Non-Competition Agreements

• Under common law non-competition agreements were enforceable to protect trade secrets, confidential business information or good will if reasonably limited in time and space. New England Canteen Service, Inc. v. Ashley, 372 Mass. 671, 674 (1977)


• Non-competition agreements entered into as part of a sale of a business often are enforced more liberally than non-competition agreements relating only to employment. Courts will enforce agreements which prevent sellers from competing and thereby reducing the value of the business which would cause damage to the buyer. National Hearing Aid Centers, Inc. v. Avers, 2 Mass.App.Ct. 285 (1974)


• Employers that wrongfully fire an employee who has a non-competition agreement can be prevented from enforcing that agreement. Economy Grocery Stores Corporation v. McMenamy, 290 Mass. 549 (1935)


• If the geographical or time restrictions are too broad, a court can "re-write" the agreement and enforce the "re-written" agreement on a more restricted basis. Marine Contractors Co., Inc. v. Hurley, 365 Mass. 280 (1974)


• Under pre-existing statutory law, non-competition agreements are not enforceable anwyway against physicians (M.G.L.c. 112, s. 12X) and registered nurses and licensed practical nurses (M.G.L.c. 112, s. 74D).

• This statute provides that a noncompetition agreement is not enforceable against the following types of workers:
  • employees who are classified as non-exempt under the Fair Labor Standards Act;
  • undergraduate or graduate students engaged in short-term employment;
  • employees terminated without cause or laid off; or
  • employees 18 years or younger. (M.G.L.c. 149, s. 24L(c))
    
    
• This statute does, however, apply to independent contractors. (M.G.L.c. 149, s. 24L(a))
  
  
• This statute also provides that these noncompetition agreement restrictions do not apply to:
  • covenants not to solicit or hire employees of the employer;
  • covenants not to solicit or transact business with customers, clients, or vendors of the employer;
  • noncompetition agreements made in connection with the sale of a business entity or substantially all of the operating assets; or
  • noncompetition agreements made in connection with the cessation of or separation from employment if the employee is expressly given seven business days to rescind the acceptance. (M.G.L.c. 149, s. 24L(a))
    
    
• Under this law noncompetition agreements must have a "garden leave clause" or other mutually-agreed upon consideration, provided that the consideration is specified in the agreement. A garden leave clause provides that the employer agrees to pay the employee during the time period he is restricted from competing with his former employer. This garden leave clause provides pay for the employee during the entire restricted period of at least 50% of the employee's highest base salary over the prior two years. (M.G.L.c. 149, s. 24L(b)(vii))
  
  
• The noncompetition agreements must also be limited in time. The stated restriction period within the agreement cannot exceed one year from the date of the end of employment; however, if the employee has breached his fiduciary duty to the employer, or the employee has unlawfully taken, either physically or electronically, property belonging to the employer, the restricted period may not be more than two years from the end of employment. (M.G.L.c. 149, s. 24L(b)(iv))
  
  
• If a noncompetition agreement is made at the commencement of employment, the agreement:
  • must be in writing and signed by both the employer and the employee;
  • must expressly state that the employee has the right to consult with counsel prior to signing; and
  • must be provided to the employee before a formal offer of employment is made or 10 business days before the commencement of the employee's employment, whichever comes first. (M.G.L.c. 149, s. 24L(b)(i))
    
    
• If a noncompetition agreement is entered into after the employment relationship has started, but not in connection with the employee's separation from employment, in order to be enforceable, the agreement:
  • must be supported by fair and reasonable consideration independent of the continuation of employment;
  • notice must be provided no less than 10 business days before the effective date of the agreement;
  • must be in writing;
  • must be signed by both the employer and the employee; and
  • must state that the employee has the right to consult with counsel prior to signing. (M.G.L.c. 149, s. 24L(b)(ii))
    
    
• The law also requires that the agreement be "no broader than necessary to protect the legitimate business interests of the employer." These business interests are further defined as either the employer's trade secrets, confidential information, or goodwill. (M.G.L.c. 149, s. 24L(b)(iii))

• The agreement must be reasonable in geographic scope. This provision will be presumed reasonable if it is limited to only the geographic areas in which the employee, during the last two years of employment, provided services or had "a material presence or influence." (M.G.L.c. 149, s. 24L(b)(v))

• The agreement must be reasonable in the scope of proscribed activities it restricts. This provision will be presumed reasonable if the restriction "protects a legitimate business interest and is limited to only the specific types of services provided by the employee during the last two years of employment." (M.G.L.c. 149, s. 24L(b)(vi))

• No choice of law provision that would have the effect of avoiding the requirements of this statute is enforceable if the employee is and has been for at least 30 days prior to the cessation of employment a resident of or employed in Massachusetts. (M.G.L.c. 149, s. 24L(e))

• All civil actions relating to employee noncompetition agreements subject to this statute must be brought in the county where the employee resides or, if mutually agreed upon, in Suffolk county. (M.G.L.c. 149, s. 24L(f))
  
  
• In The HILB Group of New England, LLC v. LePage, C.A. No. 3:21cv757 (2022), a Virginia U.S. District Court held that a non-competition agreement's forum selection clause which granted exclusive jurisdiction to the courts of the Commonwealth of Virginia was enforceable despite the fact that the agreement was otherwise governed by the Massachusetts Noncompetition Agreement Act, which Act provides that actions that come within the scope of the Act must be brought in the county where the employee resides (M.G.L.c. 149, s. 24L(f)), which in this case was in Massachusetts. In so ruling, the Court relied on the Supreme Court case of The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), to the effect that federal courts enforce mandatory forum selection clauses unless it would be unreasonable to do so and that federal law preempts Massachusetts' procedural rules.