Non-Competition Agreements


Massachusetts recently passed the Massachusetts Noncompetition Agreement Act, M.G.L.c. 149, s. 24L, effective October 1, 2018, and applies to agreements entered into on or after that date. Agreements entered into prior to that date are still governed by the above case law.

This new statute provides that a noncompetition agreement is not enforceable against the following types of workers:

1. employees who are classified as non-exempt under the Fair Labor Standards Act,

2. undergraduate or graduate students engaged in short-term employment,

3. employees terminated without cause or laid off, or

4. employees 18 years or younger.


This new statute also provides that these new noncompetition agreement restrictions do not apply to:

1. covenants not to solicit or hire employees of the employer,

2. covenants not to solicit or transact business with customers, clients, or vendors of the employer,

3. noncompetition agreements made in connection with the sale of a business entity or substantially all of the operating assets, or

4. 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.


Under this new law noncompetition agreements must have a "garden leave clause." 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, or other mutually-agreed upon consideration.


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.


There are also requirements based upon when the noncompetition agreement is entered into.


Agreements Made At the Commencement of Employment

If an agreement is made at the commencement of employment, the agreement:

1. must be in writing and signed by both the employer and the employee,

2. must expressly state that the employee has the right to consult with counsel prior to signing, and

3. 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.


Agreements Made After Employment Has Commenced

If an 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:

1. must be supported by fair and reasonable consideration independent of the continuation of employment,

2. notice must be provided no less than 10 business days before the effective date of the agreement,

3. must be in writing,

4. must be signed by both the employer and the employee, and

5. must state that the employee has the right to consult with counsel prior to signing.


Other Agreement Requirements

Narrow in Scope: 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.

Narrow in Geographical Scope: 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."

Narrow in Scope of Activities Limited: 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."

Choice of Law: 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.

Choice of Forum: 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.

 

Up ]Home ] Case of the Week ] Summaries ] Web Sites ] About the Author ] Contact Us ]