After years of debating noncompete law reform, the Massachusetts Legislature passed the Massachusetts Noncompetition Agreement Act on August 1, 2018, which would impose new requirements and restrictions on employer-employee noncompete agreements. The bill still must be signed by the governor to become effective, and Governor Baker has signaled his support for the Act. Employers should review their current noncompete agreements and practices now to ensure compliance.
Key provisions of the new Noncompetition Agreement Act include:
- Effective October 1, 2018: The bill only applies to noncompete agreements entered into on or after October 1, 2018.
- Garden Leave Pay: Agreements must include a "garden leave" clause entitling the employee to pay during the restrictive period. This pay must equal at least 50 percent of the employee's highest annualized base salary over the previous two years. Payments must be made in accordance with Massachusetts wage laws on a pro rata basis during the restrictive period. In lieu of garden leave pay, the employer and employee may agree on "other" consideration.
- Limits on Time and Geographic Scope: New noncompete agreements cannot exceed a 12-month restrictive period and must be reasonable in geographic reach and scope. In certain circumstances, such as the employee's theft of company property, the employer can increase the restrictive period to two years.
- All Employers Covered: The new law governs both corporate entities and individuals engaged in business—so all employers are covered, regardless of size.
- Employees and Independent Contractors Covered: Regardless of classification, employees and independent contractors are protected by the new law. Noncompete agreements are unenforceable against nonexempt employees under the Fair Labor Standards Act.
- Notice to Employees: All noncompete agreements must be in writing, signed and expressly state that the employee has the right to consult counsel. Agreements must be provided to prospective employees by the earlier of a formal employment offer or 10 business days before employment begins. Current (nondeparting) employees must also receive a written agreement at least 10 business days before the effective date.
- Promises of Continued Employment Not Sufficient: The employer must provide current employees some payment or benefit other than the promise of continued employment in exchange for the promise not to compete.
- "Blue Penciling" Permitted: Courts may revise noncomplying agreements so that they are enforceable. Courts are not required to throw out noncomplying agreements entirely, as they are in "red pencil" states.
- Forum for Disputes: All cases involving noncompetes must be brought in either Massachusetts Superior Court or the Business Litigation Session in the county where the employee resides or, if the parties agree, in Suffolk County (Boston).
- No Restrictions on Post-Employment Nonsolicitation Agreements: The law does not alter an employer's right to enter into post-employment nonsolicitation agreements with respect to customers or employees.
For Further Information
If you have any questions about this Alert, please contact Bronwyn L. Roberts, Lauren A. Appel, Gregory S. Bombard, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group, any of the attorneys in our Non-Compete and Trade Secrets Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.