Upcoming Hearing and Revised Legislation
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.
