Readers of our blog will recall that this summer, the Massachusetts legislature passed a non-compete reform bill after nearly a decade of fruitless attempts. The new law goes into effect today, meaning that any agreements signed today or in the future will need to comply with the new law.
As a brief recap, the key provisions of the new bill are as follows:
- Non-competes signed today or in the future will not be enforceable against certain types of employees, such as employees who are non-exempt under the Fair Labor Standards Act, undergrads and grad students working part-time, employees 18 and younger, and employees laid off or terminated without cause (see our Law360 article for, among other things, an extensive discussion of the quirks of this provision, including an important note about the FLSA's distinction between "outside" and "inside" sales employees);
- Non-competes of longer than 1 year will be unenforceable – except that a restricted period may be extended to up to 2 years if the employee breaches his or her fiduciary duty or unlawfully takes company property;
- Non-competes must be signed by both the employer and employee, and expressly state that the employee has a right to consult counsel before signing the agreement.
- For non-competes entered into at the commencement of employment, the agreement must be provided with the formal offer letter, or at least 10 business days prior to the effective date, whichever is earlier.
- Non-competes for existing employees must be provided at least 10 business days before the effective date, and continued employment is no longer sufficient consideration. Rather, such agreements must be supported by some other "fair and reasonable" consideration independent of continued employment. It remains to be seen what courts will consider "fair and reasonable."
- Despite the misleading headline from yesterday's boston.com article ("'Garden' clause in new law requires pay during noncompete"), the new law does not require garden leave – rather, garden leave (i.e. 50% of the employee's annualized base salary during the restricted period) or some other mutually agreed-upon consideration is required to support the non-compete. In other words, employers are not obligated to offer garden leave (but may if they wish).
- Employers are prohibited from applying non-Massachusetts law to non-compete agreements binding employees who have lived or worked in Massachusetts for at least 30 days prior to termination of employment, and the venue for actions enforcing non-competes must be initiated in either the county in which the employee resides or in Suffolk County, if the parties agree to that venue. As we have previously opined in Massachusetts Lawyers Weekly, whether these provisions will actually be upheld by other states' courts remains to be seen.
For business with Massachusetts employees, now is the time to review and revise employment agreements that contain non-compete provisions
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