Non-Compete Agreements

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It is increasingly common for Massachusetts employers to present employees with non-compete agreements as a condition for employment, forbidding workers from engaging in competition after leaving the employment relationship. This places an undue burden on you in seeking new opportunities, moving on to another employer, and earning a living.

Fortunately, Massachusetts courts tend to agree and will protect your rights by refusing to enforce unreasonable non-competition contracts. You should discuss the specifics of your situation with our experienced employment attorneys at Rodman Employment Law, but you may also find some background information useful.

Background on Non-Compete Agreements

 A non-compete agreement is a contract between an employee and employer whereby the employee agrees not to compete in business-related activities after termination of the employment arrangement. The term is used broadly and generally also includes non-solicit, non-recruit, non-disclosure, and confidentiality agreements. Employers often require workers to execute this type of restrictive covenant before beginning work yet, by their terms, these agreements do not actually become effective until after the employee leaves or is fired.

Generally, the reason given by employers for requiring a non-compete agreement is to protect a business interest, though the specifics depend on the circumstances. Some employers claim that they want to safeguard trade secrets, intellectual property, or goodwill; in the sales environment, employers usually claim that they want to protect lists of customers or prospects.

Historically, courts have been reluctant to enforce non-compete contracts because they tend to severely limit a person’s right to earn a living. These agreements are also subject to intense scrutiny because the employee usually has the weaker bargaining position as compared to the employer. Therefore, judges review the language in non-competition clauses carefully and will not enforce those that put too heavy a burden on the former employee’s future job opportunities.

Massachusetts and Federal Law Related to Non-Compete Agreements

 Many states have enacted statutes governing non-competition contracts in the private sector; Massachusetts is not one of them, though there are some laws specifically directed at certain professions, including doctors, lawyers, nurses, social workers, and broadcasters. Instead, agreements not to compete are subject to common law rules and are not enforceable unless they comply with three requirements:

  1. The non-compete clause must be necessary to protect a legitimate business interest. Courts will sometimes allow the agreement if it is intended to secure confidential information, such as:
    1. Customer data and financial information;
    2. Business development plans and marketing strategies; and,
    3. Customer goodwill.
  2. The covenant not to compete must be reasonably limited as far as duration and geographic space, and no more restrictive than necessary.
  3. The non-compete agreement must be in accordance with public policy.
  • Consideration: In addition, a non-competition agreement must be supported by sufficient consideration. This is a legal term that refers to the exchange of something that has value, and the requirement of consideration applies to every contract. In the context of non-compete contracts, the employment relationship itself is sometimes viewed as being sufficient consideration to enforce the agreement.

However, there are complex legal questions involved where an employer requests an employee to sign a non-compete after beginning employment: The promise of continued employment alone is not valid. Some courts may enforce covenant not to compete for a current employee where there is additional consideration, such as a promotion or employment benefits.

Common Non-Compete Agreement Terms

 Although courts disfavor covenants not to compete and are reluctant to enforce them, employers still include non-compete language in many types of employment agreements. Some of the more common clauses include:

  • Identification of legitimate business interests, such as trade secrets, customer lists, trade secrets, and other information. After defining the interests they are seeking to protect, the employer will add language restricting misappropriation after the employee’s termination; and,
  • Details on the duration of the non-competition conditions and the geographic territory they cover. For instance, a non-competition contract may only last for two years after the employee is terminated, and the employee is only restricted from competition within 50 miles of the employer’s location.

Because the terms of a non-compete agreement can be very specific, cases involving these contracts are very fact-intensive. Decisions from Massachusetts courts are illustrative of the reluctance to enforce non-compete agreements:

  • An employer’s attempt to protect itself from ordinary competition is not a legitimate business interest;
  • Non-compete agreements may not be used to take away an employee’s right to use the skills and knowledge he or she acquired and apply them to secure future employment; and,
  • Courts are split on whether a “material change” in employment is sufficient consideration to support a non-compete covenant requested by an employer from a current employee. Many judges will not enforce these agreements unless the employee receives a benefit.

Your Legal Remedies for an Excessive Non-Compete Agreement

 Because non-competes are tenuous and employers face an uphill battle in enforcing them, you do have recourse as an employee. If a restrictive covenant is preventing you from exiting or seeking new employment opportunities, a lawyer can offer advice and counsel on your options.

  • You may consider drafting a letter to your employer, pointing out the weaknesses in the non-competition agreement and stating that you will not comply with the unenforceable terms.
  • In some situations, you may go forward with new employment and intentionally violate the non-compete agreement. That puts the burden on your former employer to enforce it through legal action and, due to the courts’ views on these contracts, you may have the advantage in court.
  • You may initiate a civil suit, requesting a court to find the agreement to be unenforceable.

There may be additional legal alternatives depending on your circumstances. Regardless, you should not wait to act if a non-competition agreement is affecting your future. Consult with an attorney right away regarding an appropriate strategy.

Non-Compete Agreements Links & Resources

Non-compete Contracts: Economic Effects and Policy Implications – Publication from the U.S. Department of the Treasury providing information on non-competes, justification for non-competes, the enforcement of non-competes, the resulting effects, and directions for reform.

What you should know about noncompete agreements – Question and answer article from PBS News Hour with a special economics correspondent about non-compete agreements.

How Noncompete Clauses Keep Workers Locked In – An article from the New York Times which gives details about how non-compete agreements can affect individual people’s lives.

Massachusetts law about noncompetition agreements – State run website which provides the laws which prohibit non-competes for certain professions (physicians, nurses, psychologists, social workers, broadcasters, and lawyers). Also provides various links to other resources such as case law.

Noncompete contracts in Massachusetts? Lawmakers are near a deal – Boston Globe article which details the fact that Massachusetts is nearing law to restrict the use of non-compete agreements.

 

Statistics

  • 18% of all workers, which is about 30 million people, are currently working under non-compete agreements.[1]
  • 90% of people with non-compete requirements did not bargain about the non-compete. Of those individuals, 38% did not know that they were able to bargain about the non-compete. [2]
  • 37% of workers stated that they have worked while bound by a non-compete at some point during their career.[3]
  • 70% of people presented with non-competes were not informed of the need for a non-compete until after accepting their job offer. [4]
  • 50% of people presented with non-competes were not informed of the need for a non-compete until their first day of work or later.[5]
  • When non-competes are enforceable, job mobility decreases by 8%.[6]

[1] https://www.treasury.gov/resource-center/economic-policy/Documents/UST%20Non-competes%20Report.pdf

[2] Ibid. [3] Ibid. [4] Ibid. [5] Ibid. [6] Ibid.

Learn More About Your Rights Under a Non-Compete Agreement in Massachusetts

 Whether you have been presented with a non-compete contract or want to know more about one you have already executed, it is important to discuss your situation with an experienced employment law attorney. Please contact the Boston-based litigation law firm of Rodman Employment Law at (617) 820 5250 to schedule a consultation at our Boston, MA office.

Rodman Employment Law

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