From Lexology, Melissa McDonagh and Kevin Burke report on the recently passed (but not yet signed into law) Massachusetts bill that restricts non-compete agreements and that the restrictions apply to agreements with independent contractors also. Melissa and Kevin write:
New Minimum Requirements for Noncompetition Agreements in Massachusetts
As noted above, the Act specifically curtails the duration of any noncompete entered into on or after October 1, 2018, to 12 months post-employment. However, if the employee has breached its fiduciary duty to the employer, or misappropriated employer property, the restricted period can be extended up to two years. And while the Act also commands that noncompetes must include a garden leave clause that entitles the subject employees to 50% of their highest annualized base salary within the two years prior to termination, parties can avoid garden leave payments if the agreement specifies “other mutually-agreed upon consideration.” The Act does not describe what constitutes sufficient “consideration.” However, the Act does state that when demanding current employees sign new noncompete agreements, continued employment is no longer “fair and reasonable consideration,” which is a significant departure from current Massachusetts noncompete law. In other words, if an employer wants existing employees to enter into noncompete arrangements, it will need to offer something of value these employees are not already entitled to receive, such a signing bonus, in order to secure an enforceable agreement. If the restricted period is extended due to misconduct on the employee’s behalf, like theft of employer property, employers are not required to pay garden leave during the extension.
In addition to these new minimum requirements, to be legally enforceable in Massachusetts, the Act stipulates that noncompetes entered into on or after October 1, 2018, must:
- Be in writing signed by the employer and employee;
- Expressly state that the employee can consult an attorney before signing; and
- Be provided to the employee either before a formal offer letter, or at least 10 business days before the start of employment, whichever comes first (or in the case of a current employee at least 10 business days before the effective date).
The Act also addresses the scope and geographic parameters of noncompetes, declaring that noncompetes can be “no broader than necessary to protect” the employer’s trade secrets, confidential information, or customer goodwill, and cannot extend beyond “the geographic areas in which the employee … provided services or had a material presence or influence [within the last 2 years of employment].” These restrictions on scope are consistent with how Massachusetts courts have enforced noncompete agreements over the years. Notably, the Act specifically recognizes the court’s discretion to revise an overly broad agreement to render it enforceable to protect an employer’s legitimate business interests.
Enforceability of Noncompetition Agreements against Certain Employees
The Act’s restrictions on post-employment noncompetes apply to both employees and independent contractors. However, employers may not enter into a noncompete with:
- Employees who are classified as nonexempt under the Fair Labor Standards Act;
- Undergraduate or graduate students on internships (either paid or unpaid), or other short-term employment while enrolled in full- or part-time education (it is unclear, but this limitation is presumably limited to short-term positions directly related to the students’ course of study);
- Employees who are terminated without cause or laid off; and
- Employees under 18.
The Act does not define what it means to be terminated for cause.
Read the full story at Massachusetts Legislature Passes Comprehensive Noncompete Reform – Lexology