United States: New Restrictions On Using Non-Competes In Massachusetts – What You Need To Know

Summary

The Massachusetts legislature's recent approval of a comprehensive non-competition reform bill includes significant restrictions for employers seeking to impose non-compete obligations on Massachusetts workers. The Massachusetts Noncompetition Agreement Act will become effective on October 1, 2018, leaving little time for employers to consider what actions to take to protect their business interests.

In Depth

Employers will now face significant restrictions when seeking to impose non-compete obligations on Massachusetts workers. The Massachusetts legislature recently approved a comprehensive non-competition reform bill and Governor Charles Baker signed it into law late last week. The Massachusetts Noncompetition Agreement Act (the Act) will become effective on October 1, 2018, which does not leave much time for employers to consider what actions to take to protect their business interests.

This note briefly addresses what you need to know now about the Act. We will be providing a more detailed analysis of the Act and its practical implications shortly. We will also host both a webinar and a live breakfast seminar in our Boston office in September to provide additional opportunities to learn about the Act and ask questions about its impact; the details for these programs will be announced shortly.

Can an Employer Still Use Non-Competes in Massachusetts?

Yes, but only under certain circumstances. The Act imposes several new requirements for a non-compete to be valid and enforceable in Massachusetts, which include that:

  • The restricted period cannot be longer than one year after termination (or up to two years for certain bad actors);
  • The non-compete must be supported by continued payment of at least 50 percent of base salary during the restricted period or "other mutually-agreed upon consideration," the amount of such consideration or when it is to be paid are not addressed in the Act;
  • The non-compete cannot be enforced against an employee who is laid off or terminated without cause if it is entered into other than in connection with employment termination – what constitutes "cause" is not defined in the Act;
  • The employer must comply with new procedural rules in connection with signing a non-compete intended to protect employees (e.g., notice periods, right to consult with counsel);
  • Continued employment cannot be used as consideration to support a non-compete with a current employee;
  • The non-compete cannot be broader than is necessary to protect the employer's trade secrets, confidential information or goodwill, and must be consistent with public policy; and
  • Only salaried employees may be covered by a non-compete.

These minimum requirements represent a departure from existing law. Few, if any, existing non-competition agreements will meet all of these requirements.

Does the Act Restrict Use of Non-Solicitation and Confidentiality Agreements?

No, employers may still use (i) covenants not to solicit employees, customers, clients or vendors of the employer; (ii) confidentiality agreements; and (iii) invention assignment agreements.

Are Independent Contractors Covered under the Act?

Yes, the non-compete restrictions under the Act cannot be avoided by structuring services under an independent contractor relationship.

What about Non-Compete Forfeiture Provisions in Compensation Arrangements?

The Act treats any agreement that imposes "adverse financial consequences" on a former employee who engages in competitive activities as a form of non-competition agreement. As a result, unless the minimum requirements noted above are met, the Act prohibits an employer from forfeiting previously accrued compensation due to a non-compete breach. It is quite common for employers to include non-compete forfeiture provisions in equity awards, deferred compensation arrangements and supplemental pensions. The Act would not affect service and performance based vesting conditions or bad boy clauses unrelated to non-compete obligations.

Our Business is Headquartered Outside of Massachusetts – Can't We Just Provide That the Law of Our Home Stated Governs the Non-Compete to Avoid These Restrictions?

The Act contemplates that employers may try to use choice of law provisions to avoid the new minimum requirements. Massachusetts will refuse to honor a choice of law provision with respect to an employee who is, and has been for at least thirty days immediately before termination of employment, a resident of or employed in Massachusetts at the time of employment termination. This provision appears to apply to an employee who has recently moved to Massachusetts from another jurisdiction. In addition, the Act states that all civil actions relating to covered non-competition agreements be brought in the county where the employee resides or, if mutually agreed by the employer and employee, in the Superior Court of Suffolk County.

Will Existing Non-Competition Agreements Need to Be Amended to Comply with These Changes?

Generally, no. The Act only applies to non-competition agreements entered into on or after October 1, 2018. However, it remains to be seen whether amendments to a non-competition agreement on or after October 1st might cause it to become subject to the new non-compete restrictions under the Act.

Will a New Non-Competition Agreement Entered into before October 1, 2018 Be Exempt from These New Restrictions?

It seems that the answer is yes. There is nothing in the Act that covers new non-competition agreements entered into before October 1, 2018. However, it remains to be seen how courts might be influenced by the Act with respect to agreements that do not comply with the new minimum requirements (e.g., non-competes longer than 12 months).

What about Non-competition Agreements Made in Connection with the Sale of a Business?

Non-competition agreements made in connection with sale of a business may be enforceable against a "significant owner" of the business who will receive "significant consideration or benefit from the sale" without meeting the new minimum non-compete restrictions described above.

Bottom Line

It remains to be seen how all of this will affect the ultimate enforceability of any particular non-compete provision in court. Assuming that all of the new technical drafting requirements are met, the standard for enforceability remains as it has for more than 30 years in Massachusetts: the agreement will be enforced only to the extent necessary to protect trade secrets, confidential business information or goodwill. This is, and always will be, an incredibly fact-intensive analysis.

New Restrictions On Using Non-Competes In Massachusetts – What You Need To Know

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
McLane Middleton, Professional Association
Proskauer Rose LLP
Proskauer Rose LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
McLane Middleton, Professional Association
Proskauer Rose LLP
Proskauer Rose LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions