Here is significant news on the MA noncompete reform front. Yesterday, as the Massachusetts legislature’s Joint Committee on Economic Development and Emerging Technology was hearing testimony on the pros and cons of non-competition agreements, and the Governor’s Secretary of Housing and Economic Development was signalling a willingness to compromise, the Senate somewhat surprisingly passed a recently introduced compromise bill, by a vote of 31 to 7. This is a significant departure from the outright ban proposed by the Governor and advocated by various groups. Here is a summary of the bill. I will post the bill itself soon.
- Applies to employee non-competition agreements, which includes “forfeiture for competition agreements” (whereby employee forfeits compensation if employee competes)
- Applies to agreements entered into on or after January 1, 2015
- The definition of a noncompete excludes:
- Covenants not to solicit or hire employees
- Covenants not to solicit or transact business with customers
- Sale of business noncompetes, where restricted person owns at least 5 percent of business and receives significant consideration for the sale
- Forfeiture agreements (where compensation is forfeited at termination for any reason)
- Invention of assignment agreements
- Garden leave agreements, where employee is paid during restricted period at least 50% of recent highest base salary
- Noncompetes entered into in connection with “cessation of employment,” which presumably means severance/separation agreements
- Agreements not to reapply for employment
In order to be valid, noncompetes must meet these minimum requirements:
- Must be in writing and state that employee has right to consult counsel before signing
- Must be provided to employee five business days prior to hire or when formal offer is made (unless not “reasonably feasible”)
- If entered into after hire, must be supported by fair and reasonable consideration and employee must have 10 days’ notice before effective
- Must be necessary to protect trade secrets, confidential information, and/or good will
- Must be reasonable in duration: up to six months is presumptively reasonable
- Must be reasonable in geographic reach: limiting to area where employee provided services or had material presence or influence is presumptively reasonable
- Must be reasonable in scope of proscribed activities: limiting to types of services provided by employee is presumptively reasonable
Very significantly, noncompetes would be prohibited for employees who are non-exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act.
A court is permitted to reform an overbroad or unreasonable noncompete to make it valid and enforceable, but only if the provision at issue was either presumptively reasonable (as described above) or the employer made objectively reasonable efforts to draft the provision to make it presumptively reasonable. If the provision is not “presumptively reasonable,” then it will simply be struck, as the court will not be permitted to reform it.
A provision choosing another state’s law will not be valid as to employees who reside in or are employed in Massachusetts
Because the House did not advance any version of noncompete legislation, this bill will be taken up by a conference committee consisting of members of the House and Senate.