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August 20, 2018

Governor Baker Signs Sweeping Reform on Employee non-Competition Agreements Law

By Robert Blaisdell

On August 10, 2018, Massachusetts Governor Charlie Baker signed into law what some have called a “sweeping” reform of the Commonwealth’s law on employee non-competition agreements. The law will only apply to non-competition agreements entered into on or after October 1, 2018, and with some exceptions outlined below will apply to both employees and independent contractors.

Presently, there are several Massachusetts statutes that prohibit non-competition agreements in particular professions, such as M.G.L. c.112 §12X (physicians), M.G.L. c.112 §35C (licensed social workers), M.G.L. c.112 §74D (registered nurses), and M.G.L. c.149 §186 (workers in the broadcast industry). For those industries or professions not specifically covered by statute, courts will enforce a non-compete agreement if it is (1) necessary to protect a legitimate business interest; (2) reasonably limited in time and space; and (3) consonant with the public interest. A covenant not to compete must be no more restrictive than necessary, but the courts have not established clear time or geographic restrictions. What are “reasonable” time and geographic restrictions is highly subjective, and can vary greatly depending upon the industry, the position the individual holds within that industry, and the relative bargaining power of the employer and the employee. Consequently, parties have often needed to ask a court to determine what is or is not reasonable.

The new legislation would appear to create some certitude in non-compete agreements, but it still leaves much for later interpretation by the courts. Features of the new law include:

  1. A twelve-month limitation (which could be extended to twenty-four months if the worker breached his or her fiduciary duties to the company);
  2. A non-competition clause would be unenforceable if the employer terminates the employee without cause or as part of a layoff or reduction-in-force;
  3. A non-competition agreement must include a “garden leave” provision, which would require the employer to pay the worker at least 50% of the worker’s base salary or provide “other mutually agreed upon consideration”;
  4. If the parties enter into the non-compete agreement at the commencement of employment the employee must be given at least ten business days’ notice and be informed of the right to obtain legal counsel;
  5. If the parties enter into a non-compete agreement after the commencement of employment, continued employment alone will not be sufficient consideration, fair and reasonable consideration will be required; and
  6. A non-competition agreement would be unenforceable against employees age 18 or under, non-exempt employees, and undergraduate or graduate students that “partake in an internship or otherwise enter a short-term employment relationship with an employer, whether paid or unpaid, while enrolled in a full-time or part-time undergraduate or graduate educational institution.”

The validity of a non-compete will still be dependent on reasonableness in time, scope and geography. However, if the non-compete “is limited to only the geographic areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence,” the law presumes the restriction is reasonable. Similarly, a scope that is limited to only the specific types of services provided by the employee at any time during the last two years of employment will be presumptively reasonable. The non-compete must be “consonant with public policy,” and no broader than necessary to protect the legitimate business interest of the employer.

While the reform is an attempt to bring certainty and clarity to this area of employment law, it creates some open questions as well – questions that will need to be resolved by the courts. For example, what is meant by “other mutually agreed upon consideration” as an alternative to garden leave? What consideration would be deemed reasonable? Also, what constitutes a valid “for cause” termination? These and other issues will undoubtedly be addressed in future cases.

Finally, and importantly, non-solicitation, non-disclosure and other types of restrictive covenants will not be affected. Employers who still want to protect their business interests or intellectual property will want to look closely at drafting reasonable non-solicitation or non-disclosure agreements.

A copy of the new legislation is here.

About the Author

Robert Blaisdell

Robert Blaisdell is Managing Partner and Chair of the Firm's Health Law group. He provides general business and corporate legal services to healthcare clients. You can find him on LinkedIn.

Barrett & Singal law clerk Kristin Kelley assisted with this report. You can find her on LinkedIn.

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