After years of trying to find common ground on non-compete reform, the Massachusetts legislature passed a bill – which Governor Charlie Baker signed into law on August 10, 2018 – that promises to significantly change the employment landscape in the Commonwealth. The new law will take effect on October 1, 2018.
The following is a brief, non-exhaustive overview of some of the law’s most notable features:
- The law defines a non-competition agreement as an “agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended,” but excludes certain agreements from its purview, including: (1) non-compete agreements made in connection with the sale of a business; (2) non-compete agreements made in connection with the cessation or separation of employment (provided the employee is given seven business days to rescind acceptance); (3) employee non-solicitation covenants; (4) customer/client/vendor non-solicitation covenants; and (5) non-disclosure of confidential information agreements.
- Both traditional employees and independent contractors are covered under the law.
- All agreements must be in writing and signed by both parties, and must expressly affirm an employee’s right to consult with counsel before signing.
- If a non-compete agreement is signed at the beginning of an employment relationship, it must be given to the employee when the employment offer is made or 10 days before the commencement of employment, whichever is earlier. Agreements signed after the commencement of employment must be “supported by fair and reasonable consideration independent from the continuation of employment.”
- The law requires so-called “garden leave pay” or some “other mutually agreed-upon consideration.” Garden leave pay refers to an agreement in which the employer, during the course of the restricted period, continues to pay the former employee at least 50 percent of the “highest annualized base salary” that employee received within the two years preceding his or her termination. The law does not further define or elaborate upon what “other consideration” might be acceptable in lieu of garden leave pay, however. In addition, it remains to be seen whether garden leave pay constitutes sufficient consideration for those non-competes executed after the commencement of an employment relationship, or whether some consideration above and beyond the garden leave pay is required in those circumstances.
- Agreements not to compete must be “reasonable.” They can be no broader than necessary to protect a legitimate business interest; they cannot exceed one year in duration; their geographic scope must be reasonable; and they must otherwise be reasonable “in the scope of proscribed activities in relation to the interests protected.”
- Non-compete agreements may not be enforced against non-exempt employees; undergraduate or graduate students engaged in short-term employment; employees who have been terminated without cause or laid off; or employees who are 18 years old or younger.
These new requirements apply only to non-compete agreements entered into on or after October 1, 2018. Nevertheless, employers may wish to revise existing non-compete agreements for current employees in order to avoid disparities amongst employees, as well as potential future litigation.