The Massachusetts House of Representatives recently passed a bill that imposes rules for noncompetition agreements. While the bill has yet to become law – it is now being considered by the Senate, which will have to pass it before it can become law, an event that will also require the governor’s signature or, in the alternative, further legislative action – it certainly represents progress on an issue that has long been considered in Massachusetts.
In what may be an indicator of the ultimate passage of the bill into law, it passed unanimously, 150-0. Rules on noncompetition agreements imposed by the bill include the following:
- All agreements must be written and signed by employer and employee. Employers must provide them to prospective employees at least 10 days before work begins, and noncompetition forms must inform employees of their right to consult counsel before signing;
- Noncompetition agreements for existing employees must meet the same criteria. In addition, employees must receive some form of consideration – money or other material benefit – in addition to continuing employment;
- Noncompetition agreements must be narrowly tailored to protect an employer’s trade secrets, confidential information, and/or customer goodwill – that is, a business’s positive relationships with its customers or its positive reputation;
- The maximum restricted period is 12 months in most cases, and geographical reach must be reasonable; and
- Compensation to affected employees must be provided in the form of pay equal to at least half their highest annual base salary during the two years that precedes employment termination, unless employer and employee agree to compensation in some other form.
The bill would also bar enforcement of noncompetition agreements against employees who are not exempt from federal overtime pay requirements; those under 18; and employees fired without cause or laid off. It includes a provision for enactment of the Uniform Trade Practices Act.