Non Compete Agreements: How the New Massachusetts Non Compete Law Affects Employers
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In 2018, the Massachusetts legislature passed a new law about the enforceability of non compete agreements signed on or after October 1, 2018.
This law has important implications for employers who want to protect their goodwill and/or confidential information through the use of non compete agreements. Specifically, the law:
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Does the Massachusetts Non Compete Law Apply to Your Business?
The statute is very specific- it applies to any employee who lives or works in Massachusetts. This is true even if your agreements state that some other law will apply.
So if you are an employer in or outside of Massachusetts but you have employees living or working here, the statute will apply.
What if you are a Massachusetts employer but your employees work remotely from some other state? The statute is silent on this question. It may be that these employees will fall outside of the statute. It could also be that a court would find that working for a Massachusetts company from somewhere else counts as "working in Massachusetts."
The bottom line is that if either your business or your employees are located in Massachusetts, it is a good idea to make sure you can accomplish what you want under the Massachusetts statute, even if there is a chance it will not apply.
So if you are an employer in or outside of Massachusetts but you have employees living or working here, the statute will apply.
What if you are a Massachusetts employer but your employees work remotely from some other state? The statute is silent on this question. It may be that these employees will fall outside of the statute. It could also be that a court would find that working for a Massachusetts company from somewhere else counts as "working in Massachusetts."
The bottom line is that if either your business or your employees are located in Massachusetts, it is a good idea to make sure you can accomplish what you want under the Massachusetts statute, even if there is a chance it will not apply.
What is Garden Leave in a Non Compete Agreement?
The Massachusetts Non Compete Act states that a non compete agreement must have a "garden leave" provision- a clause that states that an employee subject to a non compete will be paid at least 50% of their highest base salary for the length of the restricted period.
This means that if you do not waive enforcement of the non compete at termination, if you have an employee making $100,000 a year you will have to continue paying them at a rate of $50,000 per year for as long as their non compete lasts.
If you have employees already under non compete agreements who signed them before October 1, 2018, this requirement does not apply to those agreements, but it does apply to any new agreements after that date.
The way the law is set up, the employer has a choice at the time of termination of employment about whether to enforce the non compete and make the garden leave payments, or avoid the payments by waiving the restrictions. This means you can evaluate the situation when it comes up, and decide which path is right for your business at that moment in time.
This means that if you do not waive enforcement of the non compete at termination, if you have an employee making $100,000 a year you will have to continue paying them at a rate of $50,000 per year for as long as their non compete lasts.
If you have employees already under non compete agreements who signed them before October 1, 2018, this requirement does not apply to those agreements, but it does apply to any new agreements after that date.
The way the law is set up, the employer has a choice at the time of termination of employment about whether to enforce the non compete and make the garden leave payments, or avoid the payments by waiving the restrictions. This means you can evaluate the situation when it comes up, and decide which path is right for your business at that moment in time.
Who Can Be Held to a Non Compete Agreement?
The law specifically prohibits enforcing a non compete against the following types of employees:
Two issues that come up regularly are (i) whether someone under a non compete is exempt from overtime; and (ii) what "cause" means under this statute if an employee is terminated and you seek to enforce the non compete agreement.
Overtime exemptions are more complicated than you might think. If you are in doubt, it is a good idea to consult an employment lawyer to make sure you are correctly classifying people. This matters for how you have to pay them, but it is also now relevant to the non compete analysis.
As to what constitutes "cause," this is not defined in the statute, and the law has not been in place long enough for courts to develop a working definition. If you are terminating someone you intend to hold to a non compete, this too is a good time to consult an employment attorney.
- Employees who are not exempt from overtime (meaning any employee paid hourly or whose duties do not meet the test for exemption under the law);
- Employees under 18 years of age;
- Undergraduate or graduate students working as interns;
- Any employee who is terminated without cause.
Two issues that come up regularly are (i) whether someone under a non compete is exempt from overtime; and (ii) what "cause" means under this statute if an employee is terminated and you seek to enforce the non compete agreement.
Overtime exemptions are more complicated than you might think. If you are in doubt, it is a good idea to consult an employment lawyer to make sure you are correctly classifying people. This matters for how you have to pay them, but it is also now relevant to the non compete analysis.
As to what constitutes "cause," this is not defined in the statute, and the law has not been in place long enough for courts to develop a working definition. If you are terminating someone you intend to hold to a non compete, this too is a good time to consult an employment attorney.
Alternatives to a Non Compete Agreement
The cost of a non compete to an employer has certainly gone up- even if you do everything right under the law, enforcing your rights will require payments to the departed employee during the restricted period.
The good news is that other kinds of restrictive covenants are unaffected by the new law, and you may be able to achieve your main goals by using one of them.
For example, a common reason for non competes is to prevent employees from taking clients or customers with them to a competing business when they leave. You can accomplish this by using a non-solicitation agreement, which does not have the same strict requirements of a non compete.
Another common reason for non competes is to protect trade secrets and confidential information from getting into a competitor's hands. You can use confidentiality and non disclosure agreements for this purpose. In combination with careful attention to what information employees have access to, and protocols when employees leave that ensure the return of that information, you can achieve this goal without a non compete as well.
The good news is that other kinds of restrictive covenants are unaffected by the new law, and you may be able to achieve your main goals by using one of them.
For example, a common reason for non competes is to prevent employees from taking clients or customers with them to a competing business when they leave. You can accomplish this by using a non-solicitation agreement, which does not have the same strict requirements of a non compete.
Another common reason for non competes is to protect trade secrets and confidential information from getting into a competitor's hands. You can use confidentiality and non disclosure agreements for this purpose. In combination with careful attention to what information employees have access to, and protocols when employees leave that ensure the return of that information, you can achieve this goal without a non compete as well.
How Our Non Compete Lawyers Can Help
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Our employment lawyers can help you navigate these issues and get clarity on your rights and obligations under your non compete. We can also help you respond if you have been served with a lawsuit or a cease and desist letter. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
