data; regulatory compliance strategies; information regarding pending or contemplated mergers, acquisitions, or divestitures; compensation and benefits data for employees; and strategic partner terms and pricing.

(b) Retain the catch-all provision but qualify it — for example, "and any other information, data, or materials of AHT that (i) is not generally known to or readily ascertainable by persons outside of AHT, and (ii) derives economic value, actual or potential, from not being generally known."

(c) Include an explicit exclusion from the definition of "Confidential Information" for: (i) information that is or becomes part of the public domain through no fault of the Executive; (ii) information that is or becomes available to the Executive on a non-confidential basis from a source other than AHT, provided that such source is not known by the Executive to be bound by a confidentiality agreement with or other obligation of confidentiality to AHT; (iii) information that the Executive can demonstrate was independently developed by the Executive without use of or reference to Confidential Information; and (iv) general skills, knowledge, and experience acquired by the Executive during the course of employment that do not depend on or incorporate specific Confidential Information.

The fourth exclusion — for general skills, knowledge, and experience — is particularly important. Massachusetts courts have consistently recognized that an employer cannot use a confidentiality agreement to prevent a departing employee from using general skills and expertise acquired during employment, even if those skills were developed in the course of performing the employee's duties. The distinction between protectable confidential information and non-protectable general knowledge can be difficult to draw in practice, and the inclusion of an explicit exclusion reduces the risk that the covenant will be challenged as an impermissible attempt to prevent Dr. Elliston from using his general professional expertise.

C. Standard Carve-Outs

The current draft includes three standard carve-outs from the confidentiality obligation:

(1) Publicly Available Information. The confidentiality obligation does not apply to information that becomes publicly available through no fault of the Executive. This is a universally accepted carve-out that is necessary to avoid imposing an impossible obligation on the Executive to refrain from using or disclosing information that is already in the public domain.

(2) Independently Developed Information. The confidentiality obligation does not apply to information that the Executive independently develops without use of or reference to Confidential Information. This carve-out recognizes the Executive's right to innovate and create independently, and it prevents the confidentiality obligation from functioning as a blanket prohibition on the Executive's professional activities.

(3) Third-Party Receipt. The confidentiality obligation does not apply to information received by the Executive from a third party without breach of any obligation of confidentiality. This carve-out recognizes that information may be independently available from multiple sources, and that the Executive should not be prohibited from using information legitimately obtained from a non-AHT source.

These carve-outs are standard, appropriate, and consistent with market practice. I recommend retaining them without modification.

D. Carve-Out for Legally Compelled Disclosure

The current draft includes a carve-out permitting disclosure of Confidential Information where legally compelled by subpoena, court order, or governmental investigation. This carve-out is subject to three conditions:

(i) Prompt Written Notice. The Executive must provide prompt written notice to AHT of the compelled disclosure, to the extent permitted by law. The qualification "to the extent permitted by law" is important, as certain governmental investigations (e.g., grand jury proceedings, SEC investigations) may impose secrecy requirements that would prohibit the Executive from notifying AHT.

(ii) Reasonable Cooperation. The Executive must reasonably cooperate with AHT's efforts to obtain a protective order or other appropriate remedy to limit the scope of disclosure. This provision allows AHT to take steps to protect its confidential information even in the context of compelled disclosure, and it is a standard and enforceable requirement.

(iii) Minimum Disclosure. The Executive's disclosure must be limited to the minimum information required to comply with the legal obligation. This ensures that the Executive does not use a compelled disclosure event as an opportunity to reveal more information than is legally necessary.

This carve-out is standard, enforceable, and appropriate. I recommend retaining it without modification, subject to one important addition discussed immediately below.

Recommendation: DTSA Immunity Notice. The Defend Trade Secrets Act of 2016, 18 U.S.C. § 1833(b), provides that an individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (B) in a complaint or other document filed under seal in a lawsuit or other proceeding.

Section 1833(b)(3)(A) of the DTSA requires that an employer provide notice of this immunity provision in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. If the employer fails to include this notice, the employer may not be awarded exemplary damages or attorneys' fees against the employee in an action brought under the DTSA. This limitation on remedies can be significant in a trade secret misappropriation case and should not be overlooked.

The current drafts of the Employment Agreement and the NCA do not include a DTSA immunity notice. I recommend adding a provision substantially in the following form:

"Pursuant to 18 U.S.C. § 1833(b), the Executive is hereby notified that an individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal, and (B) does not disclose the trade secret, except pursuant to court order."

E. Whistleblower and Regulatory Carve-Outs

In addition to the DTSA immunity notice, I recommend adding explicit carve-outs confirming that nothing in the confidentiality/NDA provision prohibits the Executive from:

(i) Filing a charge or complaint with, or communicating with, or providing documents or information to, any governmental agency or regulatory body, including but not limited to the U.S. Securities and Exchange Commission ("SEC"), the U.S. Department of Justice ("DOJ"), the U.S. Equal Employment Opportunity Commission ("EEOC"), the Massachusetts Commission Against Discrimination ("MCAD"), or any other federal, state, or local agency charged with the enforcement of any law, rule, or regulation;

(ii) Participating in any investigation or proceeding conducted by any such governmental agency or regulatory body, including providing testimony or documents; or

(iii) Providing truthful testimony or information in any legal proceeding, including depositions, hearings, and trials.

Such carve-outs are increasingly expected by regulators and courts, and their inclusion has become standard market practice in executive employment agreements. The SEC, in particular, has taken enforcement actions against companies that have used confidentiality agreements to impede whistleblower activity, and the inclusion of an explicit whistleblower carve-out mitigates the risk that AHT's confidentiality provision could be challenged on this basis. These carve-outs do not diminish the substantive protections of the confidentiality provision; they simply make explicit what the law already requires and signals to courts and regulators that AHT's agreements are drafted in good faith and with appropriate respect for regulatory requirements.

F. Recommendations on the Confidentiality/NDA Provision

Based on the foregoing analysis, I offer the following recommendations with respect to the perpetual confidentiality/non-disclosure provision:

1. Bifurcate Duration. Consider bifurcating the confidentiality obligation: perpetual protection for trade secrets (as defined under M.G.L. c. 93, § 42 and 18 U.S.C. § 1836); time-limited protection (three to five years post-termination) for other confidential business information that does not rise to the level of a trade secret. Alternatively, tie the obligation for non-trade-secret information to the period during which the information retains its competitive economic value.

