What Is a Non-Compete Agreement?

Non-compete agreements are most often utilized in industries and roles in which employees would be exposed to information that makes a product or service unique or stand out from the competition. You will also find non-compete agreements where employees will be exposed to proprietary information such as the development of new software or research on a new drug therapy.

Are Non-Compete Agreements Enforceable?

In the state of Massachusetts, non-compete agreements are enforceable if they were put in place as a necessity to protect a business's legitimate interest. When a court determines whether or not it will come out on the side of a non-compete agreement, the court will:

  • Look at the situation surrounding the non-compete
  • Determine the nature of the employee's role
  • Assess the need for the company to restrain the employee
  • Determine if the terms of the employee's employment changed after the agreement was signed.

Since it is impossible to determine how a court will view a particular case, it is hard to know if an agreement will be enforced. While many companies may use non-compete agreements for all of their employees, it is only advisable if they have a legitimate business interest that they need to protect.

Altering Non-Compete Agreements

 

There is a movement currently underway in the state of Massachusetts to drastically alter the non-compete laws. In the past year, drafters came close to changing the law but missed having it signed into law due to two competing bills on the legislation. A new bill has been introduced, and if it passes, it will lead to more restriction in terms of non-compete agreements.

Massachusetts Non-Compete Legislation – Leave Provision

There have been battles in the Massachusetts Legislature for years as they have made a number of attempts to create laws that will regulate the employers right to create restrictive covenants with their employees. Eight bills have recently been introduced on the subject, with six of them dealing with non-compete agreements specifically.

Each bill is different, but they all share the common purpose, which is to strengthen the protection of employees who may be bound by restrictive non-compete agreements.

Three of the six bills introduce a "garden leave" requirement which an employer might put into effect to prevent an employee from immediately jumping to the competition. The three bills under review are:

Under these bills, the employer would be required to keep paying their former employee if they are restricted from engaging with the competition. In the end, these bills would serve employees by:

  • Supporting an employee's right to mobility
  • Reducing the number of employers trying to have employees agree to non-compete agreements to prevent them from working with competitors
  • Eliminating or reducing the financial harm that may come about from a restrictive non-compete agreement

A Brief History of "Garden Leave"

The term "garden leave" has its roots in English law. It means that following an employee's leave from employment, they will not immediately start a new job. During this time while this employee waits for a new job, the employer will continue to pay their salary while they "tend to their garden."

There are some employers in the United States that follow a similar concept. They require a notice period of resignation or termination. During this time, the employee will continue to be paid but will not be required to show up to work. The whole of "garden leave" payments is that an employee will not have to bear the financial burden of being part of a non-compete agreement.

No Legislative Precedent

Currently, non-compete agreements will be adjudicated under contract law, but if Massachusetts is successful at the "garden leave" bills they are trying to pass, the court systems may begin to judge them under new legislation. While the court systems in Massachusetts may be a little hesitant to tread in new waters of judging non-compete agreements, it would not be the first time that Massachusetts has separated themselves through their legislation.

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