(Last Updated On: January 18, 2021)
The concept of a non-compete law agreement is not new in Massachusetts, as employers have been requesting employees to sign these clauses in connection with the employment relationship for years. The basic scenario is familiar: the employer asks a current or prospective worker to sign an agreement that prohibits competitive activities after employment ends. Though the exact nature of the prohibitions may vary, the contract typically includes a ban on communicating with customers, using trade secrets to compete, and often prohibiting the employee from working for any competitor for a period of time. Non-compete clauses typically include a geographic range and duration restricting the employee’s activities.
From your perspective as an employee, an agreement not to compete seems inherently unfair. These contracts restrict where you can work even after you leave your current job. If you chose to violate the terms of the noncompetition agreement, your former employer could bring a lawsuit for damages and enjoin your activities.
Fortunately for Massachusetts employees, the legislature recently enacted a new statute that clarifies non-compete agreement applicability, treatment, and enforcement under state law. Governor Charlie Baker signed the bill into law on August 10, 2018, with an effective date of October 1, 2018. Since the new law places some restrictions on the types of non-compete agreements that employers can enforce, you can be sure employers will be doubling down on their efforts to develop rock-solid non-competition clauses that benefit their own business interests. That means, as an employee, you should consult with a Massachusetts non-compete agreements lawyer right away about your current employment relationship and future requests to sign this type of contract. In addition, you may find it useful to review some of the wide-ranging implications under the new statute.
Summary of the New Non-Compete Law in Massachusetts
Though many US states have had non-compete statutes on the books for years, Massachusetts was not one of them until the recent legislation signed into law by Governor Baker. Instead, courts relied on case precedent in determining whether to enforce a Non-Compete Agreement. Some key concepts of previous court findings did carry over into the newly passed statute, as the intent of the language was to strike a balance between competing public policies:
- The interests of employees in being able to freely pursue employment opportunities; and,
- The goal of employers to protect legitimate business interests.
Massachusetts’ non-compete law is a compromise of both considerations, but there are some important concepts and dates that employees need to know.
Key Changes to Existing Law: The statute applies to all employees and independent contractors who are residents or employed in Massachusetts, including a new provision that clarifies how non-W2 workers are treated. However, a non-compete agreement will not be enforceable against certain types of employees.
- Non-Exempt Employees: Workers who must be paid overtime under the Fair Labor Standards Act, defined as non-exempt employees, cannot be held to the terms of a noncompetition clause. The law will enforce an agreement against exempt employees who are defined by:
- How they are paid, as exempt employees typically make a salary instead of an hourly wage;
- Their position, which is usually in the realm of executive, professional, or administrative;
- The fact that an employer does not have to pay overtime when they work more than 40 hours per week, i.e., they are exempt from this requirement; and,
- Related characteristics.
- Terminated Employees: A non-compete agreement will not be enforced against workers who are laid off or terminated without cause. “Cause” will typically involve some sort of misconduct from the employee, so you can expect an employer to seek enforcement in such a case. In addition, non-competes executed under the new law will probably include detailed definitions of what “cause” means, since the distinction is an important one for the employer.
- Minors and Student Interns.
Relevant Dates: There are two dates to keep in mind as the implementation of the new Massachusetts non-compete law approaches.
- The effective date is October 1, 2018, which means that any non-compete agreements executed on or after this date are subject to the requirements of the statute; and,
- The statute applies to workers who are residents of Massachusetts or were employed in the state for at least 30 days before termination.
New Requirements that Protect Employees: There are eight itemized requirements for a non-competition agreement to be valid and enforceable against an employee. To summarize a few key points:
- The agreement must be signed by both parties;
- The language must include an express provision on the employee’s right to have an attorney to review the agreement;
- The employee must have 10 days to consult with a lawyer before having to sign the agreement;
- The restrictions on competition cannot exceed 12 months unless the employee misappropriated trade secrets;
- The agreement cannot be overly broad in scope, geographic limitations, and prohibited activities.
“Garden Leave” Clause Requirement: Massachusetts’ new non-compete law also mandates that an employer pay the employee compensation during the duration of the non-compete period unless the parties agree to an alternative.
Damages for Violations of Law: If an employer violates the provisions of the new statute, the non-compete clause will not be enforceable against the employee. That is not to say an employer will not try to enforce it through threats or intimidation; however, a court will not hold a worker to the provisions.
Applicability in Various Scenarios
Though the law is not yet in effect, some examples on how it will apply may be useful.
Implications for Existing Non-Compete Agreements: Contracts executed before October 1, 2018 are subject to Massachusetts common law requirements. Therefore, an agreement is not enforceable unless it is:
- Necessary to protect a legitimate business interest, such as customer data, marketing strategies, or goodwill;
- Reasonably limited as far as duration, geography, and prohibited activities;
- In alignment with public policy of the state; and,
- Supported by sufficient consideration, which generally means the employment relationship itself.
New Agreements from Current Employers: When an employer requests a current worker to sign a non-compete, the new contract must also be supported by adequate consideration. This legal term refers to something of value exchanged between the parties, but it is not the same as when an employer asks a new employee to sign. The employer and a current employee are already bound by the terms of an employment relationship. There must be something beyond the current obligations for the new non-compete to be enforceable, such as a raise or increase in benefits. In other words: continued employment is no longer considered adequate consideration.
Employees Outside Massachusetts: Another new provision addresses the situation where an employer is based in another state, but employs a Massachusetts worker. This company cannot use a choice of law clause to avoid the implications of the statute.
Applicability to Other Restrictive Covenants: The recently passed law is limited to non-compete agreements, so it does not affect other restrictive covenants that employers often request employees to sign. Therefore, an employer can still enforce confidentiality agreements, non-solicitation clauses, and related terms, as long as they are otherwise in compliance with existing law.
Calculating the “Garden Leave” Clause Amount: To comply with the garden leave clause requirement, there must be provisions on the rate of pay for the period covered by the noncompetition agreement. The statute mandates a rate of at least half salary, measured by the highest salary paid to the worker within the two years before the employee’s termination. However, the employer and employee can agree to some other amount that supersedes the statutory garden leave clause formula. To be valid, the amount must be mutually agreed upon and be specifically stated in the non-compete agreement.
A Skilled Massachusetts Employment Lawyer Can Help with Non-Compete Agreements