2. Refine Definition of "Confidential Information." Add specificity to the definition by including additional illustrative categories. Qualify the catch-all provision to exclude information that is generally known or readily ascertainable. Add an explicit exclusion for general skills, knowledge, and experience.

3. Retain Standard Carve-Out

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
FROM: Nadia Petrov, Associate, Labor & Employment, Calderwood & Harkness LLP
TO: Bernard Crawford, Responsible Partner, Labor & Employment; Devon Archer, Lead Associate, Labor & Employment
DATE: August 8, 2022
RE: Enforceability of Proposed Non-Solicitation and Non-Disclosure Covenants — Dr. Marcus J. Elliston / Arbor Health Technologies Inc.
CLIENT: Arbor Health Technologies Inc. (Client No. 81-30294)
MATTER: 1010-00004
FIRM: Calderwood & Harkness LLP, One International Place, Suite 3400, Boston, MA 02110
This memorandum is a privileged and confidential attorney work product prepared in anticipation of litigation and for the purpose of providing legal advice to our client, Arbor Health Technologies Inc. It is not intended for distribution to, or reliance by, any third party.
I. Executive Summary
This memorandum analyzes the enforceability under Massachusetts common law of the proposed restrictive covenants set forth in the draft Executive Employment Agreement and the standalone Employee Non-Competition Agreement for Dr. Marcus J. Elliston, who is being recruited to serve as Chief Operating Officer of Arbor Health Technologies Inc. ("AHT" or the "Company"). Both agreements are dated August 5, 2022 (first drafts), and have been circulated to Dr. Elliston's counsel at Fielding & Rowe LLP for review and comment. This memorandum is intended to inform the team's negotiation strategy and to identify drafting refinements that will maximize enforceability while minimizing litigation risk.
Three restrictive covenants are analyzed in this memorandum:
1. Employee Non-Solicitation Covenant (18 months). This covenant prohibits Dr. Elliston, for a period of eighteen (18) months following the termination of his employment (regardless of the reason for termination), from directly or indirectly soliciting, recruiting, inducing, or encouraging any employee of AHT at the manager level and above to leave AHT's employment.
2. Customer/Partner Non-Solicitation Covenant (12 months). This covenant prohibits Dr. Elliston, for a period of twelve (12) months following the termination of his employment, from soliciting, diverting, or servicing any customer or business partner of AHT with whom the Executive had material contact during the last twenty-four (24) months of his employment with the Company.
3. Perpetual Confidentiality/Non-Disclosure Provision. This covenant imposes an indefinite obligation on Dr. Elliston not to use or disclose any Confidential Information (as defined in the agreement) of AHT, subject to standard carve-outs for legally compelled disclosure, information that becomes publicly available through no fault of the Executive, and information independently developed without use of Confidential Information.
It is important to note at the outset that the separate non-competition covenant — a twelve-month post-termination restriction on competitive employment, supported by a garden-leave payment of $287,500 — is governed primarily by the Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L (the "MNAA"), and is the subject of a companion memorandum dated July 25, 2022, which I prepared separately. The present memorandum is limited to the non-solicitation and non-disclosure covenants, which fall outside the scope of the MNAA and are instead governed by the traditional Massachusetts common law reasonableness framework.
Overall Assessment. The proposed covenants are, in my assessment, likely enforceable as drafted under Massachusetts common law. Each covenant advances a legitimate business interest of AHT, and each is generally within the range of scope, duration, and prohibited conduct that Massachusetts courts have sustained in comparable executive-level employment contexts. That said, certain refinements are recommended to reduce litigation risk and to improve the likelihood of full enforcement if the covenants are challenged — whether by Dr. Elliston himself, or by a future employer seeking to recruit him. In particular, I recommend careful attention to the following areas: (a) the eighteen-month duration of the employee non-solicitation covenant, which sits at the upper boundary of commonly upheld periods and presents a moderate risk of judicial reduction; (b) the breadth of the perpetual confidentiality obligation as applied to information that does not rise to the level of a protectable trade secret; and (c) certain definitional and drafting refinements that will enhance clarity, reduce ambiguity, and align the covenants with prevailing market practice and judicial expectations.
My specific recommendations are set forth in detail in Sections IV through IX below and are summarized in Section IX.
II. Background and Factual Context
A. The Parties and the Transaction
Arbor Health Technologies Inc. AHT is a Delaware corporation headquartered at 400 Brattle Commerce Park, Suite 1200, Cambridge, Massachusetts 02138. The Company operates in the healthcare services and software-as-a-service ("SaaS") sector, providing a cloud-based clinical workflow and revenue cycle management platform to hospital systems, physician practices, ambulatory surgery centers, and other healthcare organizations across the United States. For fiscal year 2021, AHT reported annual revenues of approximately $127.4 million. The Company employs approximately 620 individuals, the majority of whom are based in Massachusetts, with smaller offices in Nashville, Tennessee and Austin, Texas.
AHT is a portfolio company of Ridgeline Capital Partners, LP, a Boston-based private equity firm that holds approximately 68% of AHT's equity. Ridgeline acquired AHT in a take-private transaction that closed in December 2019, at an enterprise value of approximately $340 million. The remaining equity is held by Helix Ventures Fund III, LP (approximately 14%) and by management and other holders (approximately 18%). The Company's existing senior leadership team includes Priya Chandrasekaran, Chief Executive Officer; Aaron Whitfield, General Counsel; and Lisa Murakami, Chief Human Resources Officer.
Dr. Marcus J. Elliston. Dr. Elliston is the prospective incoming Chief Operating Officer of AHT, to report directly to CEO Chandrasekaran. His proposed start date is November 1, 2022. Dr. Elliston brings substantial and directly relevant experience to the role. He most recently served as Senior Vice President of Operations at Pinnacle Care Systems, Inc., a healthcare information technology company widely regarded as one of AHT's principal competitors in the clinical workflow and revenue cycle management space. Dr. Elliston holds a Doctor of Medicine degree from Johns Hopkins University School of Medicine and a Master of Business Administration from the Wharton School at the University of Pennsylvania. He has approximately eighteen years of experience in healthcare operations, spanning clinical operations management, technology implementation, and strategic business development. Dr. Elliston resides at 87 Laurel Hill Road, Wellesley, Massachusetts 02481.
Dr. Elliston is represented in the employment negotiation by Catherine A. Fielding, Partner, and Jonathan M. Pryce, Associate, at Fielding & Rowe LLP, 101 Federal Street, Suite 2600, Boston, Massachusetts 02110. Based on our preliminary interactions with Fielding & Rowe, we anticipate that they will scrutinize the proposed restrictive covenants closely, particularly given Dr. Elliston's senior-level experience and the breadth of the proposed restrictions.
Proposed Compensation. The proposed compensation package for Dr. Elliston includes: (i) an annual base salary of $575,000; (ii) an annual target bonus of $431,250 (75% of base salary); (iii) a one-time signing bonus of $250,000; and (iv) equity grants consisting of stock options representing 1.25% of AHT's fully diluted capitalization and restricted stock units ("RSUs") representing 0.50% of AHT's fully diluted capitalization, in each case subject to vesting over a four-year period. The total first-year compensation value, inclusive of the signing bonus and the annualized value of the equity grants at current fair market value, is estimated at approximately $1.85 million.
