Non-Compete Agreements – A New Era in Massachusetts
A new era for non-compete agreements in Massachusetts will begin on October 1, 2018. Non-compete agreements are defined as, “Agreement[s] between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended[.]” Massachusetts has long recognized and enforced non-compete agreements.
In late July, the Massachusetts State Legislature passed a bill that changes the landscape of non-compete agreements in the private sector. While the new law continues to allow employers to utilize non-compete agreements, it will make the agreements more burdensome for employers to utilize.
Under the new law, if an employer decides to use non-compete agreements, it must offer either:
- “Paid garden leave” for the length of the restricted period of employment; or
- “[O]ther mutually-agreed upon consideration.”
Paid Garden Leave
“Paid garden leave” amounts to at least 50% of the employee’s highest base salary during the two years prior to the employee’s resignation. For example, if an employee who signed a non-compete agreement after October 1, 2018 and who resigns from work made a highest base salary of $80,000 for the two years prior to leaving her position, the employer would be required to pay that employee $40,000 for the entire amount of time she is restricted from engaging in competing activities.
Other Mutually-Agreed Upon Consideration
The second option allows employers to provide something other than paid garden leave, so long as the consideration is agreed upon in the non-compete agreement. An example of this could be a lump sum payment made at the time the employee signs the non-compete agreement.
Furthermore, the new law specifies that non-compete agreements must be reasonably tailored. Specifically, non-compete agreements (1) cannot contain a non-compete period that exceeds one year, (2) cannot be “broader than necessary” to protect specific business interests of the employer, including confidential information, trade secrets, etc., and (3) must be geographically reasonable in relation to the interests protected by the agreement.
The law also addresses an employer’s obligations when it requests an employee to enter a non-compete agreement after employment has begun. Contrary to previous case law, continued employment is no longer considered sufficient consideration. The employer must provide “fair and reasonable” consideration in order for an agreement signed after employment has commenced to be enforceable.
If you have questions about non-compete agreements or other employment related issues, please give us a call at (781) 930-3127.