Supreme Judicial Court Suggests the State’s New Non-Compete Statute can Apply to Agreements Created Before the Law Takes Effect

A decision issued today by the Massachusetts Supreme Judicial Court is likely to strengthen employees’ hands in noncompetition enforcement disputes even more than is already presaged by the law set to take effect October 1. In a case that suggests how courts will handle conflicts between old and new law in noncompetition cases, the SJC affirmed dismissal of a suit brought by an employer who sought to drag its California employee to a Massachusetts courtroom. The decision is significant both because it struck down the parties’ contractual election of Massachusetts law and relied on public policies stated in an inapplicable statute in doing so.

The issue presented in Oxford Global Resources, LLC v. Hernandez is one commonly encountered in noncompetition litigation: where and under what law are disputes to be litigated? It’s now common for employees to work in states other than the ones where their employers are based, and non-compete agreements normally provide for enforcement only in the employer’s home state. This often means severe hardship for workers, who are prejudiced by the distance they are forced to travel, an inability to obtain relevant witness testimony, and extreme expense. While Massachusetts law will eliminate those issues by requiring all noncompetition agreements entered on or after October 1, 2018 to be enforced in the employee’s home county, the law will not apply to the numerous non-competes that already exist.

Hernandez is helpful to employees with such existing agreements on three distinct levels. First, the SJC concluded that the employer’s choice of Massachusetts law was invalid for public policy reasons; California, it held, has a distinct policy against restrictive covenants that should govern the activities of employees who work within its boundaries. Second, the SJC held that, despite the parties’ agreement that disputes be resolved in Massachusetts, the employee could move to dismiss the suit based on an inconvenient forum. And third, the Court looked to a public policy expressed in a California law that was enacted after the noncompetition agreement at issue.

It is this third point that may prove most significant in future noncompetition litigation in Massachusetts. The new law set to take effect next month includes several statements on public policy. Though the law won’t apply to non-compete agreements entered before October 1, 2018, Hernandez suggests that the policies it states are applicable to disputes that arise under preexisting law. Included among them are those addressed in Hernandez and others, including the new statute’s requirements for advance notice of noncompetition agreements, employer inability to enforce them when workers are fired without cause, and rules requiring that employees be paid in exchange for requirements that restrict their future employment.

Massachusetts Legislature Passes Noncompetition Statute that Brings an Array of New Rules to the Employment Arena

It took years and came down to the last minutes of the current session, but the Massachusetts Legislature finally passed a noncompetition law on July 31, 2018. If signed by Gov. Charlie Baker, as it presumably will be, the statute will take effect on October 1 and will bring a number of major changes to this rather complex area of employment law.

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Massachusetts Legislature finally passed a noncompetition law on July 31. If signed by Governor Baker, a number of major changes to this area of employment law will be affected.

Of note is the requirement that non-compete forms be presented to new employees at least 10 days prior to the start of work. When an employer asks existing workers to sign noncompetition agreements, it must provide them something of value – a pay raise, e.g., or perhaps a promotion. Enforceable agreements must be in writing and signed by both parties, a seemingly simple requirement that is often unsatisfied under current noncompetition practice. The parties’ contract must state expressly that a worker has a right to consult with counsel before signing. It must also provide for pay during the noncompetition period equal to at least 50% of the worker’s average annual salary during the prior two years. For workers who are entitled to overtime under federal law, non-competes are unenforceable. Neither can they be used for students engaged in short-term employment, workers under 18, and, notably, anyone who is laid off or fired without cause.

While these requirements apply to employees and independent contractors alike, they have nothing to do with other forms of restrictive covenants that are commonly used in the Commonwealth and almost always bundled together with noncompetition agreements. The law applies only to contracts that ban employees from competing with their former employers. That leaves employers free to create agreements that might ban workers from soliciting their employees or customers and, of course, from disclosing confidential data. As to this latter issue, the noncompetition statute also includes enactment of a form of the Uniform Trade Secrets Act, which protects a company’s trade secrets from misappropriation. The new law will not apply to noncompetition agreements signed before it takes effect in October, saving employers and the courts the trouble of figuring out what to do with existing agreements.