B. The Proposed Restrictive Covenants
The restrictive covenants that are the subject of this memorandum appear in two separate but overlapping documents: (i) the Executive Employment Agreement between AHT and Dr. Elliston (first draft dated August 5, 2022) (the "Employment Agreement"), and (ii) the standalone Employee Non-Competition Agreement between AHT and Dr. Elliston (first draft dated August 5, 2022) (the "NCA"). The three covenants addressed in this memorandum are set forth in both documents in substantially identical terms, and I analyze them based on the language as it appears in the current drafts.
Employee Non-Solicitation Covenant. Section 8(b) of the Employment Agreement and Section 3 of the NCA provide that, for a period of eighteen (18) months following the termination of Dr. Elliston's employment with AHT (the "Restricted Period" for employee non-solicitation purposes), Dr. Elliston shall not, directly or indirectly, solicit, recruit, induce, or encourage any employee of AHT at the manager level and above to leave AHT's employment, or hire or cause to be hired any such employee. The covenant is not limited by geography and applies regardless of the reason for Dr. Elliston's termination.
Customer/Partner Non-Solicitation Covenant. Section 8(c) of the Employment Agreement and Section 4 of the NCA provide that, for a period of twelve (12) months following the termination of Dr. Elliston's employment with AHT, Dr. Elliston shall not, directly or indirectly, solicit, divert, or service any customer or business partner of AHT with whom Dr. Elliston had material contact during the last twenty-four (24) months of his employment with AHT. As with the employee non-solicitation covenant, this provision is not geographically limited and applies regardless of the reason for termination.
Confidentiality/Non-Disclosure Provision. Section 9 of the Employment Agreement and Section 5 of the NCA provide that Dr. Elliston shall not, at any time during or after his employment with AHT, use or disclose any Confidential Information (as defined therein) of AHT, except as required in the performance of his duties for the Company. The definition of "Confidential Information" is broad, encompassing business plans, financial data, customer lists, product roadmaps, technical specifications, marketing strategies, pricing information, vendor relationships, and any other proprietary information of AHT. The provision includes standard carve-outs for: (a) information that becomes publicly available through no fault of the Executive; (b) information independently developed by the Executive without use of or reference to Confidential Information; (c) information received by the Executive from a third party without breach of any obligation of confidentiality; and (d) disclosure legally compelled by subpoena, court order, or governmental investigation, subject to prompt written notice to AHT (to the extent permitted by law), reasonable cooperation with AHT's efforts to obtain a protective order, and limitation of disclosure to the minimum information required to comply with the legal obligation.
Governing Law. Both the Employment Agreement and the NCA specify that they are governed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws principles.
C. Scope of This Memorandum
This memorandum is limited in scope to the three covenants described above: the employee non-solicitation covenant, the customer/partner non-solicitation covenant, and the confidentiality/non-disclosure provision. Several related legal issues are addressed in companion memoranda prepared by other members of the team, and I note them here for completeness and cross-reference purposes:
• The 12-month post-termination non-competition covenant (with garden-leave payment of $287,500) is governed primarily by the MNAA and is analyzed in my companion memorandum dated July 25, 2022. That memorandum addresses the statutory requirements for enforceability under M.G.L. c. 149, § 24L, including the garden-leave or other mutually agreed consideration requirement, the 12-month maximum duration, the exclusions for certain categories of employees, and the statutory enforceability limitations.
• Section 409A and Section 280G implications of the compensation and severance arrangements are addressed in separate memoranda prepared by Gregory Tan, Partner, Tax, the most recent of which is dated August 3, 2022.
• Massachusetts Wage Act implications (M.G.L. c. 149, § 148 et seq.) relating to the severance and compensation provisions of the Employment Agreement are addressed in a memorandum prepared by Devon Archer dated August 1, 2022.
I have reviewed each of these companion memoranda and do not believe that any of the analyses contained therein are inconsistent with the conclusions and recommendations set forth in this memorandum. Where relevant, I note interactions between the covenants analyzed here and the non-competition covenant analyzed in my July 25 memorandum. See Section VIII, infra.
III. Legal Framework: Massachusetts Common Law Enforceability of Non-Solicitation and Non-Disclosure Covenants
A. Distinction from Non-Competition Agreements Under the MNAA
As a threshold matter, it is critical to distinguish the covenants analyzed in this memorandum from non-competition agreements governed by the MNAA. The Massachusetts Noncompetition Agreement Act, codified at M.G.L. c. 149, § 24L, took effect on October 1, 2018, and imposes a comprehensive set of statutory requirements on "noncompetition agreements" entered into on or after that date. Among other things, the MNAA requires that noncompetition agreements be supported by garden-leave payments or other mutually agreed consideration, limits their duration to a maximum of twelve months (or twenty-four months in limited circumstances), prohibits their use for certain categories of employees (including nonexempt employees, undergraduate or graduate students, employees terminated without cause or laid off, and employees under the age of 18), and requires that the agreement be in writing and signed by both parties.
Critically, however, the MNAA expressly excludes several categories of restrictive covenants from the definition of "noncompetition agreement." Section 24L(a) provides:
"'Noncompetition agreement' shall not include: (i) a nondisclosure or confidentiality agreement; (ii) a non-solicitation agreement; (iii) a non-recruitment agreement; (iv) an invention assignment agreement; (v) a garden leave clause that otherwise satisfies the requirements of this section; (vi) an agreement made in connection with the sale of a business entity or substantially all of the operating assets of a business entity or partnership, membership, or equity interest in a business entity[;] (vii) an agreement made in connection with the cessation of or separation from employment if the employee is expressly provided seven business days to rescind acceptance; or (viii) forfeiture agreements."
The import of this exclusion is clear: non-solicitation agreements (whether directed at employees, customers, or both) and non-disclosure or confidentiality agreements are not subject to the MNAA's statutory requirements. They are not required to include garden-leave payments, they are not subject to the MNAA's twelve-month durational cap, and they are not subject to the MNAA's categorical prohibitions on use with certain employee types. Instead, these covenants continue to be governed by the traditional Massachusetts common law framework for the enforcement of restrictive covenants — a framework rooted in the equitable "rule of reason" that Massachusetts courts have applied for well over a century.
This distinction is particularly significant in the context of Dr. Elliston's agreements. Because the non-solicitation and non-disclosure covenants are not governed by the MNAA, they are not required to be supported by garden-leave payments and may, in principle, extend beyond twelve months in duration (subject to the common law reasonableness analysis). The garden-leave payment of $287,500 included in the proposed agreements is allocated exclusively to the separate non-competition covenant, and the non-solicitation and non-disclosure covenants must be independently supported by adequate consideration under common law principles — a requirement that is readily satisfied in the context of a new hire, as discussed further in Section IV.D below.
