Non Compete Agreements: the New Massachusetts Law
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Massachusetts law about non compete agreements was historically driven by court decisions determining the reasonableness of the agreements on a case by case basis. In 2018, the legislature passed a statute designed to bring clear rules into play about what a non compete agreement had to include to be enforceable, and who could and could not be subject to noncompetition restrictions.
This law applies to agreements signed on or after October 1, 2018. All earlier agreements are subject to the guidance previously set forth in the caselaw. Many people leaving jobs today are subject to agreements that were signed before this date. The other wrinkle is that the statute is new enough that there are not many court decisions interpreting it and clarifying provisions that may be ambiguous. What this all means is that, though the new law provides some black and white rules to guide employers and employees, there is still a great deal of uncertainty around the question of whether and how strictly your non compete might be enforced. |
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Does the Statute Apply to Your Non Compete?
On its face, the new law only applies to agreements signed on or after October 1, 2018. it also expressly does not apply to the following:
If your agreement is outside of the statute, that does not mean that the employer will automatically be able to enforce it as written. The common law rules that predated the statute still apply, and you may still have legitimate defenses to enforcement.
- Non-solicitation agreements or agreements not to transact business with customers of the employer;
- Confidentiality and nondisclosure agreements;
- Noncompetition agreements signed in connection with the sale of a business, if the restricted person had a significant ownership interest and received a substantial benefit from the sale;
- Non compete agreements signed in connection with separation from employment or severance (note in this instance you must be given seven days to revoke the agreement after signing).
If your agreement is outside of the statute, that does not mean that the employer will automatically be able to enforce it as written. The common law rules that predated the statute still apply, and you may still have legitimate defenses to enforcement.
What Are the Requirements of a Valid Non Compete?
The law requires employers in Massachusetts to give you ten business days to review and consider the agreement before signing. Your employer also must tell you to get legal advice before signing.
The new state law also sets certain clear and specific requirements for an agreement to be valid and enforceable. These include:
The new state law also sets certain clear and specific requirements for an agreement to be valid and enforceable. These include:
- The employer must agree to pay you at least 50% of your salary or other mutually agreed upon consideration during the non compete period. This is called a "garden leave" clause. If it is not part of your agreement the agreement is likely unenforceable.
- Certain employees cannot be held to a non compete agreement. These include employees who are not exempt from overtime, employees under the age of 18, and a few other categories.
- If you are terminated without cause or laid off, you cannot be held to your non compete.
- If an employee lives or works in Massachusetts, the new state laws of Massachusetts will apply, even if your agreement has a choice of law provision that says otherwise.
New Non Compete Law: Unanswered Questions
Even with these specific guidelines, there are unanswered questions about the new law. It may take years for disputes to make their way through the courts to get clarity on how the law will be interpreted. Here are some of the questions that have come up:
What does it mean to be terminated without cause or laid off under the statute? If an agreement cannot be enforced if you are terminated without cause, there may be an incentive for employers to claim "cause" for a termination. What amounts to "cause" to allow enforcement of the agreement has not been explained yet. If you are facing a threat of enforcement and believe your employer has incorrectly claimed a termination for cause, you should discuss this with an employment attorney as you review your options.
Are you exempt from overtime? This may not have ever been an important question for you, especially if you did not regularly work more than 40 hours a week. It may matter to enforcement of your agreement, though, because the statute limits enforcement to exempt employees. Just because you were paid a salary does not necessarily make you exempt. If you are facing enforcement of a post-October 2018 non-compete, you may want to review the overtime exemption rules.
Can garden leave payments be less than 50% of your highest annualized compensation? The statute is clear that the garden leave must be "at least 50 percent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination." However, it also allows for "other mutually agreed compensation" in the place of a garden leave provision. This leaves open the question of whether an employee can agree to compensation that is less than the garden leave requirement under the law. Our reading of the language of the statute is that the garden leave sets a floor on this compensation, but there is a chance a court will see that differently in the future.
What does it mean to breach a fiduciary duty to your employer? Under the statute, you can lose your right to garden leave payments if you unlawfully take property of the employer or breach a fiduciary duty to the employer. Not all employees owe a fiduciary duty- it depends on your role within the company and the nature of your employment relationship. If you are considering leaving a job and have a non compete post October, 2018, you may want to discuss your situation with an employment lawyer first so that you know how to best protect your rights to the garden leave payments.
What does it mean to be terminated without cause or laid off under the statute? If an agreement cannot be enforced if you are terminated without cause, there may be an incentive for employers to claim "cause" for a termination. What amounts to "cause" to allow enforcement of the agreement has not been explained yet. If you are facing a threat of enforcement and believe your employer has incorrectly claimed a termination for cause, you should discuss this with an employment attorney as you review your options.
Are you exempt from overtime? This may not have ever been an important question for you, especially if you did not regularly work more than 40 hours a week. It may matter to enforcement of your agreement, though, because the statute limits enforcement to exempt employees. Just because you were paid a salary does not necessarily make you exempt. If you are facing enforcement of a post-October 2018 non-compete, you may want to review the overtime exemption rules.
Can garden leave payments be less than 50% of your highest annualized compensation? The statute is clear that the garden leave must be "at least 50 percent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination." However, it also allows for "other mutually agreed compensation" in the place of a garden leave provision. This leaves open the question of whether an employee can agree to compensation that is less than the garden leave requirement under the law. Our reading of the language of the statute is that the garden leave sets a floor on this compensation, but there is a chance a court will see that differently in the future.
What does it mean to breach a fiduciary duty to your employer? Under the statute, you can lose your right to garden leave payments if you unlawfully take property of the employer or breach a fiduciary duty to the employer. Not all employees owe a fiduciary duty- it depends on your role within the company and the nature of your employment relationship. If you are considering leaving a job and have a non compete post October, 2018, you may want to discuss your situation with an employment lawyer first so that you know how to best protect your rights to the garden leave payments.
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.
