Non-compete reform has come to Massachusetts, with wide-ranging legal and practical implications for any employers with workers in Massachusetts. Employers have just six weeks to consider and adopt a new approach to non-compete agreements for their workforces. The new law, which becomes effective on October 1, 2018, comes after many years of debate and dramatically shifts the restrictive covenant legal landscape in the Commonwealth.
While employers will still be able to utilize non-compete agreements for most workers, the law necessitates a new approach to drafting, implementing, and enforcing these agreements. This post summarizes the new law, identifies employer action items, and raises several issues that will emanate from this reform.
Brief Summary of the New Law:
The key takeaways of the law are as follows:
- Non-compete agreements will be more expensive to utilize. Employers must offer the employee paid “garden leave” for the length of the restricted period of at least 50% of the employee’s highest base salary during the prior two (2) years (or some “other mutually-agreed upon consideration,” which the agreement must specify);
- Employers cannot require all employees to sign non-compete agreements. The law prohibits employers from requiring certain categories of workers, including non-exempt employees, to enter into non-compete agreements;
- Non-compete agreements may be void depending on the reason for separation. Employers cannot enforce non-compete restrictions against employees who have been terminated without cause or laid off, except when included as part of a separation agreement;
- The new law only applies to agreements entered into on or after October 1, 2018. Older agreements are not voided, but employers should consider revisiting the current agreements in place. We address this issue further below;
- Continued employment is no longer sufficient consideration. Employers must provide fair and reasonable consideration to support non-compete agreements signed after employment has commenced;
- The non-compete agreement must be reasonably tailored. A non-compete agreement must: (i) be limited to a maximum one (1) year non-compete period (subject to a limited exception discussed further below); (ii) protect statutorily covered employer interests (i.e. trade secrets); and (iii) cover a geographical scope that is reasonable in relation to the employer’s protectable interests;
- The new law applies to employees and independent contractors alike. The new law specifically defines employee to include contractors and will also require employers to retool those agreements to the extent they include non-compete provisions; and
- The law does not apply to all agreements with restrictive covenants. The law does not cover non-solicitation agreements, non-disclosure agreements, and separation agreements (among others discussed below), which means that these agreements will continue to be analyzed under the common law, but now against the backdrop of the new public policy on non-compete restrictions.
Taken together, while many of the law’s provisions reflect best practices for enforceable non-compete agreements, several of the requirements – particularly around the requisite consideration supporting non-compete agreements – will now require employers to evaluate their overall non-compete strategy, update their non-compete agreements, and adjust their human resources processes to ensure compliance with the law.
Below we explore the law in greater detail and highlight the practical and legal implications for employers.