B. The Common Law Reasonableness Test
Massachusetts courts enforce post-employment restrictive covenants that satisfy the common law "rule of reason." Under this framework, a restrictive covenant will be upheld if it is: (1) necessary to protect a legitimate business interest of the employer; (2) reasonably limited in scope, duration, and geographic area in relation to the interest protected; (3) consonant with the public interest; and (4) supported by adequate consideration.
This four-part test has deep roots in Massachusetts jurisprudence. The Supreme Judicial Court has consistently recognized that restrictive covenants in employment agreements are disfavored as restraints on trade and on an individual's right to pursue a livelihood, but that they are nevertheless enforceable where they serve legitimate protective purposes and are tailored to do no more than is reasonably necessary to achieve those purposes. The inquiry is inherently fact-specific and requires a case-by-case assessment of the particular circumstances of the employment relationship, the nature and scope of the restriction, and the legitimate interests at stake.
Legitimate Business Interests. Massachusetts courts have recognized several categories of legitimate business interests that may support the enforcement of non-solicitation and non-disclosure covenants. These include:
• Protection of trade secrets and confidential information. This is the most widely recognized basis for restrictive covenants and is particularly relevant to the confidentiality/NDA provision. Massachusetts courts have consistently held that employers have a protectable interest in preventing the unauthorized use or disclosure of trade secrets, proprietary technology, customer data, pricing information, and other confidential business information.
• Protection of goodwill and customer relationships. Employers have a legitimate interest in preventing departing employees from leveraging personal relationships developed during their employment to divert customers, clients, or business partners to a competitor. This interest is particularly strong where the employee held a senior role with direct customer-facing responsibilities and where the employer invested significant resources in developing those relationships.
• Prevention of competitive injury through use of proprietary knowledge. Where a departing employee possesses specialized knowledge of the employer's business strategies, competitive positioning, or operational methods, the employer has a legitimate interest in preventing the use of that knowledge to gain an unfair competitive advantage during a reasonable transition period.
• Maintenance of workforce stability. Massachusetts courts have recognized that employers have a legitimate interest in protecting against the targeted recruitment or solicitation of their employees by departing executives, particularly where the departing executive occupied a leadership role and had personal influence over subordinates who might be inclined to follow the executive to a new employer.
Each of these interests is directly implicated by the proposed covenants in Dr. Elliston's agreements, given his seniority, his access to confidential and proprietary information, and the customer-facing and employee-supervisory dimensions of the COO role.
Reasonableness of Scope, Duration, and Geographic Area. Courts assess reasonableness along multiple dimensions. For non-solicitation covenants, the critical variables are typically duration (how long the restriction lasts post-termination), scope (which employees, customers, or partners are covered), and the nature of the prohibited conduct (what the executive is prohibited from doing). Geographic limitations are less commonly at issue in non-solicitation covenants than in non-competition agreements, because non-solicitation covenants by their nature restrict conduct directed at specific individuals or entities rather than broad categories of competitive activity in a geographic market.
Public Interest. Courts also consider whether enforcement of the covenant would be contrary to the public interest. This inquiry is most commonly relevant in cases involving healthcare professionals, where enforcement of a restrictive covenant could limit patient access to medical care, or in cases involving critical public services. In the present context, the public interest is not likely to present a significant obstacle to enforcement, given that the covenants restrict solicitation and disclosure rather than the practice of medicine or the provision of healthcare services.
C. Burden of Proof
Under Massachusetts law, the employer bears the burden of demonstrating that a restrictive covenant is reasonable and necessary to protect a legitimate business interest. The employer must establish that the restriction is no broader than reasonably necessary to achieve its legitimate protective purpose, and a court will not enforce a covenant that imposes a burden on the employee that is disproportionate to the benefit conferred on the employer. Courts apply a fact-specific, case-by-case analysis, and the enforceability of a particular covenant will depend on the totality of the circumstances, including the nature of the employer's business, the employee's role and responsibilities, the scope and duration of the restriction, and the extent to which the employee had access to confidential information or customer relationships during the employment.
This burden-of-proof allocation is an important consideration in drafting. Because AHT will bear the burden of justifying each covenant if challenged, it is in the Company's interest to draft covenants that are clearly tailored to identifiable, legitimate business interests and that are no broader than necessary to protect those interests. Overreaching in the initial drafts invites judicial skepticism and increases the risk of non-enforcement.
IV. Analysis of the 18-Month Employee Non-Solicitation Covenant
A. Duration — 18 Months
The proposed employee non-solicitation covenant restricts Dr. Elliston from soliciting AHT employees at the manager level and above for a period of eighteen (18) months following the termination of his employment. The question of duration is among the most significant enforceability variables, and it warrants careful analysis.
Massachusetts courts have upheld employee non-solicitation periods ranging from twelve to twenty-four months in the context of senior executive employment, but the weight of authority suggests that twelve months is the most commonly upheld and least controversial duration. An eighteen-month period is within the range of enforceability but sits at the upper boundary of what courts have sustained, and it will invite closer judicial scrutiny than a twelve-month period would.
Several Massachusetts decisions are instructive on this point. Courts have generally recognized that the appropriate duration of a non-solicitation covenant should be calibrated to the time reasonably necessary for the employer to stabilize its workforce, replace the departing executive's relationships and influence, and mitigate the competitive harm that could result from targeted solicitation. Where the departing executive occupied a senior leadership position with broad supervisory authority and strong personal relationships with key employees, courts have recognized that a somewhat longer restriction may be warranted. However, where the restriction extends significantly beyond the period necessary to achieve these protective goals, courts have declined to enforce the full duration and have, in some cases, reduced the period to one that the court deemed reasonable.
An eighteen-month period is defensible in the context of a COO hire of Dr. Elliston's stature and seniority. The COO role at AHT will involve direct oversight of a significant portion of the Company's operations and personnel, and Dr. Elliston will develop deep working relationships with senior managers, directors, and vice presidents who are critical to the Company's operations. The loss of even a small number of senior employees to a competitor through targeted solicitation could cause significant competitive harm and disrupt ongoing business initiatives. An eighteen-month cooling-off period is not unreasonable in this context.
