Key Changes to Massachusetts Noncompetes – Part I

Over the years, I have written blog posts related to a plethora of nuances concerning noncompetition agreements. While the signing into law last Friday of new legislation on noncompetes does not eviscerate them (despite advocacy on the part of some for such a result), there are a number of new mandates that significantly change the legal landscape – but only for noncompete agreements entered into on or after October 1, 2018. Here are what I believe to be the most significant changes to Massachusetts noncompete law:

I. The definition of noncompetes does NOT include, and the new law will NOT apply to:

  • A. Covenants not to solicit or transact business with customers, clients, or vendors of the employer
  • B. Noncompetes in the context of the sale of a business or substantial assets thereof, when the individual is a “significant” equity holder and will receive “significant” consideration for the transaction
  • C. Noncompetes in connection with a separation agreement, if the employee is given seven days to rescind the agreement
  • D. Covenants not to solicit or hire employees of the employer

II. To be valid, a noncompete MUST meet ALL of the following conditions:

  • A. The noncompetition period may not be longer than 12 months UNLESS the employee breaches a fiduciary duty or unlawfully takes company property, in which case the noncompetition period can be up to 24 month
  • B. The agreement must provide for EITHER:
    • “Garden leave,” which means at least 50% of the highest annualized base salary paid to the employee within the two years prior to termination; OR
    • “[O]ther mutually agreed-upon consideration between the employer and the employee” specified in the agreement
  • C. If the agreement is made in connection with the COMMENCEMENT of employment:
    • The agreement must state that the employee has the right to consult with an attorney prior to signing
    • The agreement must be provided to the employee by the EARLIER of:
      1. The tender of a formal offer of employment
      2. 10 days before commencement of employment
  • D. If the agreement is made AFTER employment has commenced:
    • The agreement must be supported by “fair and reasonable consideration, independent from the continuation of employment”
    • Notice of the agreement must be provided 10 business days before the agreement is to be effective
    • The agreement must state that the employee has the right to consult with attorney prior to signing

III. Noncompetes are NOT ENFORCEABLE against:

  • A. Employees who are terminated not for cause or laid off
  • B. Nonexempt employees (i.e., hourly wage earners who are entitled to overtime pay)
  • C. Students partaking in internships or “short-term” employment
  • D. Employees age 18 or under

IV. The new law cannot be circumvented by making the agreement subject to the law of another jurisdiction if the employee was a resident of or employed in Massachusetts for at least 30 days immediately prior to his/her termination

In addition to the foregoing, it is important to keep in mind that many common law rules related to noncompete agreements (such as (i) they only will be enforceable to the extent necessary to protect confidential information, trade secrets, or goodwill, and (ii) they must be reasonable in geographic scope to be enforceable) remain intact. Thus, there will be a lot more moving parts to consider when asking an employee or potential employee to enter into a noncompete come October 1st.

In Part II of this series, I will discuss some of the practical implications of the new law, and how in-house counsel might address them.