In Part I of Key Changes to Massachusetts Noncompetes, I outlined some of the most significant new mandates that will apply to all noncompete agreements executed on or after October 1. In this post, I want to discuss some of the practical implications of the new law and how in-house counsel might address them.
- The new law does not apply to covenants not to solicit customers, clients, or vendors of the employer
While this may not sound like a significant exception, in many instances, it provides the ultimate loophole. For example, if your company uses noncompetes primarily or exclusively to prevent your sales force from competing against you, simply revising those agreements so that they are structured as nonsolicitation agreements may give you most, if not all, of the functional protections of a noncompete – but without having to worry about any of the requirements of the new law.
- Noncompete agreements entered at the outset of employment only are valid if they are provided to the employee by the earlier of a formal offer of employment or 10 business days prior to the commencement of employment
In light of this, it is critical that in-house counsel be sure that their HR departments (or whoever makes offers) understand the timing issues and set up strict protocols. Because nothing in the statute mandates that an offer only is “formal” if it is made in writing, it is important to ensure that a formal, verbal offer isn’t accidentally made before the noncompete agreement has been provided to the future employee.
- Noncompetes must be supported by “garden leave” or “other mutually agreed-upon consideration” to be enforceable
Interestingly, while in another portion of the new law, the phrase “fair and reasonable consideration” is used, the “fair and reasonable” qualifier is not present in the portion of the statute permitting an alternative to garden leave. As such, there is a classic statutory construction argument that any consideration that is mutually agreed upon will be sufficient to support a noncompete. On the other hand, there also are public policy reasons that would militate against such an interpretation. So what is the answer? Unfortunately, the only real answer is that the more important it is to be sure a noncompete is enforceable, the closer a company should get to supporting the agreement with garden leave (as that term is defined in the statute). Another practical tip is that, if you are going to pay “other” consideration, you may want to do so at the time the agreement is executed and make it clear that the company has no right to a refund of that consideration, even if it does not seek to enforce the noncompete. Such an approach would help validate the consideration as reasonable (even though the statute does not expressly require reasonability).
- Noncompetes are not enforceable if the employee is terminated “without cause”
Because “cause” is not defined in the statute, you might be tempted to define it in your agreement. Resist that temptation! Ultimately, the courts will determine what “cause” means, and any definition you provide, at best, will be irrelevant. Further, if you inadvertently develop a narrow definition of cause, you likely will be stuck with it, even if the court’s definition is broader. Thus, there simply is no upside in defining cause; all you will do is inject another possible way that your noncompete could be invalidated.
In addition to the above, there are a variety of other practical implications of the new noncompete law that could impact many businesses. So, with only a few weeks left until that new law goes into effect, it is time for in-house counsel to dig in, see how the statute will or might affect their company’s agreements and consider the costs, benefits, and risks associated with various potential revisions to their noncompete templates.