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Readers of our blog will
recall that this summer, the Massachusetts legislature passed a
non-compete reform bill after nearly a decade of fruitless
attempts. The new law goes into effect today,
meaning that any agreements signed today or in the future will need
to comply with the new law.
As a brief recap, the key provisions of the new bill are as
follows:
Non-competes signed today or in the
future will not be enforceable against certain types of employees,
such as employees who are non-exempt under the Fair Labor Standards
Act, undergrads and grad students working part-time, employees 18
and younger, and employees laid off or terminated without cause
(see our Law360 article for, among other
things, an extensive discussion of the quirks of this provision,
including an important note about the FLSA's distinction
between "outside" and "inside" sales
employees);
Non-competes of longer than 1 year
will be unenforceable – except that a
restricted period may be extended to up to 2 years if the employee
breaches his or her fiduciary duty or unlawfully takes company
property;
Non-competes must be signed by both
the employer and employee, and expressly state
that the employee has a right to consult counsel before signing the
agreement.
For non-competes entered into at the
commencement of employment, the agreement must be provided with the
formal offer letter, or at least 10 business days prior to the
effective date, whichever is earlier.
Non-competes for existing employees
must be provided at least 10 business days before the effective
date, and continued employment is no longer sufficient
consideration. Rather, such agreements must be supported
by some other "fair and reasonable" consideration
independent of continued employment. It remains to be seen what
courts will consider "fair and reasonable."
Despite the misleading headline from
yesterday's boston.com article ("'Garden' clause in new law requires
pay during noncompete"), the new law does
not require garden leave – rather, garden
leave (i.e. 50% of the employee's annualized base salary during
the restricted period) or some other mutually agreed-upon
consideration is required to support the non-compete. In
other words, employers are not obligated to offer
garden leave (but may if they wish).
Employers are prohibited from
applying non-Massachusetts law to non-compete agreements binding
employees who have lived or worked in Massachusetts for at least 30
days prior to termination of employment, and the venue for actions
enforcing non-competes must be initiated in either the county in
which the employee resides or in Suffolk County, if the parties
agree to that venue. As we have previously opined in Massachusetts Lawyers
Weekly, whether these provisions will actually be upheld by
other states' courts remains to be seen.
For business with Massachusetts employees, now is the time to
review and revise employment agreements that contain non-compete
provisions
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Watch – The New Massachusetts Noncompete Law: What You Need To Know (Video)
