Massachusetts has significantly reformed the laws governing non-compete agreements, including coverage, scope, and enforceability in the state. The bill, signed in August, also included a provision for adoption of the UTSA (Uniform Trade Secrets Act.)
The new regulation applies to non-compete agreements for employees and for independent contractors entered into on or after October 1, 2018 and is not retroactive. It does not apply to other restrictive covenants (for example, non-solicitation agreements); nor does it apply to non-compete agreements in relation to separation of employment, provided the employee has 7 days to rescind.
The law applies to all non-competes entered into with Massachusetts residents, employees and independent contractors. An employer whose primary place of business is outside Massachusetts is still bound by the Massachusetts non-compete regulations, and cannot choose to apply another state’s regulations to avoid compliance.
The new law places restrictions on employees that may be subject to non-compete agreements. Employers are prohibited from entering into non-compete agreements with employees who are designated as non-exempt under the FLSA, who are under 18, interns and other short-term employees, and employees who are terminated without cause or subject to a reduction in force or layoff.
Because of inclusion of the phrase ‘without cause’, it is recommended that a definition of ‘cause’ be provided in all non-compete agreements issued after October 1.
Further, the law establishes requirements that must be met in order for a non-compete agreement to be valid and enforceable. This includes meeting the above standards for employee eligibility, as well as delivered in writing, signed by both parties, and include provisions that state the employee has the right to counsel and 10 days to consider the agreement prior to signing.
The new 10-day consideration period means that the effective date of the non-compete must be 10 days after the date of hire, or the non-compete must be provided to a new hire 10 days prior to the first day of employment.
A non-compete agreement is not enforceable longer than 12 months from signing, unless the employee has breached fiduciary duty or unlawfully taken the employer’s property, which may extend the agreement’s coverage for up to 24 months.
Qualifying non-compete agreements must be renewed every year on the anniversary of signing.
Non-competes must include a ‘garden leave’ provision, which requires companies that would bar an employee from immediately beginning work with a competitor, to continue to pay the former employee throughout the restricted period. The garden leave provision requires that the company pay the employee at least 50% of salary or ‘other mutually agreed upon’ consideration not defined by the law.
>New non-compete agreements must include a ‘garden leave’ provision.
The new regulations also clarify prerequisites that have been established by the principles of common law. This includes the requirement that non-compete agreements be reasonable is scope, both in geographical reach and in scope of activities.
Finally, a non-compete must be only broad enough to protect the employer’s legitimate business interest, including trade secrets, confidential information, and goodwill.
In addition to defining non-compete agreements that are covered by the new regulations, the law also clarifies agreements that do not meet the requirements. These include:
- Non-solicitation covenants
- Non-disclosure of confidential information
- Non-compete agreements made in connection with the sale of a business
- Non-compete agreements made in connection with separation of employment