After almost a decade of debate, the Massachusetts legislature has passed non-compete reform. Historically, the law in Massachusetts favored broad enforcement of non-competes against departing employees. Some believed that as a result of liberal enforcement of non-competes, Massachusetts was losing out on tech and other companies to states like California where non-competes are illegal.
The legislation appears intended to protect the most vulnerable workers from overbroad non-competes. It also provides incentives to companies to draft narrowly tailored, reasonable non-competes. As part of the legislation, Massachusetts has also adopted the Uniform Trade Secrets Act, with some modifications, bringing it in line with almost all other states (and the federal Defend Trade Secrets Act – commonly referred to as the DTSA).
Non-Compete Reform Key Provisions
Below is a short summary of some of the key provisions of non-compete reform:
- The law covers non-competition agreements with employees and independent contractors.
- Non-competes are limited to 12 months unless the employee steals information or breaches his or her fiduciary duty.
- If the non-compete is entered into at the beginning of employment, it must be signed by both the employer and employee and state that the employee has the right to consult counsel prior to signing.
- The non-compete must be provided at the earlier of the time of the formal offer or 10 business days before the beginning of employment.
- Continued employment alone is not sufficient consideration for a non-compete entered into after employment.
- The statute includes a garden leave provision which provides that some mutually agreed upon consideration is required for a non-compete. Under a typical “garden leave” provision, the employer continues to pay the former employee during the time period the non-compete is in effect. The statute essentially requires at least 50% of the employee’s annualized base salary to be paid on a pro rata basis during the restricted period.
- Non-competes are banned for the following groups of employees:
- Non-exempt employees under the FLSA.
- Undergraduate and graduate students who are not working full-time.
- Employees who are terminated without cause or laid off.
- Anyone eighteen or younger.
- “Springing” non-competes are authorized. This allows a court to impose a non-compete as a remedy if the employee does not comply with the law or other valid restrictions.
- Massachusetts law will be applied to agreements for Massachusetts’ residents and workers.
- The law only applies to agreements entered into on or after October 1, 2018.
In light of these developments, employers with workers in Massachusetts need to review their agreements and policies to ensure they comply with the new law. In addition, the changes implemented in Massachusetts could portend changes in other states, including Georgia.
Thank you to my friend Russell Beck and his blog Fair Competition Law for an excellent summary of the legislation and its history.