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.

Noncompetition Agreement Legislation Appears No Closer to Passage in Massachusetts

The effort to regulate the use of noncompetition agreements continues to languish in a legislative committee, where most of several competing proposals were referred early in 2017. Alongside them – or, as it were, within the same proposed bills – sits the uniform trade secrets act, a law aimed at protecting the advantage businesses enjoy from confidential trade information.

No fewer than six bills are now being considered by the Massachusetts Legislature’s joint committee on labor and workforce development. One proposed law would void restrictions on post-employment competition contained in written employment agreements while permitting limitations on solicitation of customers or employees in those same contracts to be enforced. Another would permit noncompetition agreements under specifically prescribed conditions, including 10-day advance notice for employees, opportunities to consult with counsel, and payment of wages during any restricted period of time. Some versions of the proposed law would ban noncompetes for lower level workers and limit them to time periods of between three and 12 months. Two bills require renewal of noncompetition agreements at regular intervals, and some permit enforcement of them only in the county where an employee resides.

It’s unclear whether or when the state Senate and House of Representatives will agree on and pass a version of noncompetition legislation or, if they ever do, whether the governor will sign it into law. Given the long history of failed efforts to ban these contracts, it seems most likely that, if any legislation is ever to become law, it will impose conditions on noncompetition agreements while permitting businesses to continue to enforce them where they are essential. Such enforcement might very well require that employers pay at least a portion of the wages their former workers will lose as a consequence of a noncompetition restriction.