Massachusetts Noncompete Law : Massachusetts Noncompete Lawyer & Attorney : Foley Hoag Law Firm : Non-competition Agreements, Labor & Employment

            The effort to substantially alter the landscape for noncompete agreements in Massachusetts via legislation has stalled. After advancing out of committee in the Massachusetts House of Representatives, the compromise legislation (described here) was included in an economic development bill with many other provisions and proposed amendments relating to business issues in the Commonwealth. As has been reported here on the Associated Industries of Massachusetts (AIM) blog, an economic development bill recently was passed by the House, but the noncompete legislation was dropped from the bill.   

            On July 20th, the Boston Bar Association sponsored a symposium entitled “Employee Non-Compete Agreements and Job Creation: The Status of Law Reform a Year Later,” at which several of the advocates and opponents of changes to current law presented their perspectives. Russell Beck, an attorney who was involved in drafting the compromise legislation, said that the legislation would not pass this year but that it had made substantial progress and is likely to pass in the next legislative year. (The state fiscal year is July 1 to June 30.) He also mentioned that the garden leave provision in the original compromise legislation (extending the permissible duration of a noncompete under certain circumstances), which had been excised from the bill while in committee, likely would be added back to the proposed legislation in light of significant feedback from interested parties. 

            Representative William Brownsberger, one of the sponsors of the compromise legislation, was not quite as optimistic as Russell Beck. Rep. Brownsberger suggested that a number of “big players” in the business community, who advocate the status quo, weighed in and impeded passage of the legislation. He suggested that going forward, a broader dialogue is required, with further input needed from interested parties, including chambers of commerce and industry groups. When asked to make a prediction, he simply indicated that he did not know whether and when noncompete legislation will pass.

            Given all of the publicity this issue has attracted in the past couple of years, it is interesting that this significant new development so far has garnered little attention in the business press and blogosphere.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As reported here on the website of Rep. William Brownsberger:

legislation to revise the law of non-competition agreements in Massachusetts took a step forward this week. The Committee on Labor and Human Resources reported out a bill with a favorable recommendation.  Here is the new draft.  It is essentially the bill that Representatives Ehrlich and Brownsberger worked out [with] representatives of many interest groups, but we have not yet had the opportunity to study the language carefully. . . . Over the next few days, the House Clerk will evaluate the bill to determine the next referral for the bill.

I have not yet had an opportunity to carefully compare the new draft to the most recent compromise draft (described here).  Based on a cursory review, the new draft appears to be nearly identical to the previous draft, with one notable exception:  the new draft has removed all of the references to "garden leave" clauses contained in the previous draft.  (The previous draft stated that noncompetes of more than one-year in duration would be permitted in connection with a "garden leave" provision providing for compensation during the extended period.)  Thus, it appears that the revised bill is somewhat more protective of employees (and therefore less protective of the interests of former employers), in that it places an absolute limit of one year on employment-based noncompetes.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

The next round in the ongoing debate about noncompetes in Massachusetts has arrived.  As described here, a public hearing on various forms of pending noncompete legislation will take place before the Joint Committee on Labor and Workforce Development on October 7, between 10:30 am and 1:00 pm.  The location is Room A-2 of the State House.  The public is invited to attend and testify. 

Earlier this week, Representatives Brownsberger and Ehrlich, co-sponsors of the compromise legislation introduced this past summer (described here), published a new, revised draft and invited further input.  The revised bill is here.  Highlights include the following:

• Minimum compensation.  Noncompetition agreements would be valid only with respect to employees whose average gross income is $75,000.  The bill appears to dispense with the earlier distinction between agreements intended to preserve only good will (as to which there was a $100,000 minimum salary requirement) and agreements preserving trade secrets and confidential information (as to which the salary minimum was $50,000).

• Advance notice.  If required as a condition of employment, a noncompetition agreement must be provided at least seven days before employment commences or with the offer letter, whichever is earlier.  (The previous draft had a 14 day notice requirement.)  If the offer is made orally, the employer must mention the noncompete requirement at the same time or at least before the employer tenders his or her resignation to the current employer. 