That said, a twelve-month period would present materially lower litigation risk and would align with the duration most commonly upheld by Massachusetts courts. If the covenant is challenged, there is a moderate risk that a court would reduce the eighteen-month period to twelve months, particularly if the court concludes that the additional six months of protection is not demonstrably necessary to protect AHT's legitimate interests. This risk is not disqualifying, but it should be weighed against the incremental benefit of the additional six months of protection.
Risk Assessment: The eighteen-month duration presents a moderate litigation risk. The covenant is defensible, but a court may reduce it to twelve months if challenged. A twelve-month duration would present minimal litigation risk and would be the safest drafting choice.
B. Scope — Manager Level and Above
The limitation of the employee non-solicitation covenant to employees at the "manager level and above" is a significant narrowing that substantially enhances enforceability. Courts look favorably on non-solicitation covenants that are limited to categories of employees with whom the executive had meaningful interaction, who possess specialized skills or institutional knowledge, and whose departure would cause disproportionate competitive harm to the employer. A blanket prohibition on soliciting all employees — including entry-level or administrative staff with whom the COO had little or no direct interaction — would face greater scrutiny and would be more difficult to justify as necessary to protect a legitimate business interest.
AHT has approximately 620 employees. The manager-and-above universe is a readily ascertainable subset of that total workforce, and the restriction is reasonably tailored to the employees with whom Dr. Elliston, as COO, would be expected to develop the most significant working relationships and exercise the greatest personal influence. This narrowing is consistent with the approach favored by Massachusetts courts and is a positive enforceability factor.
However, the current draft does not define "manager level" with precision. The term could encompass different populations depending on whether it is understood to refer to employees with a specific title, a specific grade or compensation level, a specific set of supervisory responsibilities, or some other criterion. Ambiguity in the scope of the covered population could become the subject of a factual dispute, which would complicate enforcement.
Recommendation: Define "manager level" with specificity in the agreement. For example, the covenant could refer to "employees classified at or above Grade Level M-4 in the Company's compensation structure" or "employees who hold the title of Manager, Senior Manager, Director, Vice President, or any title senior to these, or who have direct reports and budgetary or operational authority over a functional area of the Company." The specific definition should be developed in consultation with Lisa Murakami (CHRO) to ensure that it accurately captures the intended population and aligns with AHT's internal classification system.
C. Prohibited Conduct — "Directly or Indirectly Solicit, Recruit, Induce, or Encourage"
The covenant prohibits Dr. Elliston from "directly or indirectly solicit[ing], recruit[ing], induc[ing], or encourag[ing]" covered employees to leave AHT's employment. This is standard language that Massachusetts courts have generally upheld in the non-solicitation context, and it appropriately covers the full spectrum of solicitation activity — from direct personal outreach to indirect solicitation through intermediaries, recruiters, or other third parties.
The inclusion of "indirectly" is particularly important in the executive context, where a departing COO might seek to circumvent a non-solicitation restriction by using a recruiter, a colleague, or a subordinate at a new employer to reach out to AHT employees on his behalf. Courts have recognized that indirect solicitation can be just as harmful as direct solicitation and have upheld covenants that encompass both forms of conduct.
One area of potential concern, however, is the breadth of the prohibition as applied to entirely passive conduct. As currently drafted, the covenant could arguably be read to encompass situations in which an AHT employee independently and without any solicitation or encouragement from Dr. Elliston applies for a position at Dr. Elliston's new employer through a general job posting, and Dr. Elliston — in his capacity as an executive at the new employer — is involved in the hiring decision. While Massachusetts courts have generally interpreted non-solicitation covenants to require some affirmative act of solicitation or inducement (as opposed to merely accepting an unsolicited application), the current language does not explicitly address this distinction, and the absence of a clarification could create ambiguity.
Recommendation: Consider adding a clarification that the covenant does not prohibit: (a) general solicitations of employment (e.g., publicly posted job advertisements, career fair participation, or social media postings) that are not specifically targeted at AHT employees; or (b) hiring an AHT employee who independently and without solicitation or encouragement from the Executive applies for employment. This type of carve-out is consistent with prevailing market practice for senior executive non-solicitation covenants and improves enforceability by demonstrating that the covenant is carefully tailored to targeted solicitation rather than sweeping in ordinary, non-harmful conduct.
D. Consideration. For an employee hired after October 1, 2018, the non-solicitation covenant does not require the garden-leave payment or other mutually agreed consideration mandated by the MNAA for noncompetition agreements. Non-solicitation agreements remain subject to the traditional common law consideration analysis, which requires that the covenant be supported by adequate consideration at the time of its execution.
In the context of a new hire — and Dr. Elliston is a new hire, not an existing employee being asked to sign a new restriction mid-employment — the offer of employment itself constitutes legally sufficient consideration for a restrictive covenant entered into as a condition of employment. This is a well-established principle of Massachusetts contract law, and it applies directly here.
Moreover, the comprehensive compensation package offered to Dr. Elliston — including a base salary of $575,000, a target annual bonus of $431,250, a one-time signing bonus of $250,000, and equity grants consisting of 1.25% stock options and 0.50% RSUs — provides substantial and ample consideration that further supports the enforceability of the non-solicitation covenant. Although courts do not require that the consideration be proportional to the burden of the restriction, the generosity of the compensation package is a relevant factor that weighs in favor of enforcement, particularly if Dr. Elliston attempts to argue that the covenant is unconscionable or unfairly burdensome.
The consideration analysis does not present a significant risk in this context.
E. Recommendations on the Employee Non-Solicitation Covenant
Based on the foregoing analysis, I offer the following recommendations with respect to the employee non-solicitation covenant:
1. Duration. Consider reducing the duration from eighteen (18) months to twelve (12) months to align with the most commonly upheld period under Massachusetts common law and to minimize litigation risk. If the client, after consultation with Ridgeline Capital Partners and CEO Chandrasekaran, determines that the eighteen-month duration is a business priority, the covenant is defensible at that duration but carries a moderate risk of judicial reduction to twelve months. In my assessment, the incremental protection afforded by the additional six months is unlikely to justify the incremental litigation risk, and the eighteen-month duration may also become a point of significant resistance in negotiations with Fielding & Rowe.
2. Definition of "Manager Level." Define "manager level" with specificity in the agreement, using either AHT's internal grade classification system, a title-based definition, or a functional definition (e.g., employees with direct reports and authority over a business operation or functional area). The definition should be developed in consultation with CHRO Lisa Murakami to ensure accuracy and administrability.
