Non Competes Not Covered by the Massachusetts 2018 Law
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A statute passed in 2018 changed the landscape for enforcement of non-compete agreements in Massachusetts. However, it only applies to agreements signed on or after October 1, 2018. Further, there are certain agreements specifically not covered by the law. These include non-competes signed in connection with severance agreements or the sale of a business.
This does not mean that your non compete is automatically enforceable. It just means the specific requirements of the statute do not apply. Even before the statute, however, Massachusetts law limited enforcement of these agreements under common law principles. Those principles still apply. If you are being threatened with enforcement of a pre-2018 non-compete, or are thinking about leaving a job that you have had since before October 2018, it is a good idea to confer with an employment lawyer before taking the next step. In the meantime, we hope the information below is helpful to you. Non Compete Agreements: Legitimate Business PurposeMassachusetts courts will only enforce a non-compete if it is necessary to protect a company's legitimate business interests.
"Legitimate business interests" is defined more narrowly than you might think. It is generally limited to two kinds of interests: protection of trade secrets or confidential information, and the good will of the employer. A purely economic interest in not losing employees to a competitor is not a legitimate business interest for purposes of enforcing a noncompetition agreement. The confidential information an employer might protect does not have to rise to the level of a trade secret under the law, but it does need to be confidential and proprietary. An interest in protecting information that is readily accessible in the public domain may not be enough. "Good will" is an interest most commonly claimed with sales employees or other individuals who have built relationships with customers, prospects, clients, and sometimes vendors under the company's name. |
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Non Compete Agreements: Time and Geographic Scope
Massachusetts courts will only enforce a non compete agreement if it is reasonable in time and geographic scope.
The definition of "reasonable" depends on the circumstances. For post-2018 agreements, it is clear that the restricted period cannot exceed 12 months. With respect to geographical scope, the statute more or less codifies the common law principle that it must be "reasonable in geopgraphic reach in relation the interests protected." It further provides that if the agreement is limited to the geographic areas where the employee had a material presence in the prior two years, it is presumptively reasonable.
The analysis of time and geographic scope under the common law, with the exception of the "bright line" 12 month limitation, is not that different. Courts will look at the relationship between the interest protected and the scope of the restriction.
For example, we have seen nationwide non competes enforced where the employee had a nationwide sales territory. In contrast, a 25 mile non compete may be unenforceable for a hair stylist whose customers come from a 10 mile radius.
It remains to be seen whether courts will be guided by the 12 month limit in the statute when considering pre-2018 agreements. Prior to the statute, courts routinely found 12 months to be a reasonable length of time, so long as it had a relationship to the interest being protected. It gets harder to predict over 12 months- there have been cases finding two years reasonable, and other cases finding two years excessive. Even in the absence of the new statute, it would be unusual to see enforcement of a period longer than two years, at least in an employment-related non compete.
The definition of "reasonable" depends on the circumstances. For post-2018 agreements, it is clear that the restricted period cannot exceed 12 months. With respect to geographical scope, the statute more or less codifies the common law principle that it must be "reasonable in geopgraphic reach in relation the interests protected." It further provides that if the agreement is limited to the geographic areas where the employee had a material presence in the prior two years, it is presumptively reasonable.
The analysis of time and geographic scope under the common law, with the exception of the "bright line" 12 month limitation, is not that different. Courts will look at the relationship between the interest protected and the scope of the restriction.
For example, we have seen nationwide non competes enforced where the employee had a nationwide sales territory. In contrast, a 25 mile non compete may be unenforceable for a hair stylist whose customers come from a 10 mile radius.
It remains to be seen whether courts will be guided by the 12 month limit in the statute when considering pre-2018 agreements. Prior to the statute, courts routinely found 12 months to be a reasonable length of time, so long as it had a relationship to the interest being protected. It gets harder to predict over 12 months- there have been cases finding two years reasonable, and other cases finding two years excessive. Even in the absence of the new statute, it would be unusual to see enforcement of a period longer than two years, at least in an employment-related non compete.
Other Non Compete Defenses
There are other common defenses to a non compete. These include:
- If you signed your non compete after starting employment, you may be able to resist enforcement if you were not paid something to sign it. The new law makes this explicit, but even before October 2018 there were some cases that rejected such non competes for lack of consideration.
- If your job and/or compensation changed materially after you signed the agreement, you may have an argument that the original agreement was voided.
- If your employer did not pay you as agreed, you may have an argument that the employer has lost the right to enforce the agreement.
- If you are paid as an independent contractor you may have additional grounds to challenge the non compete under the Massachusetts Independent Contractor Law.
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.
