47 of the 50 states in the USA have some level of enforcement for non-compete agreements. Non-compete agreements are those agreements that give companies the right to sue a former employee who starts a new company or joins a competing business.
Massachusetts remains with that majority group that enforces non-competes against former employees. While California is one of the few states that mostly bars their enforcement against former employees.
However, in the last month, Massachusetts came as close as it ever has come to a significant legislative restriction, scaling back enforcement of non-compete agreements in the Commonwealth.
First on June 29, the Massachusetts House of Representatives, and then on July 14, the Massachusetts Senate passed separate bill restricting enforcement of non-compete agreements. However, working right into the evening of the last day of the legislative session, July 31, 2016, the House and Senate were unable to reconcile the two bills. So, the legislation has died for this term.
The House bill would have allowed non-compete agreements of up to one year (2 years in the case of misconduct), but also required employers to pay “garden leave” of 50% highest salary for non-compete period. The more pro-employee Senate bill would have restricted non-competes to three (3) months (2 years in case of misconduct) and provided garden leave during the non-compete period equal to 100% of highest level of salary. Both bills prohibited noncompetes for certain workers, including non-exempt employees. The House bill prohibited enforcement against employees terminated without cause or laid off. The Senate bill prohibited enforcement against independent contractors and essentially eliminated noncompetes for anyone who earns under roughly $130,000. Both bills required that any noncompete agreement be provided to a new employee at the time of a formal offer of employment or within ten business days before the employee’s start date, whichever is earlier, and if required during the employment term to b supported by consideration paid..
Governor Baker had indicated in late July that he would sign the House bill or one similar to the House bill if it reached his desk after approval of both chambers of the Massachusetts Geenral Court (the state legislature), because “he believes it better balances workers’ abilities to seek new employment while ensuring cutting edge businesses can protect essential intellectual property,”
Legislative sessions last two years in Massachusetts ending July 31st of the even year. Thus, proposed legislation can be carried over from the first to the second year in a legislative session, but not after the second year. Thus, with no non-compete bill agreed to by both chambers by midnight on July 31, 2016, the bills must start again the lengthy process over in the next legislative session beginning on January 4, 2017.
To listen to, or read a story on the defeat of this non-compete legislation that ran on WBUR, a week ago, August 2, LINK – http://www.wbur.org/morningedition/2016/08/02/non-compete-agreements-failed-legislation
Current State Law
With no legislation in place, the case law on non-compete agreements remains the law of the Commonwealth of Massachusetts.
In that regard, an article of mine published July 16, 2012, remains relevant in the field of non-compete covenants and agreements that are still potentially enforceable in Massachusetts and many other states.
The article indicates that employers in many industries seek to protect themselves from unfair competition that would arise from employees using company knowledge or contacts to create or join a competing business, and that employees entering into employment agreements and later seeking to change positions need to be aware of the scope and coverage of non-compete agreements in Massachusetts.
The article further indicates that to protect companies, Massachusetts law has long held that an employment contract can include a provision restricting trade or competition for the employee after the employment ends, if:
- The employer needs the restriction to protect its legitimate business interests
- The restriction is reasonably limited in time and space
- The restriction doesn’t violate public interest
What is reasonable depends on the facts in each case. The article then discusses three non-compete cases decided this year in Massachusetts which reveal how varied such cases can be.
- Are you an employer seeking to draft or enforce a non-compete?
- Are you are an employee or executive reviewing a job offer or employment agreement with a non-compete provision and need advice on terms or its enforceability?
- Have you been terminated or face termination and have similar concerns?
In any of those cases, if you have questions or need assistance, please contact me at 617-875-8665 or email firstname.lastname@example.org.