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.

Continue Reading New Massachusetts Non-Compete Law Goes Into Effect October 1, 2018

We want to dedicate our August Bubbler feature to our readers, who have helped Mintz’s blog achieve such an august reputation. This month’s namesake (Emperor Caesar Augustus) would have been proud to see all of the activity out of the Empire State recently, as New York City’s Office of Labor Policy & Standards recently released guidance on the new Temporary Schedule Change Law. The schedule change law was one of a number of laws passed in New York recently aimed at accommodating employees’ personal obligations and improving work-life balance. The newly-released guidance is likely to intensify employer concerns, but with the law now in effect employers must work (once again) to update their policies, procedures and practices.

Continue Reading The Bubbler – August 2018

Employers in Massachusetts are watching closely as a non-compete bill was recently passed by the Legislature and is now on Governor Baker’s desk. Currently slated to take effect on October 1, 2018, the law will significantly impact the drafting, implementation and enforcement of non-compete agreements in the Commonwealth. Governor Baker is expected to sign the bill into law, but before doing so, he may amend and send the bill back to the Legislature to be voted on again.

Continue Reading Massachusetts Non-Compete Legislation Awaiting Governor Baker’s Signature

Today we continue with our Year in Review segment, which looks at the key labor & employment law developments from 2016 in New York, the DC Metro Area, Massachusetts, and California, while offering our thoughts on 2017. Last week we covered New York and the DC Metro Area.  Now we turn to Massachusetts.  In addition, please join us in NYC on April 6, 2017 for Mintz Levin’s Third Annual Employment Law Summit as we address some of the key labor & employment issues impacting employers in 2017.  Register here.

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2016 Massachusetts Employment Law Year in Review

From case law interpreting one of, if not, the most employee-friendly independent contractor statute in the country to Beacon Hill’s efforts to pass non-competition agreement reform, Massachusetts is certainly no stranger to key developments in the labor and employment arena. This blog post highlights the 2016 case law and legislative efforts about which every Massachusetts employer should be aware, and provides insight over what to watch for as we move our way along through 2017 and beyond.

Continue Reading 2016 Massachusetts Employment Law Year In Review

Does this sound familiar: employee disregards a non-compete and joins a competitor; former company calls foul and initiates a lawsuit; parties fight it out, but by the time litigation has run its course, the non-compete period in the underlying contract has expired.  The dispute is moot, right?  Not necessarily according to the Ninth Circuit in Ocean Beauty Seafoods v. Pacific Seafood Acquisition Company.  There, the Court applied the doctrine of equitable extension to tack on a non-compete period to an agreement after the original period had run.

Continue Reading Pescetarian’s Delight: Ninth Circuit Extends Non-Compete Term Beyond Contractual Period

As ubiquitous as limited liability company interests may be these days, litigants are still arguing over whether the sale of LLC membership units is like the sale of stock.  When a stock sale takes place, the new owners of the stock simply fill the shoes of the old stockholders.  In a stock sale, there is no “FICA” restart – the employer identification remains the same, as does nearly everything else associated with the transaction.  An asset sale, on the other hand, involves the actual transmission of tangible or intangible things to an entirely new entity.  The asset transaction invariably results in a FICA restart (a new employer, a new employer identification, and everything that comes with the “newness”) because a different entity (but not always a brand new one) now owns the assets.

Why is this relevant to non-compete agreements?

Continue Reading Purchaser of LLC Units May Enforce Non-Compete Without Employee Consent

By George Atanasov, Julie Cox, and Max Samels

On June 23rd, the Massachusetts Joint Committee on Labor and Workforce Development met to consider legislation relating to the legality and enforcement of non-compete agreements. The committee considered five bills on this topic, with the two most prominent being House Bill 1701 and Senate Bill 957, two proposals that prohibit the enforcement of non-compete clauses while permitting nondisclosure and non-solicitation agreements. Senate Bill 169 was also under consideration, which adopts a version of the Uniform Trade Secrets Act, which standardizes a company’s legal right to protect their intellectual property.

The potential policy directions discussed at these hearings ranged from moderate reform to a complete ban on non-compete agreements in Massachusetts, the latter largely supported by start-up and venture capital groups. In the reform category, one popular idea involved requiring the employers to disclose if accepting employment would require signing a non-compete at the time of the job offer, rather than on the first day of work. Supporters argue that this would avoid situations where workers may have already terminated their current employment or turned down other offers only to discover that they were ultimately required to sign a non-compete.

Continue Reading Uncertain Future for Non-Compete Agreements in Massachusetts: Legislators Seek Compromise

Written by Jane Haviland with Bret Cohen

Two Massachusetts decisions—including one from the state’s highest court—applied the same standard regarding enforcement of an agreement to arbitrate.  In each case, plaintiffs signed arbitration agreements with another party.  Others that were not a party to and did not therefore sign those agreements sought the protections of the arbitration provision, and the courts required the plaintiffs in both instances to arbitrate their claims even against the non-signatory defendants.  We briefly discuss these cases and the takeaways below.

Continue Reading Surprise! You Get to Arbitrate! Massachusetts Courts Continue to Permit Third Parties to Enforce Arbitration Agreements

When it comes to California non-competes, you can never get enough clarity.  And when that clarity comes from a Delaware Chancery Court, it adds a utility element that our corporate brethren appreciate.

Ascension Insurance Holdings, LLC v. Underwood involved a pretty straightforward scenario: a Delaware limited liability company purchased certain assets and goodwill from an insurance company partially owned by Robert Underwood – a California resident.  Even though the LLC did business exclusively in California, the transaction documents called for the choice of Delaware law.  Given that Delaware enforces choice of law clauses and California permits non-competes when someone sells their equity interests, game over, right?

Continue Reading More on California Non-Competes – But This Time from Delaware