Aug 22, 2018

The Massachusetts Noncompetition Act Significantly Alters Requirements for Employment Agreements Containing Non-Compete Clauses

Non-Compete Agreements

Massachusetts recently passed the Massachusetts Noncompetition Act (“Act”) which applies to non-compete agreements executed on or after October 1, 2018.  The Act applies only to employment-related non-compete agreements and agreements that provide for forfeiture for competition. As such, nonsolicitation and nondisclosure agreements and/or clauses are unaffected.

As an initial matter, the Act prohibits non-competes for employees who are non-exempt under the Fair Labor Standards Act, under the age of 18, or part-time college or graduate student workers.  The Act also applies new requirements regarding the formation of enforceable noncompetition agreements.  The agreement must: (1) be in writing; (2) be signed by both the employer and employee; (3) expressly affirm the employee’s right to consult with counsel prior to signing; and (4) be provided to the employee either before a formal offer letter, or at least 10 business days before the start of employment, whichever comes first (or in the case of a current employee at least 10 business days before the effective date).  Notable, the Act also requires that noncompetition agreements be supported by garden leave or other mutually agreed-upon consideration.  Garden leave is a payment of at least 50 percent of the employee’s highest base salary during the preceding two years for the duration of the restricted period. The employer may avoid paying the garden leave only if the employee breaches the non-compete, or if the noncompete is extended beyond 12 months because the employee took the employer’s property. The Act does not provide guidance on what constitutes “other mutually agreed-upon consideration.”

Finally, the Act addresses the scope and geographic parameters of noncompetes, declaring that noncompetes can be “no broader than necessary to protect” the employer’s trade secrets, confidential information, or customer goodwill, and cannot extend beyond “the geographic areas in which the employee … provided services or had a material presence or influence [within the last 2 years of employment].”  These restrictions on scope are consistent with how Massachusetts courts have enforced non-compete agreements over the years.  Importantly, as of October 1, 2018, no restriction may be longer than 12 months. This can be extended where there is a breach of fiduciary duty or misappropriation to a maximum of two years.

Employers that utilize noncompetition agreements for Massachusetts employees should review their form agreements to ensure that they comply with the requirements of the Act.  If you have any questions regarding how the Act may impact your business practices or have any other questions please contact your labor and employment counsel at Smith, Gambrell & Russell, LLP.