The Massachusetts legislature just passed a bill that will – if signed by Governor Baker – put new restrictions on employee noncompete agreements, effective against any noncompetes signed after October 1. Some of the new rules will be clarifications of existing rules, while others represent new requirements.
Now you might be thinking, haven’t I heard this all before? And it’s true that noncompete reform has made it as far as passing the House – I wrote about that two years ago, and I thought the bill had a good chance of becoming law before it fizzled in the Senate.
The new bill is a lot like the last one, with a few key differences including that the new requirements would not apply to previously signed agreements. Here’s a rundown of some of the significant points. This is not a complete list. As always, this information is for background and education and is not legal advice. If you have specific questions, please speak with a lawyer.
- Noncompetes will only be enforceable for the first year after an employee leaves a job – except in the case of employees fired for specific bad acts, who can be restrained for two years – and only within the geographical area in which an employee worked or had influence.
- Noncompetes must contain “garden leave” pay of 50% of the employee’s salary during the restriction period, or “other mutually agreed upon consideration” agreed by the employee and employer. If that “other
- Noncompetes may not be used against employees who are students or minors or any who are not exempt from overtime laws.
- Noncompetes may only be used as needed to protect a legitimate interest of the employer – which means protecting trade secrets, confidential information and market goodwill – but not merely to restrict competition.
- Noncompetes will be void against employees who have been laid off.
- The employer must disclose the noncompete when making the job offer or at least ten days before the employee starts work. If the employer wants to put an existing employee under a noncompete, the noncompete must come with consideration (compensation) from the employer to the employee; continuing the employment will no longer be considered adequate consideration.
There’s a lot in there that’s new, and a lot that’s not entirely clear. For example, what will be considered sufficient consideration for an existing employee to accept a new noncompete? How will geographic areas be defined? How low can garden leave payment go? Undoubtedly courts will have to weigh in on those questions. But first, the big one: will Baker sign the new law? Although he has supported noncompete reform in the past, he has not made his position on this bill known yet.
Attorney Andrew Lynn provides noncompetes and other services for Massachusetts businesses. He can be reached at 617-702-4045 or email@example.com.