New Massachusetts Non-Competition Agreement Law

By: Steven M. Veenema

Effective October 1, 2018, Massachusetts will have a new statute regulating employers’ enforcement of non-competition agreements. This article briefly summarizes key provisions of this new law, which applies to agreements entered into on or after its effective date.

Summary of Statute

• Most notably, the statute requires that employee non-competition agreements include a “garden leave” or other mutually agreed consideration clause. Garden-leave consideration requires the employer to pay the employee during any non-compete period at least 50% of the employees’ highest annualized salary based on the last two years of salary history.
• The new law defines “employee” to include independent contractors. This means that if a company uses contractors, any non-competition agreements with such workers will be subject to the Act.
• Non-competes cannot exceed twelve months in duration, but if the employee breaches his/her fiduciary duty, or steals trade secrets, confidential information, or other company property, the restriction can extend to two years.
• Non-competes that are a condition of employment must be provided to new employees either at the time of the job offer or ten business days before the employment begins, whichever is earlier. And a non-compete entered into after employment has already begun must be provided ten days before it becomes effective, and must be supported by some form of consideration other than continued employment. This is presumably in addition to the consideration contemplated by the “garden leave” requirements referenced above.
• The following employees cannot be subject to a non-compete restriction: “non-exempt” employees (as defined under the FLSA); undergraduate or graduate students in internships or other short-term employment; and employees 18 years old or younger.
• Non-competes are unenforceable against employees who are terminated without “cause” or laid off.
• Non-compete agreements must expressly advise employees of their right to consult an attorney before signing.
• The law explicitly does not apply to agreements not to solicit an employer’s customers or employees, to non-disclosure agreements, or to invention assignment agreements. It also does not apply to non-competition agreements that are signed in partial consideration of the sale of a company or business entity (but only if the employee is a “significant” owner who will receive “significant” consideration from the sale).
• Finally, the new law memorializes the common law requirement that non-competes be no “broader than necessary to protect [the] legitimate business interests of the employer.” This relates to both geographic scope and the scope of activities prohibited by the agreement, although the statute now specifies certain restrictions as presumptively reasonable under Massachusetts law.