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Massachusetts Employers: Beware New State Law Restricting Use And Enforcement of Employee Non-Compete Restrictions

Published by and on September 25, 2018

What employers need to know about the Massachusetts Noncompetition Agreement Act, set to take effect October 1, 2018.

After nearly a decade of debate, Massachusetts Legislature passed “An Act Relative to Economic Development in the Commonwealth” (the “Act”), which Governor Charlie Baker signed into law on August 10, 2018. Set to take effect on October 1, 2018, the Act imposes new requirements on Massachusetts employers’ regarding the use and enforcement of non-compete agreements. Additionally, the Act limits employers who do not conduct business in the Commonwealth but have employees who reside there.

Here are the key provisions employers should be aware of before October 1, 2018:

Prohibitions: Employers may not enter into non-competition agreements with employees or independent contract who are:

  • nonexempt under the Fair Labor Standards Act;
  • employees who have been terminated without cause or laid off;
  • under 18 years old; and
  • part-time college or graduate student workers.

Limitations: In order for any non-compete agreement to be valid, the agreement must be in writing, signed by both the employee and employer, and offered at the time a formal employment offer of employment has been made or at least ten (10) business days before the employment begins, whichever is earlier. For current employees, employers must provide notice of any such agreement no less than ten (10) business days before the agreement is set to take effect. In addition to the above requirements, the following restrictions apply in order for a non-compete agreement to be valid:

  • The agreement must last no longer than one (1) year from termination of employment. The restriction period may be extended to two (2) years if an employee breaches a fiduciary duty to the employer or has unlawfully taken (physically or electronically) the employer’s property;
  • If an employer is seeking to bind a current employee, additional consideration beyond continued employment must be provided;
  • The agreement must contain a “garden leave” clause, which provides for payment to the employee in an amount equal to 50% of the employee’s salary during the restricted period. In lieu of a “garden leave clause,” the agreement may provide for some other mutually-agreed upon consideration. If the restriction period of any agreement is extended because of an employee’s own bad acting, an employer is not required to make payments to the employee during the extended restriction period.
  • As with any non-compete agreement, the restrictive terms of the non-compete agreement must be reasonable. This means that non-compete restrictions placed upon the employee must be no broader than necessary to protect a legitimate business interests of the employer (e.g., trade secrets, confidential information or the employer’s goodwill). Further, the geographic scope of an agreement must be limited to only 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.

The above-described prohibitions and restrictions only apply to “noncompetition agreements,” as defined under the Act. Employers are not restricted from entering into agreements with employees containing nondisclosure, confidentiality, customer non-solicitation, and/or anti-employee raiding provisions. Further, so long as an employee is expressly given seven (7) days to rescind acceptance, separation agreements are not considered “noncompetition agreements” under the law, therefore, the Act’s restrictions do not apply. Finally, these restrictions and prohibitions apply to non-competition agreements between businesses and independent contractors (either residing in or doing business in Massachusetts).

Welter Insight

Affected employers should take care to review compliance of existing non-compete agreements under the Act. Where possible, employers should remove non-compete provisions, and limit restrictive covenants to nondisclosure, confidentiality, customer non-solicitation, and / or anti-employee raiding provisions that do not prohibit or limit post-employment competition. Where non-competition restrictions are necessary, employers should prepare new agreements in compliance with the Act.

Affected employers should seek counsel if unsure whether current agreements are compliant under the Act.

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