Massachusetts Legislation Imposes New Requirements On Non-Compete Agreements

On August 10, 2018, the Governor of Massachusetts signed into law comprehensive reforms governing covenants not to compete in the State of Massachusetts. See MGL c.149, § 24L (added by St.2018, c.228, §21). As detailed below, the legislation imposes significant new requirements on non-competition agreements. Given the magnitude of these modifications to Massachusetts law, employers are well-advised to consult with legal counsel regarding their current approach to non-competition agreements before the new law takes effect on October 1, 2018.

Key Elements of the Massachusetts Non-Competition Agreement Act

As stated above, the new legislation takes effect on October 1, 2018, and importantly, only applies to non-compete agreements entered into on or after that date. Additionally, the new law generally does not apply to restrictive covenant agreements outside of the non-compete context. For example, non-competition agreements are defined under the law as agreements under which an employee agrees to not engage in competitive activities “after” their employment, and the new statute excludes “nondisclosure or confidentiality agreement[s],” agreements “not to solicit or hire employees,” and agreements “not to solicit or transact business with customers.”

Some of the central modifications to Massachusetts law include the following:

• Employers are now prohibited from enforcing non-competes against types of employees including, but not limited to, employees classified as nonexempt under the Fair Labor Standards Act, student interns, employees under the age of 18, and any employees who are terminated without “cause” (which is undefined in the legislation) or laid off;
• Non-competes may not exceed a duration of 1-year from the date of one’s cessation of employment. However, if an employee has breached their fiduciary duty to the employer or unlawfully taken the employer’s property, the time-period may be extended to 2 years;
• Employers must provide “garden leave” for employees during a non-compete restricted period — at least 50 percent of the employee’s highest annualized base salary in the prior 2 years—or alternatively, provide “other mutually-agreed upon consideration” (which is undefined in the legislation);
• Non-compete agreements that are executed during one’s employment now require additional “fair and reasonable” consideration (and thus, continued employment is insufficient); and
• No choice of law provision that “would have the effect of avoiding the requirements of [Massachusetts law] will be enforceable if the employee is, and has been for at least 30 days immediately preceding his or her cessation of employment, a resident of or employed in Massachusetts at the time of his or her termination of employment.”

Impact of the Massachusetts Non-Competition Agreement Act

In addition to the foregoing, the legislation includes many other substantive requirements that employers must comply with in order to enforce a covenant not to compete under Massachusetts law. While some of these requirements are fairly standard (such as the prerequisite that such agreements be in writing), others merit closer review. For example, under the new law, non-compete agreements must be “reasonable in geographic reach in relation to the interests protected,” and the law deems presumptively reasonable a geographic reach that is limited to the geographic areas in which the employee provided services or had a “material presence or influence” during their last 2 years of employment. Similarly, non-compete agreements must be “reasonable in the scope of proscribed activities in relation to the interests protected,” and the law also deems presumptively reasonable activity proscriptions that protect legitimate business interests and are limited to “only the specific type of services provided by the employee at any time during the last 2 years of employment.”

Given the many significant changes imposed by the Massachusetts Noncompetition Agreement Act, and the potential ambiguities created by the law’s passage, employers should consult with legal counsel to navigate the new law’s requirements and ensure full compliance with the same.

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