On Aug. 10, 2018, Massachusetts enacted the Massachusetts Noncompetition Agreement Act after a 10-year legislative effort. This statute has substantial implications for employers who have employees or work with independent contractors who reside or work in Massachusetts. The new law, which contains both procedural and substantive restrictions on enforcement of noncompete agreements, applies to all noncompete agreements signed on or after Oct. 1, 2018.
The law’s key procedural provisions include the following:
- Employers must offer “garden leave pay” or “other mutually agreed upon consideration” during the restricted period if they wish to enforce the noncompete agreement. Specifically, during the restricted period, the employer must pay the employee at least 50 percent of the employee’s highest base salary over the prior two years.
- Employers may not require nonexempt employees, undergraduates or graduate students who are engaged in short-term employment, or employees age 18 or younger to sign noncompete agreements.
- A noncompete agreement is void if an employer terminates an employee “without cause” or lays off the employee.
- Agreements signed at the commencement of employment must expressly state that the employee has the right to counsel before signing, and must be provided to the employee by the earlier of a formal offer of employment or 10 business days before the agreement becomes effective.
- Current employees who sign noncompete agreements after Oct. 1 are also subject to the law’s procedural requirements.
The law also contains substantive requirements for noncompete agreements:
- Employers must offer fair and reasonable consideration for noncompete agreements signed after employment begins, beyond continued employment.
- Massachusetts law will apply to disputes over noncompete agreements for employees that reside in or are employed in Massachusetts at the time of the employee’s termination, so any contrary forum selection provision is void.
- Noncompete agreements must be reasonably tailored to protect the employer’s “legitimate business interests,” meaning trade secrets, other confidential information or good will.
- The noncompete period cannot exceed one year (or two years if the employee has breached a fiduciary duty to the employer or unlawfully taken the employer’s property).
- The geographic restrictions must be limited to only the areas in which the employee provided services or had a “material presence or influence” during the last two years of employment.
The law expressly excludes nonsolicitation agreements from its requirements. Still, a number of questions remain unanswered. For example, the new law does not specify what constitutes “satisfactory consideration” in lieu of garden leave pay. Nor does it explain what constitutes a termination for “cause.” It also does not offer guidance as to what “fair and reasonable consideration” would be for requiring a current employee to sign a noncompete agreement. In addition, the law does not define “material presence or influence” for purposes of judging the reasonableness of a noncompete agreement’s geographic scope.
Expect litigation to eventually shed light on these questions, but in the interim, employers should take care to address them when revising their noncompete agreements and policies to comply with the law. Whether the law will serve as a model for noncompete statutes in other states remains to be seen, but that potential exists as well.
For more information about the effect of the Massachusetts Noncompetition Agreement Act, please contact the authors of this article, or any member of the McGuireWoods labor and employment team.