Massachusetts Legislature Enacts Non-Competition Agreement Law
On August 10, 2018, Governor Baker signed a bill reforming the use of non-competition agreements in employment contexts. The bill, referred to as the Massachusetts Noncompetition Agreement Act (the “Act”), goes into effect on October 1, 2018 and does not retroactively impact contracts entered into before that date.
Definition of “Non-Competition Agreement”
The Act defines a non-competition agreement as “an agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended.” The definition specifically excludes non-solicitation agreements, non-competition agreements made in connection with the sale of a business or its assets, forfeiture agreements, non-disclosure agreements, non-competition agreements made in connection with the end of employment where the employee is expressly given seven (7) business days to rescind acceptance, and agreements where the employee agrees to not reapply for employment with the same employer after their termination.
Requirements
To be valid and enforceable under the new law, a non-competition agreement:
(i) must be in writing and signed by both the employer and employee;
(ii) must expressly state that the employee has the right to consult with counsel prior to signing;
(iii) must be provided to the employee by the earlier of a formal offer of employment or ten (10) business days before the commencement of the employee’s employment, or if entered into after the date of hire provided to the employee at least ten (10) days prior to the effective date of the agreement;
(iv) must be no broader than necessary to protect an employer’s legitimate business interests;
(v) must not exceed twelve (12) months from the last day of employment, unless the employee has breached a fiduciary duty or has unlawfully taken the employer’s physical or electronic property, which could extend the duration to a maximum of twenty-four (24) months;
(vi) must be reasonable in geographic reach;
(vii) must be reasonable in the scope of proscribed activities in relation to the interests protected;
(viii) must be supported by a “garden leave clause”[1] or other mutually-agreed upon consideration;
(ix) must be consonant with public policy.
Enforcement
Non-competition agreements are not enforceable against the following types of workers:
(i) nonexempt employees under the FLSA;
(ii) undergraduate/graduate students partaking in an internship or short-term employment relationship;
(iii) employees that have been terminated without cause or laid off;
(iv) employees age eighteen (18) years old or younger.
To enforce a non-competition agreement, an action must be brought in the county where the employee resides or if mutually agreed upon by the parties, in Suffolk county.
Other Relevant Provisions
Choice of law provisions that designate a jurisdiction other than Massachusetts are not enforceable if the employee is or has been a resident of or employed in Massachusetts for at least thirty (30) days immediately preceding the end of employment.
Additionally, if a court finds an agreement unenforceable, the court has discretion to reform and revise the agreement so as to render it valid and enforceable.
If you have any questions about the new law before it goes into effect, please contact any of our attorneys.
[1] A “garden leave clause” is defined as a provision by which an employer agrees to pay the employee during the period of the agreement. The law states the payments made pursuant to a garden leave clause constitute wages under the Massachusetts wage statute, M.G.L. c. 149, § 148.
This update is provided for informational purposes only and should not be considered legal advice.