Mark J. Ventola
On July 31, 2018 the Massachusetts Legislature passed a non-competition reform bill. In signing this bill, the Governor marked the end of over ten years of effort by certain legislators to address the law of non-competition agreements, and place statutory restrictions upon them. Needed or not, the Non-compete Bill makes significant changes to the enforceability of non-competition agreements in Massachusetts. All employers who use these types of agreements would be well advised to review them immediately, as the new law applies to all agreements entered into on or after October 1, 2018.
As a threshold matter, the legislation affects only non-competes; it does not impact non-solicitation agreements, confidentiality agreements, or inventions agreements, nor does it impact non-competition agreements entered into as part of the sale of a business. The changes include a requirement that employers now give employees and prospective employees notice and at least ten business days to review non-competition agreements before signing or beginning employment. In addition, employers must notify employees of their right to consult with counsel.
The law recognizes that some agreements are signed prior to the commencement of employment while others are signed after – at times long after – employment has begun. Any agreement signed after the commencement of employment must be supported by “fair and reasonable consideration independent from continued employment.” Furthermore, non-competition agreements can no longer exceed a twelve month restricted period.
Perhaps most significantly, the law imposes a new “Garden Leave” obligation upon employers. This means that employers must provide for payment of at least 50% of the highest base salary of the employee during the preceding two years for the entire period of the non-compete restriction. As an alternative to Garden Leave, the employer and employee can mutually agree upon “other consideration” but what that means is the subject of much question at this point.
Non-competition agreements will not be enforceable against employees who are “non-exempt” under the Fair Labor Standards Act. This prohibition provides one more reason for employers to properly classify employees for wage and hour purposes. In addition, non-competes will not be enforceable against undergraduate or graduate students in internships or other short term employment, or against employees age 18 or younger.
Finally, these agreements will not be enforceable against employees who are terminated without cause or laid off. The definition of “cause” is yet another question that remains open under this new law.
One thing that is clear is that employers who use non-competition agreements must review them soon in order to assure that they comply with this new law so that they will be enforceable if the need should arise.
Mark J. Ventola is a shareholder at Sheehan Phinney Bass & Green. Mark co-chairs the firm’s Labor, Employment and Employee Benefits Group.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice.