Massachusetts Passes Non-competition Agreement Statute
After ten years of debate, the Massachusetts Legislature has passed and Monday the Governor signed a law regulating non-competition agreements. I have been drafting and litigating non-competition agreements for most of my career. It is fair to say that the new law represents a sea change benefiting employees.
Some of the highlights of the statute include:
Non-comps can be used only with exempt employees under FLSA (employees who earn more than $47,476 per year with exceptions).
Non-comp provisions will not apply if the person is laid off or terminated without cause.
The employer must pay the employee half pay (at least) during the restricted period or some other fair consideration.
If it is signed after the employee has started work, it must be given for consideration in addition to continued employment and probably in addition to the half pay requirement outlined in 3 (above).
The geographic area and time of restriction must be very limited, usually one year and the zone in which the employee worked most recently.
The Act applies to independent contractors.
It must be signed at the time of the job offer or at least ten days before the employee starts work.
The Act recognizes three “legitimate business interests”: (a) the employer’s trade secrets; (b) the employer’s confidential information that otherwise would not qualify as a trade secret; and (c) the employer’s goodwill. To enforce the agreement, the employer must show that another type of agreement such as a non-disclosure agreement or a non-solicitation agreement would not protect those interests of the employer.
The work prohibited must be the same work the employee did for the employer, or very similar. It would be ok for a salesman to work for a competitor as an accountant, for example.
The new statute only applies to agreements signed after October 1, 2018. However, judicial interpretations concerning older agreements will likely be “informed” by the new statute.
Suit must be commenced in the employee’s venue or in Boston.
Bottom line: In the future, non-comps can be used in many fewer situations and they just got more expensive and less effective for employers. Non-comps will be far less disabling for employees. They are likely to be used only for employees that could seriously harm the employer if he or she went to a competitor. Very importantly, non-disclosure and non-solicitation agreements are still allowed and will doubtlessly be used even more often than at present. But these are really only second lines of defense. Once a key employee works for a rival, it is very hard to prove that he or she has disclosed key information or has not assisted another employee in soliciting customers. Best advice for employers: do everything you can within reason to keep key people. Flip side: key employees will have even more bargaining leverage going forward. This is a completely new dynamic in the employer- employee relationship.
If we can assist you in reviewing or revising your non-competition agreements or in understanding the implications of this new law, please call.