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Massachusetts Non-compete Update
Presented by: Denise Chicoine
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MASSACHUSETTS NONCOMPETE UPDATE
HISTORY OF NONCOMPETE
AGREEMENTS
In the 1400s noncompetes were unenforceable
under English common law as a restraint on trade.
In Massachusetts the 1837 case of Alger v. Thacher
followed English precedent to establish a framework, to
analyze the enforceability of non-compete agreements
reasonableness is the crux highly fact-dependent.
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EXAMPLES OF NONCOMPETE
ENFORCEABILITY
• California, North Dakota, and Oklahoma ban
noncompete agreements for employees.
• Noncompete agreements are disfavored and
analyzed critically in Virginia and Illinois.
• Florida and Texas routinely enforce no competes.
2018 NONCOMPETE LEGISLATION IN MASSACHUSETTS
New legislation in MA effective October 5, 2018
M.G.L. Chapter 149 § 24L
• Bill was 9 years in the making.
• Significant changes to Massachusetts law for trade
secrets and noncompetes
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EMPLOYEE CONCERNS
• Inequitable employees who pose no real threat e.g.
fast food franchises.
• Overly broad companies imposed maximum
restrictions because courts can modify.
• No bargaining power employees required to sign
noncompete on first day or to keep their jobs.
NONCOMPETES IN
MASSACHUSETTS
Massachusetts courts have held for decades:
“A covenant not to compete is enforceable only
if it is necessary to protect a legitimate business
interest, reasonably limited in time and space,
and consonant with the public interest.”
See, e.g. All Stainless, Inc. v. Colby, 364 Mass. 773, 778
(1974).
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2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
3 main points
• What the employer pays
• Length of restriction
• Circumstances when it is banned
2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
Consideration:
What the employer must pay the employee to
make the non-compete enforceable cannot be
continued employment
Must include “garden leave” one-half of
employee’s salary for length of non-compete
or
other “fair and reasonable” compensation
(not defined)
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2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
Length Of Restriction In Any Noncompete Agreement
Limited to 12 months
unless the employee is a bad actor
(stealing information or breaching fiduciary
duties)
2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
Circumstances when noncompetes are banned
• employees terminated without cause
• hourly workers
• undergraduate or graduate interns who
have short-term employment
• employees under 18
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2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
other requirements for valid noncompete
geographic reach
limited to areas where employee provided
services within last two years
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2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
other requirements for valid
noncompete
scope
limited to types of services employee
provided during last two years
2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
Other considerations
right to counsel: agreement must
expressly state
choice of law: MA for any employee
living or working in MA
venue: where the employee
lives or Suffolk
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2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
Other considerations:
parties can negotiate a noncompete at
departure, with seven-day revocation
not retroactive = does not apply to
noncompetes signed before
October 5, 2018
2018 NONCOMPETE LEGISLATION
IN MASSACHUSETTS
Other considerations:
Legislation does not affect nonsolicitation
agreements, no raid agreements, and
nondisclosure agreements
different presumptions for sale of business
= contractual obligation
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EMPLOYER CONCERNS
Enforceability of existing noncompete
agreements
noncompete signed before October 5, 2018 is
enforceable because the law is not retroactive
But legislation provides a public policy
statement that may be used by employees who
want to escape a non-compete they signed
before October 5, 2018
EMPLOYER CONCERNS
Enforceability of existing noncompete
agreements public policy challenges based on
new legislation
New agreements may now only last 1 year—
someone with a 2 year agreement may argue
that is unfair to hold them to 2 years
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EMPLOYER CONCERNS
EMPLOYER CONCERNS
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EMPLOYER CONCERNS
Undefined terms in the new law
scenarios that aren’t directly addressed
by the statutory language will lead to
uncertainty…. and that can lead to
litigation
EMPLOYER CONCERNS
Undefined terms in the new law
Under the new law, an agreement signed
before or during employment must offer
“garden leave” = payment of an amount
during the entire non-competition period
equal to 50% of employee’s highest earnings
in last 2 years OR the employer can give
“other mutually-agreed upon
consideration.”
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EMPLOYER CONCERNS
EMPLOYER CONCERNS
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EMPLOYER CONCERNS
Undefined terms in the new law
Could employers develop very broad
definitions of cause, so that if the company
lets someone go for simple performance
reasons it can still enforce the non-
compete?
EMPLOYER CONCERNS
Undefined terms in the new law
what happens if an employer states the
employee was terminated for cause, but the
Division of Unemployment says that it was
not for “cause”
-- is the agreement enforceable or not?
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EMPLOYER CONCERNS
undefined terms in the new law
Under the new law, a non-compete agreement is
not enforceable against an hourly worker. BUT
employers can enter an agreement when
someone leaves employment and include a
noncompetition provision, as long as there is
right to rescind within 7 days.
>Can hourly workers agree to this to get some
additional money?
WHAT SHOULD EMPLOYERS BE
DOING?
Review and update agreements that will be used
going forward:
Consideration
Length of time
Scope of restrictions
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WHAT SHOULD EMPLOYERS BE
DOING?
WHAT SHOULD EMPLOYERS BE
DOING?
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WHAT SHOULD EMPLOYERS BE
DOING?
WHAT SHOULD EMPLOYERS BE
DOING?
When an employer is letting someone go, decide:
Whether the termination is for cause or without
cause?
Whether you want to offer a separation
agreement with a noncompete provision (giving
7 days to revoke)
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WHAT SHOULD EMPLOYERS BE
DOING?
Bolster your other agreements that you still can
give to all employees
• non-solicitation
• non-disclosure and confidentiality
• invention agreements
KEY TAKE AWAY