The Massachusetts Legislature enacted a new statute limiting the scope and enforceability of noncompetition agreements. The new law does not void or “outlaw” noncompetition agreements, but instead regulates them.
Some important provisions of the new law include:
1. The noncompete agreement cannot exceed one year in duration unless the employee breached a fiduciary duty or has stolen property from the employer, in which case the noncompete period can be tolled for up to two years;
2. The noncompete agreement must be “reasonable” in geographic scope. The geographic scope will be presumed reasonable if it is limited to the geographic areas in which the employee, “during any time within the last 2 years of employment, provided services or had a material presence or influence.”
3. Noncompete agreements can be no broader than necessary to protect legitimate business interests of the Employer. Legitimate business interests include protecting the employer’s trade secrets and confidential information.
4. Court may “reform or otherwise revise” an overly broad noncompete agreement to the extent necessary to protect the applicable legitimate business interests, and if a court declares a non-compete section of an agreement void, other sections of the agreement may remain in effect.
5. All noncompete agreements must be signed by both parties.
6. The agreement must expressly state that the employee has the right to consult with an attorney.
7. If the agreement is entered into at the beginning of employment, it must be signed the earlier of when the offer of employment is made OR ten days before the employee starts work.
8. If the agreement is entered into after employment has begun, the agreement must be supported by fair and reasonable consideration independent from the continuation of employment.
9. Noncompete agreements are void for:
a. Employees who are classified as non-exempt under the Fair Labor Standards Act;
b. Undergraduate or graduate students who are engaged in short-term employment;
c. Employees who are 18 years of age or younger; or
d. Employees who have been terminated without cause or laid off.
10. Requirement to make “garden leave” payments to employees during the post-termination “noncompete” period or to specify “other mutually-agreed upon consideration” given in exchange for the employee’s agreement not to compete. What will pass muster as “other mutually agreed upon consideration” will likely result in confusion and litigation. Under the statute “garden leave” requires employers to pay ex-employees “. . . on a pro-rata basis during the entirety of the restricted period of at least 50% of the employee’s highest annualized base salary paid by the employer within the two years preceding the employee’s termination”. The law exempts employers from making “garden leave” payments in certain circumstances such as where the employee breaches the agreement (i.e., by accepting competitive employment during the restricted period), or unlawfully takes the employer’s property.
11. Governs noncompetition agreements with independent contractors.
The new law does not govern nor does it restrict:
1. Employee and customer/vendor non-solicitation provisions;
2. Non-disclosure agreements;
3. Invention assignment agreements;
4. A noncompetition agreement entered into at the end of employment if the employee is given at least 7 business days to rescind the agreement;
5. Noncompetition agreements outside of an employment relationship or made in connection with the sale of a business (but only if the individual restricted is a “significant” owner who will receive “significant” consideration or benefit from the sale); and
6. Confidentiality agreements.
Out-of-state employers cannot attempt to avoid the requirements of Massachusetts law by including a choice of law provision in the agreement. The law renders a non-Massachusetts choice of law provision unenforceable if the employee was a resident of or employed in Massachusetts for at least 30 days immediately before the end of employment.
Employers should review whether to require noncompetition agreements from new employees or if it would be more economical to rely solely on non-solicitation agreements, non-disclosure agreements and/ or invention assignment agreements.
The new law will go into effect on October 1, 2018.
If you have any questions about the new law, please contact Michael P. Doherty at email@example.com or 508 541-3000.
This blog is for informational purposes only. It should not be considered legal advice. All those who read this blog should seek the advice of a professional before taking action based upon any information provided herein.
© 2018 Doherty, Ciechanowski, Dugan & Cannon, P.C.