Doing Business in Massachusetts? Time to Revisit Your Non-Competes.
I have been a member of the Massachusetts Bar for 20 years and,
even though I have lived in Texas since 2005, I still get calls about
Massachusetts non-compete agreements from time to time. In the wake of the state’s recent passage of
a lengthy — but not entirely clear — non-compete statute, I expect those calls
will become more frequent.
While the new law will make enforcing non-competes more
difficult (and sometimes impossible) in some situations, it’s notable what
agreements are not subject to the
statute. Confidentiality agreements,
employee non-solicitation agreements, and even restraints against customer
solicitation — which most states evaluate with the same scrutiny as a
non-compete — are all exempted from the new law. So,
Massachusetts employers may be able to prevent unfair competition through
agreements that aren’t evaluated under the new statute at all.
The new law prohibits non-competes that last more than 12
months post-employment. It also
prohibits non-compete agreements against employees who are non-exempt under the
Fair Labor Standards Act, and prevents an employer from enforcing a non-compete
against employees who have been laid off or terminated without cause (a term
that isn’t defined). It also creates a
host of new procedures for employers seeking to implement non-compete
agreements. Agreements with new
employees must be provided by the earlier of: i) the time a “formal offer” of employment is made; or ii)
10 days before employment starts. Existing employees must be given at least 10 business days to consider
whether to accept new non-competes, and continued employment is no longer sufficient
consideration for those mid-employment non-competes. Instead, new consideration that is “fair and
reasonable” must be provided to support new restrictions.
notable aspect of the new law is that all non-competes now need to be supported
by either a “garden leave” clause that provides departed employees with at
least 50% of their highest annualized base salary paid in the 2 years
pre-termination or “other mutually agreed-upon consideration” specified
in the non-compete agreement. The statute doesn’t provide guidance on
what is required for this garden leave alternative to be sufficient.
law takes effect October 1, 2018, and applies to all non-compete agreements
entered into on or after that date. In
advance, all employers with a workforce in Massachusetts should be evaluating any
agreement, policy or plan that has a non-compete or forfeiture-for-competition
element. Employers should begin to
incorporate new language that the statute suggests will help establish
“reasonableness,” and thus enforceability. Then, employers will need to keep a close eye on the courts, as there
are many questions that the judiciary will be called upon to answer in
interpreting the new law: What is a “cause” termination that will allow an
employer to enforce a non-compete against a terminated employee?; What is a
“formal offer” that triggers the requirement to show a non-compete to a
prospective hire?; What is “fair and reasonable” consideration to support a
mid-employment non-compete?; What “agreed-upon consideration” short of 50% of
base salary can justify a non-compete?; What does a non-compete agreement need
to look like to be consistent with “public policy,” as the statute requires?
these answers will come in time, Massachusetts employers need to start thinking
about these issues today.