3. General Solicitation Carve-Out. Add a carve-out clarifying that the covenant does not prohibit general, non-targeted solicitations of employment (e.g., publicly posted job advertisements, participation in career fairs, or general social media postings) and does not prohibit the hiring of AHT employees who apply independently without solicitation or encouragement from Dr. Elliston. This carve-out improves enforceability by demonstrating tailoring and is consistent with market practice.
4. Termination Trigger. Confirm that the covenant applies regardless of the reason for termination (termination for Cause, termination without Cause, voluntary resignation, death, disability, or otherwise) and that the triggering event — the "termination of employment" — is clearly and consistently defined across the Employment Agreement and the NCA to avoid ambiguity.
V. Analysis of the 12-Month Customer/Partner Non-Solicitation Covenant
A. Duration — 12 Months
The proposed customer/partner non-solicitation covenant restricts Dr. Elliston from soliciting, diverting, or servicing covered customers and business partners for a period of twelve (12) months following the termination of his employment. This duration is the most commonly upheld period for customer non-solicitation covenants in Massachusetts and is well within the range of reasonableness under the common law framework.
Massachusetts courts have consistently sustained twelve-month customer non-solicitation periods in the executive employment context, recognizing that this duration provides the employer with a reasonable opportunity to solidify its customer relationships, transition account management responsibilities to a successor, and mitigate the risk that a departing executive will leverage personal relationships to divert business. A twelve-month period strikes an appropriate balance between the employer's legitimate interest in protecting customer goodwill and the employee's interest in pursuing new professional opportunities.
Risk Assessment: The twelve-month duration presents minimal litigation risk. I do not recommend any change to this term.
B. Scope — Customers/Partners with Whom Executive Had "Material Contact" During Last 24 Months
The covenant is limited to customers and business partners of AHT with whom Dr. Elliston had "material contact" during the last twenty-four (24) months of his employment. This limitation is a significant and favorable narrowing of the covenant's scope.
Massachusetts courts strongly favor non-solicitation covenants that are tied to actual customer relationships developed or maintained by the departing employee, as opposed to blanket prohibitions on soliciting all of the employer's customers — including customers with whom the departing employee had no contact whatsoever. A covenant limited to customers and partners with whom the executive had material contact is far more likely to be upheld as reasonable because it is directly tied to the specific relationships that the employer has a legitimate interest in protecting.
The twenty-four-month look-back period for determining "material contact" is also reasonable and commonly used. This window is broad enough to capture the full scope of customer and partner relationships that Dr. Elliston would develop and maintain during his tenure as COO, while also ensuring that the covenant does not reach back to encompass stale or attenuated contacts from the distant past.
One area of concern, however, is the definition of "material contact." The current draft uses this term without defining it, which could give rise to factual disputes regarding whether Dr. Elliston's interactions with a particular customer or partner rise to the level of "material contact." For example, did a brief introduction at an industry conference constitute "material contact"? What about a single email exchange? The absence of a clear definition introduces ambiguity that could complicate enforcement and provide Dr. Elliston with a basis for challenging the covenant's applicability to particular customer or partner relationships.
Recommendation: Define "material contact" in the agreement with sufficient precision to put the Executive on notice of what is covered and to provide a workable standard for adjudicating disputes. A reasonable definition might include: "direct business dealings, negotiations, contract discussions, account management activities, strategic planning sessions, or substantive communications concerning AHT products, services, or business relationships." The definition should be broad enough to capture the full range of meaningful interactions that a COO would have with customers and partners, while excluding purely incidental or trivial contacts.
C. Prohibited Conduct — "Soliciting, Diverting, or Servicing"
The covenant prohibits Dr. Elliston from "soliciting, diverting, or servicing" covered customers and business partners. The inclusion of "soliciting" and "diverting" is standard and uncontroversial — these terms clearly describe the affirmative conduct that the covenant is designed to prevent, namely, the targeted outreach to AHT's customers and partners for the purpose of redirecting their business to a competitor.
The inclusion of "servicing," however, warrants closer attention. A servicing restriction goes beyond prohibiting active solicitation and extends to situations where Dr. Elliston would be providing services to a covered customer or partner at a new employer, even if the customer independently and without solicitation sought out Dr. Elliston at his new employer. Massachusetts courts have upheld servicing restrictions in certain contexts, particularly where the departing executive was the primary relationship holder and where the restriction is necessary to protect the employer's investment in developing the customer relationship. However, broader servicing bans — those that apply even where the customer independently and without solicitation contacts the executive at a new employer — have faced greater scrutiny, and some courts have expressed concern that such restrictions effectively function as non-competition covenants by preventing the executive from performing the core functions of his or her profession.
The distinction between solicitation and servicing is particularly significant in the healthcare SaaS context. AHT's customers — hospital systems, physician practices, and other healthcare organizations — may have strong institutional reasons for following a trusted executive to a new technology platform, independent of any solicitation by the executive. If Dr. Elliston joins a competitor and a hospital system that previously worked with him at AHT independently reaches out to his new employer seeking his involvement in their account, a broad servicing restriction would prevent Dr. Elliston from serving that customer, even though he took no affirmative steps to divert the business.
Recommendation: Consider one of two approaches to address this issue. First, AHT could narrow the "servicing" language to situations where Dr. Elliston affirmatively solicited or diverted the customer, eliminating the prohibition on servicing customers who independently seek out the Executive. Alternatively, AHT could retain the servicing restriction but add a carve-out for customer-initiated contact — i.e., a provision specifying that the covenant does not prohibit Dr. Elliston from servicing a covered customer or partner where the customer or partner independently and without solicitation or encouragement from the Executive contacts Dr. Elliston at his new employer. This approach preserves the full scope of the solicitation and diversion prohibition while accommodating customer autonomy and reducing the risk that the covenant will be viewed as an impermissible restraint on Dr. Elliston's ability to practice his profession.
D. Legitimate Business Interest — Customer Goodwill
The customer/partner non-solicitation covenant is supported by a clear and well-established legitimate business interest: the protection of AHT's customer goodwill and the prevention of competitive diversion of customer relationships.
