On October 1, 2018, Massachusetts’ new law governing non-competition agreements goes into effect. This statute is the culmination of many years of efforts to enact some legislative parameters around employment non-competition agreements. As a result, it reflects a number of trade-offs between pro-employer and pro-employee positions. The new law also contains some ambiguous provisions that will, no doubt, require interpretation by the courts.
Employers and employees should seek specific legal advice regarding the impact of the law in their own circumstances. However, here are some of the highlights and key provisions to be aware of:
- This statute covers only non-competition agreements. A non-competition agreement is defined as follows:
“an agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended”
- This law does not impact other restrictive covenants like non-solicitation or non-disclosure agreements. It also does not govern non-competition agreements that are entered into as part of a business sale, or where there is no employment relationship. Non-competition agreements that are made in connection with the cessation of employment are exempted, as well.
- The new law only applies to non-competition agreements entered into on or after October 1, 2018.
- There is now an explicit requirement that consideration be provided in exchange for a non-competition agreement. Employers must provide “garden leave” or “other mutually-agreed upon consideration.” The garden leave requirement is fifty percent of the employee’s base pay for the duration of the restricted period. The law does not define “mutually-agreed consideration.”
- The law contains certain formal requirements, including that agreements be in writing, signed by both the employer and employee, and affirm the employee’s right to consult with counsel.
- Procedurally, non-competition agreements must be presented at the time of an employment offer or ten days before a new employee’s start date, whichever is earlier. Existing employees may be asked to sign non-competes, but employers must now provide consideration “independent from the continuation of employment.”
- The law requires that a non-competition agreement be reasonable. It must be no broader than necessary to protect an employer’s trade secrets, confidential information, and goodwill. It must not exceed one year in duration, and it must be reasonable in geographic scope and in the scope of prohibited activities.
- Finally, it is important to note that the new law prevents enforcement of non-competition agreements against certain employees, including non-exempt employees, short-term student employees, employees who have been terminated without cause or laid off, and employees who are 18 years old or younger.
This is merely a general overview and is not a substitute for legal advice regarding any particular situation. This new non-competition statute was a long time coming, and it is sure to present many novel issues for employers and employees. Anyone with questions about how this law affects them should consult with qualified employment counsel.