Legislature Considers Bill to Manage Non-Competition Agreements

Following the failure of a 2009 initiative to ban the enforcement of non-competition agreements, the Massachusetts legislature is now considering a bill to limit their applicability. The bill now winding its way through the legislative process would require, among other things, that non-compete agreemetns:

1.  Be written in a stand-alone format that both employer and employee sign. If non-competition is a condition of employment, the requirement must be disclosed to a new employee at least seven days prior to his/her starting work;

2.  If entered after an employee begins work, be supported by something valued at 10% or more of an employee’s annual salary. Notice of at least 2 weeks must also be provided to employees. This provision would ban the employer practice of requiring workers to enter a non-competition agreements immediately, under threat of job loss (this principle of law is already in effect under interpretative decisions of Massachusetts courts);

3.  Apply only to workers making $75,000 annually, on average over the  three years that preceded termination from employment (or less, if the employee worked for the company for less than 3 years). In each year following enactment of the law, the minimum salary would increase by $1,500;

4.  Apply for a maximum of one year and only to protect an employer’s trade secrets, confidential information and/or goodwill.

The proposed law would grant the courts express authority to modify non-competition agreements as they deem necessary or reasonable and, in some cases, to refuse to enforce them altogether, even if otherwise valid. It would permit courts to award legal fees to employees who are required to defend bad faith efforts to enforce non-competition agreements or where enforcement is simply rejected in some material respect. The proposed law also limits an employer’s ability to collect its legal fees even where the parties’ contract provides as much. Even when a court enforced a non-competition agreement, the proposed law would permit an award of legal fees to the employer only where an employee is found to have acted in bad faith.