AHT's SaaS and healthcare services business is fundamentally relationship-driven. The Company's revenue model depends on long-term customer contracts, multi-year platform implementations, and ongoing service relationships with hospital systems and physician practices. The COO role, in particular, involves significant exposure to key customers and strategic partners, including direct involvement in contract negotiations, implementation oversight, customer success initiatives, and strategic partnership development. Over the course of his tenure, Dr. Elliston will inevitably develop deep personal relationships with AHT's most important customers and partners, and he will gain intimate knowledge of their needs, preferences, and decision-making processes.
The risk that a departing COO could leverage these relationships to divert customers to a competitor is real and substantial, and Massachusetts courts have consistently recognized the protection of customer goodwill as a legitimate basis for enforcing non-solicitation covenants. This interest is further reinforced by the significant investment that AHT makes in acquiring, onboarding, and retaining its customers. The cost of customer acquisition in the healthcare SaaS market is substantial, and the loss of even a single large hospital system customer could have a material impact on AHT's revenue and competitive positioning.
E. Recommendations on the Customer/Partner Non-Solicitation Covenant
Based on the foregoing analysis, I offer the following recommendations with respect to the customer/partner non-solicitation covenant:
1. Duration. The twelve-month duration is appropriate and well within the range of enforceability. No change is recommended.
2. Definition of "Material Contact." Define "material contact" with precision in the agreement, using language such as: "direct business dealings, negotiations, contract discussions, account management activities, strategic planning sessions, or substantive communications concerning AHT products, services, or business relationships." This definition will reduce ambiguity, provide the Executive with clear notice of what is covered, and facilitate enforcement.
3. Servicing Language. Consider narrowing the "servicing" prohibition to situations involving affirmative solicitation or diversion by the Executive, or alternatively add a customer-initiated contact carve-out that permits the Executive to service covered customers or partners who independently and without solicitation contact the Executive at a new employer. This refinement reduces the risk that the covenant will be viewed as a de facto non-compete and improves the overall enforceability of the provision.
4. Termination Trigger. As with the employee non-solicitation covenant, confirm that the customer/partner non-solicitation covenant applies regardless of the reason for termination and that the triggering event is clearly and consistently defined.
VI. Analysis of the Perpetual Confidentiality/NDA Provision
A. Enforceability of Perpetual Duration
The proposed confidentiality/non-disclosure provision imposes an indefinite obligation on Dr. Elliston not to use or disclose Confidential Information of AHT. The perpetual duration of this obligation is a common feature of executive confidentiality agreements, and Massachusetts courts have generally upheld perpetual confidentiality obligations — but with an important caveat.
Trade secrets, by their very nature, retain their protected status indefinitely, so long as the information remains secret and continues to derive economic value from its secrecy. A perpetual obligation not to disclose or use trade secret information is therefore coextensive with the underlying right and is fully enforceable. Massachusetts courts, consistent with both the common law of trade secrets and the Uniform Trade Secrets Act (as adopted in Massachusetts at M.G.L. c. 93, § 42 et seq.), have recognized that an employer's interest in protecting trade secrets does not diminish over time and that an indefinite confidentiality obligation is appropriate and enforceable with respect to information that qualifies as a trade secret.
However, the analysis is more nuanced with respect to confidential business information that does not rise to the level of a trade secret. Not all information that an employer may legitimately wish to protect qualifies as a trade secret under Massachusetts law. Information such as annual business plans, short-term strategic initiatives, current pricing information, marketing campaigns, and organizational charts may be confidential and competitively sensitive, but it also has a natural expiration of competitive value over time. A business plan from 2022, for example, may be highly sensitive in 2023 but largely irrelevant by 2027. Pricing information may be competitively valuable for the duration of a contract cycle but may lose its significance once the contract is renewed or replaced.
Massachusetts courts may be skeptical of perpetual confidentiality obligations that sweep in this type of time-sensitive business information, on the theory that a perpetual restriction on the use or disclosure of information that no longer has competitive value is not "necessary to protect a legitimate business interest" and imposes an undue burden on the departing employee. While there is no bright-line rule, courts have in some cases distinguished between trade secret information (for which perpetual protection is appropriate) and other confidential business information (for which a time-limited obligation may be more appropriate).
Recommendation: Consider bifurcating the confidentiality obligation into two tiers. For information that constitutes a trade secret under Massachusetts law (M.G.L. c. 93, § 42), the perpetual obligation should be retained. For other confidential business information that does not rise to the level of a trade secret, consider imposing a time-limited obligation of three to five years following the termination of employment, or alternatively, tying the obligation to the period during which the information retains its competitive economic value. This bifurcated approach is increasingly common in executive employment agreements, is consistent with judicial expectations, and reduces the risk that a court will strike the entire confidentiality provision as overbroad.
B. Definition of "Confidential Information"
The current draft defines "Confidential Information" broadly to include "business plans, financial data, customer lists, product roadmaps, technical specifications, marketing strategies, pricing information, vendor relationships, and any other proprietary information of AHT." This definition is expansive, and while breadth is generally appropriate in the executive context — particularly for a COO who will have access to virtually all categories of AHT's proprietary information — the definition must be carefully calibrated to avoid overreaching.
Massachusetts courts require that the definition of Confidential Information be specific enough to put the employee on reasonable notice of what information is covered by the restriction. An overly vague or catch-all definition — particularly one that could be read to encompass information that is truly general knowledge, publicly available, or commonly known in the industry — risks being found unenforceable as overbroad.
The current draft's reference to "any other proprietary information of AHT" is a common catch-all, but it is also the phrase most likely to be challenged as vague and overbroad. Courts have sustained catch-all provisions where they are preceded by sufficiently specific illustrative examples, but a catch-all provision standing alone, without adequate specificity, may not survive scrutiny.
Recommendation: Refine the definition of "Confidential Information" in the following respects:
(a) Retain the illustrative categories (business plans, financial data, customer lists, product roadmaps, technical specifications, marketing strategies, pricing information, vendor relationships) and consider adding additional specific categories relevant to AHT's business, such as: proprietary algorithms and software code; clinical workflow methodologies; data analytics models and outputs; customer utilization and performance data; regulatory compliance strategies; information regarding pending or contemplated mergers, acquisitions, or divestitures; compensation and benefits data for employees; and strategic partner terms and pricing.
(b) Retain the catch-all provision but qualify it — for example, "and any other information, data, or materials of AHT that (i) is not generally known to or readily ascertainable by persons outside of AHT, and (ii) derives economic value, actual or potential, from not being generally known."
