How Does a Furlough Affect a Non Compete Agreement?
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If you have a non compete agreement, it typically restricts you for a set period of time after your employment terminates. Under normal circumstances, it is pretty clear when employment terminates.
During the pandemic, however, many people were put on furlough, and later returned to their jobs. For unemployment purposes, a furlough was treated differently than a termination or layoff. Specifically, people collecting benefits while on furlough were not required to look for new jobs, but rather to stay in touch with their employer and be available to be recalled to work. Less clear was what effect that furlough period had on non compete agreements. Was the furlough a termination? Did the clock start running on the non compete agreement during the furlough? A recent Massachusetts trial court decision held that a furlough was indeed a termination, albeit temporary, and that by the time an employee left for a competitor after returning from furlough the non compete period had ended. Harrell v. Backstage Salon & Day SpaThe trial court's decision in Harrell v. Backstage Salon & Day Spa was issued in March, 2022. The plaintiff had been furloughed at the beginning of the pandemic when the salon was forced to close, and returned to work in June, 2020. She then continued to work for the salon until May, 2021, then took a job with a direct competitor that would otherwise have been prohibited by her non compete.
The court allowed her motion to dismiss claims against her by the salon for violating the non compete. Specifically, the court found that the March 2020 furlough was a termination of her employment: "Being placed on an indefinite furlough without pay, and with no guaranty of being rehired, constitutes a termination of employment." The court went on to conclude that the one year period continued to run after she returned to work, reasoning that once the non compete period was triggered, it did not "spring back to life" on her re-hire in June. Because she had not been asked to sign a new agreement on her re-hire, she was free to go to a competitor any time one year or more after the date of her initial furlough. |
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What This Means for Employees With Pre-Pandemic Non Compete Agreements
Assuming other judges follow the reasoning in Harrell (remember, this is a trial court decision, so it is not binding on a different trial court), this could be significant news for anyone who had a non compete in place before the pandemic, and was furloughed for any length of time during the shut down.
There may be situations where a court might not consider your employment to have terminated during the furlough. For example, if you were paid anything by your employer, or worked at all during that period. It is unclear whether it matters if your health benefits continued during the furlough.
We expect these unanswered questions to be addressed in the coming months, as more people who did experience a furlough are now changing jobs and addressing the scope and enforceability of their non compete agreements.
There may be situations where a court might not consider your employment to have terminated during the furlough. For example, if you were paid anything by your employer, or worked at all during that period. It is unclear whether it matters if your health benefits continued during the furlough.
We expect these unanswered questions to be addressed in the coming months, as more people who did experience a furlough are now changing jobs and addressing the scope and enforceability of their non compete agreements.
What This Means for Employers Who Furloughed People With Non Compete Agreements
If you have employees who were furloughed and later leave for a competitor, you may have trouble enforcing the old non compete, for the reasons described above.
You can have employees sign new non compete agreements if you want to avoid this problem in the future. The wrinkle here is that you may have employees whose non competes pre-dated the Massachusetts Non Compete Act, which imposes specific requirements and restrictions on agreements signed on or after October 1, 2018. Many employers chose not to have people sign new agreements after that date, so as not to be subject to those restrictions.
This means you might have to make a choice between potentially not being able to enforce your pre-pandemic agreements and bringing new non competes on board subject to the 2018 statute. Those new agreements must:
In addition, for post October 2018 agreements, they cannot be enforced against employees who are not exempt from overtime, or against anyone who is terminated without cause.
You can have employees sign new non compete agreements if you want to avoid this problem in the future. The wrinkle here is that you may have employees whose non competes pre-dated the Massachusetts Non Compete Act, which imposes specific requirements and restrictions on agreements signed on or after October 1, 2018. Many employers chose not to have people sign new agreements after that date, so as not to be subject to those restrictions.
This means you might have to make a choice between potentially not being able to enforce your pre-pandemic agreements and bringing new non competes on board subject to the 2018 statute. Those new agreements must:
- Contain a "garden leave" clause providing for payment to the employee at 50% of their base for the restricted period;
- Be supported by some benefit (money or otherwise) that is "fair and reasonable consideration" for the non compete;
- Include language that gives the employee at least ten days to consider the non compete, and advises them to consult with counsel; and
- Be signed by both the employee and the company.
In addition, for post October 2018 agreements, they cannot be enforced against employees who are not exempt from overtime, or against anyone who is terminated without cause.
How We Can Help
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Our employment lawyers can help you navigate these issues and get clarity on your rights and obligations as an employer or an employee. 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.
