Massachusetts Governor Charlie Baker recently signed into law the Massachusetts Noncompetition Agreement Act. The Act imposes significant changes to the treatment and requirements of noncompetition agreements under Massachusetts law. The new requirements go into effect October 1, 2018, and apply prospectively to noncompete agreements entered into on or after that date.
Even employers who do not conduct any business in Massachusetts could be impacted by the Act because it applies to noncompetition agreements with employees and independent contractors who work or reside in Massachusetts and prohibits enforcement of choice-of-law provisions that seek to remove covered employees from its protection.
Below are key features of the Act:
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Employers must provide noncompetition agreements to new employees at the time of a formal offer of employment or at least 10 business days before employment starts, whichever is earlier; or, in the case of current employees, provide notice of the agreement to employees no less than 10 business days before the effective date of the agreement;
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Noncompetition agreements must be in writing signed by both the employer and employee and must expressly state that the employee has the right to consult with counsel before signing the agreement;
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Noncompetition agreements must contain either a "garden leave" provision requiring the employer to pay the employee an amount equal to half the employee's salary during the restricted period or such other consideration as is mutually agreed upon by the parties;
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Employers must provide additional consideration beyond continued employment if seeking to bind a current employee with a noncompetition agreement (not in connection with separation from employment);
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The noncompetition clause itself must contain a restriction period of no more than one year, except that the restriction period may extend to two years if an employee breaches a fiduciary duty to the employer or has unlawfully taken the employer's property;
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Noncompetition agreements are unenforceable against employees who are nonexempt under the Fair Labor Standards Act, employees who are terminated without cause or laid off, certain undergraduate or graduate students, and workers who are 18 years or younger; and
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The noncompetition clause must be reasonable in the scope of proscribed activities (in relation to the interests protected) and reasonable in geographic reach, with the following restrictions being treated as presumptively reasonable:
- A proscription on activities that protects a legitimate business interest of the employer and that is limited to only the specific types of services provided by the employee during the last two years of employment; and
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A geographic reach that is limited to the geographic areas where the employee provided services or had a material presence or influence during the last two years of employment
A notable feature of this new Massachusetts law is that employers retain the right to enter into agreements with their employees that contain nondisclosure, confidentiality, customer nonsolicitation, and/or anti-employee raiding provisions. Moreover, an agreement on an employee's separation from employment is not considered a noncompetition agreement under this law, provided that the employee is given seven business days to rescind the separation agreement.
Ballard Spahr's Labor and Employment Group monitors updates and recent changes in the implementation of federal and state laws. We routinely assist clients in navigating and complying with new employment rules, including wage and hour laws.
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