(c) Include an explicit exclusion from the definition of "Confidential Information" for: (i) information that is or becomes part of the public domain through no fault of the Executive; (ii) information that is or becomes available to the Executive on a non-confidential basis from a source other than AHT, provided that such source is not known by the Executive to be bound by a confidentiality agreement with or other obligation of confidentiality to AHT; (iii) information that the Executive can demonstrate was independently developed by the Executive without use of or reference to Confidential Information; and (iv) general skills, knowledge, and experience acquired by the Executive during the course of employment that do not depend on or incorporate specific Confidential Information.
The fourth exclusion — for general skills, knowledge, and experience — is particularly important. Massachusetts courts have consistently recognized that an employer cannot use a confidentiality agreement to prevent a departing employee from using general skills and expertise acquired during employment, even if those skills were developed in the course of performing the employee's duties. The distinction between protectable confidential information and non-protectable general knowledge can be difficult to draw in practice, and the inclusion of an explicit exclusion reduces the risk that the covenant will be challenged as an impermissible attempt to prevent Dr. Elliston from using his general professional expertise.
C. Standard Carve-Outs
The current draft includes three standard carve-outs from the confidentiality obligation:
(1) Publicly Available Information. The confidentiality obligation does not apply to information that becomes publicly available through no fault of the Executive. This is a universally accepted carve-out that is necessary to avoid imposing an impossible obligation on the Executive to refrain from using or disclosing information that is already in the public domain.
(2) Independently Developed Information. The confidentiality obligation does not apply to information that the Executive independently develops without use of or reference to Confidential Information. This carve-out recognizes the Executive's right to innovate and create independently, and it prevents the confidentiality obligation from functioning as a blanket prohibition on the Executive's professional activities.
(3) Third-Party Receipt. The confidentiality obligation does not apply to information received by the Executive from a third party without breach of any obligation of confidentiality. This carve-out recognizes that information may be independently available from multiple sources, and that the Executive should not be prohibited from using information legitimately obtained from a non-AHT source.
These carve-outs are standard, appropriate, and consistent with market practice. I recommend retaining them without modification.
D. Carve-Out for Legally Compelled Disclosure
The current draft includes a carve-out permitting disclosure of Confidential Information where legally compelled by subpoena, court order, or governmental investigation. This carve-out is subject to three conditions:
(i) Prompt Written Notice. The Executive must provide prompt written notice to AHT of the compelled disclosure, to the extent permitted by law. The qualification "to the extent permitted by law" is important, as certain governmental investigations (e.g., grand jury proceedings, SEC investigations) may impose secrecy requirements that would prohibit the Executive from notifying AHT.
(ii) Reasonable Cooperation. The Executive must reasonably cooperate with AHT's efforts to obtain a protective order or other appropriate remedy to limit the scope of disclosure. This provision allows AHT to take steps to protect its confidential information even in the context of compelled disclosure, and it is a standard and enforceable requirement.
(iii) Minimum Disclosure. The Executive's disclosure must be limited to the minimum information required to comply with the legal obligation. This ensures that the Executive does not use a compelled disclosure event as an opportunity to reveal more information than is legally necessary.
This carve-out is standard, enforceable, and appropriate. I recommend retaining it without modification, subject to one important addition discussed immediately below.
Recommendation: DTSA Immunity Notice. The Defend Trade Secrets Act of 2016, 18 U.S.C. § 1833(b), provides that an individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (B) in a complaint or other document filed under seal in a lawsuit or other proceeding.
Section 1833(b)(3)(A) of the DTSA requires that an employer provide notice of this immunity provision in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. If the employer fails to include this notice, the employer may not be awarded exemplary damages or attorneys' fees against the employee in an action brought under the DTSA. This limitation on remedies can be significant in a trade secret misappropriation case and should not be overlooked.
The current drafts of the Employment Agreement and the NCA do not include a DTSA immunity notice. I recommend adding a provision substantially in the following form:
"Pursuant to 18 U.S.C. § 1833(b), the Executive is hereby notified that an individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal, and (B) does not disclose the trade secret, except pursuant to court order."
E. Whistleblower and Regulatory Carve-Outs
In addition to the DTSA immunity notice, I recommend adding explicit carve-outs confirming that nothing in the confidentiality/NDA provision prohibits the Executive from:
(i) Filing a charge or complaint with, or communicating with, or providing documents or information to, any governmental agency or regulatory body, including but not limited to the U.S. Securities and Exchange Commission ("SEC"), the U.S. Department of Justice ("DOJ"), the U.S. Equal Employment Opportunity Commission ("EEOC"), the Massachusetts Commission Against Discrimination ("MCAD"), or any other federal, state, or local agency charged with the enforcement of any law, rule, or regulation;
(ii) Participating in any investigation or proceeding conducted by any such governmental agency or regulatory body, including providing testimony or documents; or
(iii) Providing truthful testimony or information in any legal proceeding, including depositions, hearings, and trials.
Such carve-outs are increasingly expected by regulators and courts, and their inclusion has become standard market practice in executive employment agreements. The SEC, in particular, has taken enforcement actions against companies that have used confidentiality agreements to impede whistleblower activity, and the inclusion of an explicit whistleblower carve-out mitigates the risk that AHT's confidentiality provision could be challenged on this basis. These carve-outs do not diminish the substantive protections of the confidentiality provision; they simply make explicit what the law already requires and signals to courts and regulators that AHT's agreements are drafted in good faith and with appropriate respect for regulatory requirements.
F. Recommendations on the Confidentiality/NDA Provision
Based on the foregoing analysis, I offer the following recommendations with respect to the perpetual confidentiality/non-disclosure provision:
1. Bifurcate Duration. Consider bifurcating the confidentiality obligation: perpetual protection for trade secrets (as defined under M.G.L. c. 93, § 42 and 18 U.S.C. § 1836); time-limited protection (three to five years post-termination) for other confidential business information that does not rise to the level of a trade secret. Alternatively, tie the obligation for non-trade-secret information to the period during which the information retains its competitive economic value.
2. Refine Definition of "Confidential Information." Add specificity to the definition by including additional illustrative categories. Qualify the catch-all provision to exclude information that is generally known or readily ascertainable. Add an explicit exclusion for general skills, knowledge, and experience.
3. Retain Standard Carve-Out

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