Non-compete agreement enforceability in Massachusetts law is a comprehensive set of new laws limiting the enforcement of non-compete agreements in the Commonwealth. The Massachusetts Noncompetition Agreement Act, which, if signed by Governor Charlie Baker, will go into effect and apply to all non-compete agreements beginning October 1, 2018.

Non-Compete Agreement

A non-compete agreement, also known as a covenant not to compete, is a standard contract between an employer and employee stating that the employee agrees not to compete with the employer after leaving their position. This legal contract prohibits employees from entering into employment, business, and other professions that are in direct competition with the employer for a specific amount of time in a specified geographic area, post-employment. Non-competes cover unfair competition; however, it doesn't restrict employees from ordinary competition.

Non-compete agreement enforceability varies in each state. Courts in the state of Massachusetts have specific requirements for a non-compete agreement to be enforceable. The restriction on competition must be "necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest." It also:

1. Must be reasonable in scope, duration, and geographic area by:

  • Limiting the length of the contract to one or two years
  • Limiting the geographical scope of the area

2. Protect legitimate business interest, including:

  • Trade secrets
  • Intellectual property
  • Customer lists
  • Supplier lists
  • Prospective customers
  • Other private or confidential information

3. Supported by adequate consideration:

  • The agreement should state what the business is trying to protect and how they plan to accomplish that goal.
  • It should remain consistent with the public interest.

Laws and regulations for non-compete agreements continue to change. To avoid future problems, businesses should stay up to date with any new developments.

The Massachusetts Non-Competition Agreement Act

Massachusetts Legislature Passes Comprehensive Non-Compete Reform

After years of debating, the law, if signed by Governor Baker, will go into effect and apply to all non-competes entered into or after October 1, 2018. The bill will substantially reduce the control and enforcement of non-compete agreements. The Massachusetts Noncompetition Agreement Act will put a 12-month time limit on post-employment non-compete agreements unless the employee destroys employer property or breaks its fiduciary obligations to the employer, in which case, the duration can be extended up to two years.

The Act also requires an employer to observe "garden leave" pay, in which an employer must pay a former employee 50 percent of their base salary, post-employment, for the duration of their notice period, but during which time the employee is not required to attend work. Employers can avoid the garden leave clause if the contract specifies that the employee will observe another mutually agreed upon arrangement, or if there was an act of misconduct.

Under Massachusetts law, which applies to both independent contractors and employees, employer-arranged non-compete agreements are generally banned unless they meet distinct requirements. To be legally enforceable in Massachusetts, the arrangement must be in writing and signed by both parties, state that employees may seek legal advice before signing, and the employee must receive the contract either before the formal offer of employment, or no more than 10 business days before work begins, whichever happens first.

New minimum requirements for non-compete agreements:

  • The Act prohibits non-compete agreements for certain types of employment, including:
    • Employees who are classified by the Fair Labor Standards Act as nonexempt
    • Paid or unpaid internships for both undergraduate and graduate students, or any short-term work while the students are in school
    • Employees under 18
    • Employees who are fired without cause or laid off
  • Employers who demand current employees to sign a new non-compete agreement are required to offer an incentive in exchange, for example, a bonus. Otherwise, the employment is no longer considered "fair and reasonable consideration." This is a significant change from the current Massachusetts common law.
  • "Springing" non-competes
    • A court can enforce a non-compete agreement as a punishment when a worker violates other applicable restrictive contracts, including:
      • Non-solicit contracts
      • Statutory or common law duties
  • Courts have the authorization to reform, review, and modify invalid contracts, and review other sections of the agreement to verify validity.
  • Choice-of-law provisions
    • Deems jurisdiction outside of Massachusetts unenforceable if the employee is a resident or has been employed in Massachusetts for a minimum of 30 days.
    • The parties specify or stipulate that any dispute or lawsuit which arises out of the contract between them shall be determined according to the law of a particular jurisdiction.
    • Simply put, the contract cannot extend beyond the geographical areas that an employee provided service.
  • Adoption of the Uniform Trade Secret Act
    • Creates procedures for using trade secrets inappropriately or illegally.
    • Employers are reimbursed for attorney fees.
  • Non-competes are to be only as broad as necessary to protect trade secrets, confidential information, or customer goodwill.

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