Massachusetts: Significant New Limitations on Noncompete Agreements

APPLIES TO

All Employers with MA Employees

EFFECTIVE

October 1, 2018

QUESTIONS?

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(888) 378-2456

Governor Baker recently signed “An Act Relative to Economic Development in the Commonwealth” that significantly changes the way Massachusetts employers may use noncompete agreements. The following are key changes to be aware of.

Who do the limitations apply to? The limitations on noncompete agreements apply to all employers. Going forward, employers will not be able to enforce noncompete agreements against non-exempt employees, college interns, minors, or employees terminated without cause or laid off.

What can employers prohibit applicable employees from doing? Employers can have applicable employees agree that they “will not engage in certain specified activities competitive with [their] employer after the employment relationship has ended.” The agreement can only be related to protection of the employer’s trade secrets, confidential information that does not qualify as trade secret, and the employer’s goodwill, and must relate to the geographic area in which the employee had a material presence and to the types of services the employee provided, each within the last 2 years of employment. The restricted period can only be for 12 months after the date of termination, unless the employee has breached a fiduciary duty to the employer or the employee has unlawfully taken employer property, in which case the restricted period can be for 2 years after termination. The agreement must also have a specific garden leave clause or other mutually-agreed upon consideration.

Notably, the new noncompete rules do not apply to, and employers can thus prohibit employees from, the following:

  • Soliciting or hiring employees of the employer
  • Soliciting or transacting business with customers, clients, or vendors of the employer
  • Noncompetition agreements with the seller of a business
  • Nondisclosure or confidentiality agreements
  • Invention assignment agreements
  • Garden leave clauses
  • Noncompetition agreements made in connection with a separation from employment if the employee is expressly given seven business days to rescind acceptance
  • Agreements by an employee to not apply for employment with the same employer after termination

What does an employer need to do to enforce a noncompete agreement? Noncompete agreements must be in writing, signed by both the employee and employer, and expressly state that the employee had the right to consult with counsel prior to signing. The agreement must be given to employees the earlier of a formal offer of employment or 10 business days before the commencement of employment.

If having a current employee sign a noncompete agreement, not in connection with termination, additional consideration must be given to the employee, independent from continuation of employment, and notice of the agreement must be provided at least 10 business days before the agreement is effective.

Action Items

  1. Review Section 21 of the new Act here.
  2. Have legal counsel review and revise noncompete agreements for compliance.
  3. Revise new hire processes to comply with advance timing requirements for noncompete agreements.
  4. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2018 ManagEase

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