• Signed during employment.  If entered into after employment commences, a noncompete must be supported by additional consideration, which is defined as at least 10% of annual compensation (which apparently includes incentive comp. as well as base salary).  Current law, although not entirely clear, provides that continued employment is sufficient consideration for a noncompete entered into during employment.

• Legitimate interests.  The agreement must be necessary to protect trade secrets, confidential information and/or good will.  This simply codifies existing common law.

• Durational limits.  Very significantly, the duration must be limited to one year, unless there is a garden leave clause providing for payment of the greater of 50% of base salary or $50,000 (on an annual basis) for a longer period, in which case the restriction can extend for up to two years. 

• Presumptively reasonable.  An agreement that is limited in duration to six months is considered presumptively reasonable.  This actually may make it easier to enforce some noncompetes.  It essentially would provide an incentive to employers to limit the duration of noncompetes to six months in return for an easier enforcement environment in court.

• Attorneys' fees.  A court shall award attorneys' fees to an employee if the court declines to enforce a material restriction or reforms a restriction in material respect, or if the court determines that the employer acted in bad faith in attempting to enforce the restriction.  An enforcing employer may recover its attorneys' fees only if the agreement is enforced as is and the court finds the employee engaged in bad faith conduct.  This obviously is drafted to discourage employers from going to court unless they believe they have a strong chance of success.

• Choice of law issues.  Parties cannot avoid Massachusetts law via a choice of law provision.  Massachusetts law will apply if the employee was a resident of or working in Massachusetts at the time of termination.  New Hampshire and Rhode Island employers of employees who work in those states but live in MA may want to take note of this provision. 

• Nonsolicitation/sale of business provisions unchanged.  The proposed legislation would not affect existing common law concerning provisions restricting solicitation of customers and employees, and restrictions in the sale of business context. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For those who have been following this blog’s discussion of the ongoing debate about noncompetes in Massachusetts and recently introduced legislation seeking to prohibit such restrictions, this site is a useful resource on the subject.  Thanks to Caroline Huang for bringing it to my attention.  It contains the text of proposed legislation and background information on noncompetition agreements in Massachusetts.  The site was created by Ms. Huang in consultation with Rep. Will Brownsberger, who is sponsoring one of the bills.  The name of the site, “Prohibit RestrictiveEmploymentCovenants.net,” certainly conveys the authors' views on the subject. 

Interestingly, the contrary viewpoint favoring the status quo -- i.e. that noncompetition agreements truly are necessary to protect the legitimate interests of Massachusetts businesses -- has not generated similar buzz.  Perhaps that will change if the proposed legislation has legs.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As expected (and first discussed here), Massachusetts Rep. Will Brownsberger has introduced a bill that would abolish the use of noncompete agreements in Massachusetts, at least in the employment and independent contractor contexts.  Here is the text of the proposed law:

"AN ACT TO PROHIBIT RESTRICTIVE EMPLOYMENT COVENANTS

Section 1. Section 19 of Chapter 149 of the General Laws of Massachusetts is hereby amended by inserting at the end the following new paragraphs:

Any written or oral contract or agreement arising out of an employment relationship that prohibits, impairs, restrains, restricts, or places any condition on, a person’s ability to seek, engage in or accept any type of employment or independent contractor work, for any period of time after an employment relationship has ended, shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement.

For the purposes of this section, chapter 149, section 148B shall control the definition of employment.

Whoever violates the provisions of this section shall be liable for reasonable attorneys fees and costs associated with litigation of an affected employee or individual.

This section shall be construed liberally for the accomplishment of its purposes, and no other provision of the General Laws shall be construed in a manner that would limit its coverage. Nothing in this section shall preempt tort or contract claims, or other statutory claims, based upon an employer’s use, or attempted use of an unlawful contract or agreement to interfere with subsequent employment or contractor work.

This section shall apply to all contracts and agreements generated after the effective date of this act.

Section 2. Section 42A of Chapter 93 of the General Laws of Massachusetts is hereby amended by striking the words ‘in violation of the terms of such agreement’ where they first appear."

