Contact

Boston
Providence

Boston

One Beacon Street
Suite 1320
Boston, MA 02108

T 617.720.5090
F 617.720.5092

Providence

One Richmond Sq.
Suite 165W
Providence, RI 02906
T 401.454.0400
F 401.454.0404

August 20, 2018

Governor Baker Signs Sweeping Reform on Employee non-Competition Agreements Law

By

On August 10, 2018, Massachusetts Governor Charlie Baker signed into law what some have called a “sweeping” reform of the Commonwealth’s law on employee non-competition agreements. The law will only apply to non-competition agreements entered into on or after October 1, 2018, and with some exceptions outlined below will apply to both employees and independent contractors.

Presently, there are several Massachusetts statutes that prohibit non-competition agreements in particular professions, such as M.G.L. c.112 §12X (physicians), M.G.L. c.112 §35C (licensed social workers), M.G.L. c.112 §74D (registered nurses), and M.G.L. c.149 §186 (workers in the broadcast industry). For those industries or professions not specifically covered by statute, courts will enforce a non-compete agreement if it is (1) necessary to protect a legitimate business interest; (2) reasonably limited in time and space; and (3) consonant with the public interest. A covenant not to compete must be no more restrictive than necessary, but the courts have not established clear time or geographic restrictions. What are “reasonable” time and geographic restrictions is highly subjective, and can vary greatly depending upon the industry, the position the individual holds within that industry, and the relative bargaining power of the employer and the employee. Consequently, parties have often needed to ask a court to determine what is or is not reasonable.

The new legislation would appear to create some certitude in non-compete agreements, but it still leaves much for later interpretation by the courts. Features of the new law include:

  1. A twelve-month limitation (which could be extended to twenty-four months if the worker breached his or her fiduciary duties to the company);
  2. A non-competition clause would be unenforceable if the employer terminates the employee without cause or as part of a layoff or reduction-in-force;
  3. A non-competition agreement must include a “garden leave” provision, which would require the employer to pay the worker at least 50% of the worker’s base salary or provide “other mutually agreed upon consideration”;
  4. If the parties enter into the non-compete agreement at the commencement of employment the employee must be given at least ten business days’ notice and be informed of the right to obtain legal counsel;
  5. If the parties enter into a non-compete agreement after the commencement of employment, continued employment alone will not be sufficient consideration, fair and reasonable consideration will be required; and
  6. A non-competition agreement would be unenforceable against employees age 18 or under, non-exempt employees, and undergraduate or graduate students that “partake in an internship or otherwise enter a short-term employment relationship with an employer, whether paid or unpaid, while enrolled in a full-time or part-time undergraduate or graduate educational institution.”

The validity of a non-compete will still be dependent on reasonableness in time, scope and geography. However, if the non-compete “is limited to only the geographic areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence,” the law presumes the restriction is reasonable. Similarly, a scope that is limited to only the specific types of services provided by the employee at any time during the last two years of employment will be presumptively reasonable. The non-compete must be “consonant with public policy,” and no broader than necessary to protect the legitimate business interest of the employer.

While the reform is an attempt to bring certainty and clarity to this area of employment law, it creates some open questions as well – questions that will need to be resolved by the courts. For example, what is meant by “other mutually agreed upon consideration” as an alternative to garden leave? What consideration would be deemed reasonable? Also, what constitutes a valid “for cause” termination? These and other issues will undoubtedly be addressed in future cases.

Finally, and importantly, non-solicitation, non-disclosure and other types of restrictive covenants will not be affected. Employers who still want to protect their business interests or intellectual property will want to look closely at drafting reasonable non-solicitation or non-disclosure agreements.

A copy of the new legislation is here.

About the Author

Robert Blaisdell

Robert Blaisdell is a Boston attorney providing general business and corporate legal services to healthcare clients. You can find him on LinkedIn.

Barrett & Singal law clerk Kristin Kelley assisted with this report. You can find her on LinkedIn.

News

Health Law

Litigation

Corporate

Notice

This website presents general information about Barrett & Singal and is not intended as legal advice nor should you consider it as such. You should not act upon this information without seeking professional counsel.

Please note that contacting Barrett & Singal by email, telephone or facsimile will not establish an attorney-client relationship, obligate us to act as your attorney or impose an obligation on either the law firm or the receiving lawyer to keep the transmitted information confidential. Completion of Barrett & Singal’s new client intake protocol, including without limitation the firm’s conflicts checking process and an engagement letter, is necessary to establish an attorney-client relationship. Absent a current attorney-client relationship with Barrett & Singal, any information or documents communicated or transmitted by you to Barrett & Singal will not be treated as confidential, secret or protected in any way. If you are not a current client of Barrett & Singal, please do not send any confidential information to us through this web site or otherwise concerning any potential or actual legal matter you have. Before providing any confidential information to us, you must obtain permission to do so from one of the firm’s lawyers. By clicking "Accept," you acknowledge that we have no obligation to maintain the confidentiality of any information you submit to us unless we already represent you or unless we have agreed to receive limited confidential material/information from you as a prospective client.

If you would like to discuss becoming a client, please contact one of our attorneys to arrange for a meeting or telephone conference. If you wish to disclose confidential information to a lawyer in the firm before an attorney-client relationship is established, the protections that the law firm will provide to such information from a prospective client should be discussed with the firm attorney before such information is submitted. Thank you for your interest in Barrett & Singal.