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The New Non-Compete Law Explained

October 9, 2018
 
The new Massachusetts law governing use of non-compete agreements took effect on October 1. What does it mean for employers?
 
The law does not change non-compete agreements put in place prior to October 1. But if an employer amends an existing non-compete due to a change in the employee’s duties or position, the terms of the new law would likely apply. 
 
The text of the law is available here
 
After you have opened the statute, please go to Section 21 to read the text of the new law. 
 
Who is Not Covered
 
Non-competes may not be used for employees:
  • who are laid-off;
  • who are classified as non-exempt under the Fair Labor Standards Act;
  • who are undergraduate or graduate students in an internship program or other short-term employment relationship with an employer (paid or unpaid) while enrolled in a full-time or part-time undergraduate or graduate educational institution;
  • under age 18; or 
  • terminated without cause (an undefined term).
Purpose
 
A non-compete may be presumed necessary when the legitimate business interest may not be adequately protected through some other agreement such as a non-solicitation agreement or a non-disclosure or confidentiality agreement. A non-compete must be no broader than necessary to protect one or more . . . legitimate business interests of the employer. 
 
Duration
 
The new law generally limits non-competes to one year. There is a limited exception enabling the employer to extend it to two years and eliminate the obligation to pay compensation (garden leave, discussed below). The exception is triggered if the employee has breached fiduciary duty to the employer or has taken property belonging to the employer. Any employer seeking to use this option will have to prove the employee took the property in question. 
 
Geography
 
The law limits the scope of a non-compete to those geographic areas in which the employee has worked and those services the employee provided during employee’s final two years of employment. This could be a state or a smaller region of a state. 
 
Timing
 
As of October 1, any employer seeking to use a non-compete must give the new employee a copy of it at the time of the offer of employment or 10 business days prior to starting employment, whichever is earlier. Business days means Monday through Friday, so that would mean the equivalent of two full work weeks in advance. 
 
The agreement must be supported by “fair and reasonable consideration independent from the continuation of employment.” In contract terms, consideration means something of value (e.g. pay raise, bonus) must be given to the employee in exchange for signing the non-compete.  
 
Legal advice
 
The Act also notes that a non-compete must expressly state the employee has the right to consult with legal counsel prior to signing, whether it is pre-employment or for an incumbent employee.
 
Garden Leave 
 
If an employer enforces a non-compete, the covered employee must receive garden-leave pay or some “other mutually agreed-upon consideration” for the duration of the leave.  Garden-leave pay is defined in the law as payment of at least half of the employee’s highest base salary during the two years preceding the restricted period. The term “other mutually agreed-upon consideration” is not defined. 
 
Blue Pencil
 
The law allows the courts to continue to “reform or otherwise revise” (i.e. edit or blue pencil) non-competes to be consistent with other state laws and public policy. 
 
Venue
 
Cases involving the enforcement of an non-compete may be brought in the county where the employee resides or, if both parties agree, in Suffolk County Superior Court or its business litigation session. 
 
Some provisions of the law are likely to be subject to legal challenge as employers seek to enforce their non-competes. These cases may limit or clarify the scope of the law, causing employers to have to change their non-competes going forward. 
 
Employers should consult with their legal counsels to avoid running afoul of the non-compete law or miss out on a legal development that may limit or broaden their ability to enforce their rights. 
 
Please contact the AIM Employer Hotline at 1-800-470-6277 if you have questions about HR or compliance issues.
 
 
 
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