As drafted, the bill would prohibit all noncompetes generated in the employment context after its effective date, presumably leaving enforceable those agreements previously executed.  It also appears to be intended to leave unchanged the common law principles applicable to noncompetes in the sale of business context.  

The sentence stating that the law would not "render void or unenforceable the remainder of the contract or agreement"  may be intended to allow for continued enforcement of non-disclosure and non-solicitation covenants, but if that is the intent it is not entirely clear.  Many of the vocal opponents of noncompetes have indicated they would favor continued enforcement of employee and customer non-solicitation restrictions.  However, the legislation, as drafted, could be read to encompass at least customer non-solicitation clauses, as it might be argued that such clauses impair the employment relationship.  In any event, some clarification might be necessary on this point.

Any employer that violates the new law -- presumably by either requiring an employee to sign a prohibited noncompete or attempting to enforce such an agreement -- would be liable for the employee's attorneys' fees incurred in litigating the issue.  And the law specifically opens the door to other actions -- such as unfair business claims under Chapter 93A -- that could provide for multiple damages based on an employer's violation.

As reported in Xconomy, Senator Patricia Jehlen will sponsor a Senate version of the bill.  The House version is expected to be referred to the House Committee on Labor and Workforce Development, which likely will hold a hearing on the subject this spring.   It will be interesting to see how the Massachusetts business community reacts to this proposal.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Thanks to Wade Roush for bringing to my attention his article posted yesterday in Xconomy, a very informative web publication focused on the tech sectors in Boston and on the west coast.  As with this blog, Xconomy has been closely following what I have described as the Massachusetts noncompete "debate" over the past year or so.  (Scroll down to see earlier posts on this subject.) Wade reports that a Massachusetts legislator, Rep. Will Brownsberger of the 24the Middlesex district, is about to introduce a bill that would abolish or significantly curtail the use of noncompete agreements in Massachusetts.   The article reports that noncompetes would be outlawed in new employment contracts entered into in Massachusetts, except in the sale of business context.  As described, it would be similar to current California law.   

I have not yet seen the bill, which apparently is still in the drafting stage.  This blog will provide further updates as more information becomes available.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I would not be the first to observe that the Massachusetts legislature sometimes acts in strange and mysterious ways. It has been known to surprise even those of us who think we are paying attention to such things with unexpected employment-related legislation. The very significant amendment in 2004 to the Massachusetts Independent Contractor Law (.pdf) is a good example of this phenomenon: although it has wide-ranging application and has vexed employment lawyers and the business community since its passage, it was attached to a bill focused on the construction industry and was largely unknown to the outside world for weeks after its enactment, until the Attorney General’s office issued an advisory interpreting it.

A recent -- but fortunately less momentous -- example concerns non-competition agreements. Six weeks ago, on August 23, Governor Patrick signed a new law prohibiting non-competition agreements for social workers in Massachusetts. The text of the law is available here (.pdf). It states that any contract with a social worker licensed under Chapter 112 of Massachusetts General Laws that includes a “restriction of the right of the social worker to practice in any geographic area for any period of time after termination” is void and unenforceable with respect to that restriction. The law does not invalidate or render unenforceable the remainder of a contract or agreement containing such a restriction.

This law adds to a very short list of professions as to which there is a statutory prohibition on post-employment non-competition agreements: physicians, nurses, broadcasters, and now social workers. In addition, non-competes are invalid as to lawyers pursuant to the Rules of Professional Responsibility adopted by the Massachusetts Supreme Judicial Court.

I have been digging -- to no avail -- for some information that might shed light on the source or necessity of this new law. Certainly there has been nothing like the very public debate in the tech and VC community (detailed in this blog) over the past year about the effect of non-competes on the Massachusetts economy. And an Internet search on the subject of Massachusetts-based social workers and non-competes turns up nothing. As far as I know, mine is the very first voice in the electronic universe to mention this new law! (Thanks to my partner, Rob Fisher, for bringing this law to my attention.)

• Email This
• Print
• Comments
• Trackbacks
• Share Link