On June 29, 2016, the Massachusetts House of Representatives passed a comprehensive noncompete reform bill by a vote of 149-0. Given that the Senate last year passed a somewhat similar bill (but the legislation stalled on the House side), it seems quite likely that a new noncompete law will be passed by the legislature before the close of the current session on July 31. Whether the Governor will sign it is uncertain. The bill is here. It is focused on traditional employee non-competition agreements and generally does not apply to various other kinds of restrictive covenants, such as non-solicitation agreements, sale of business noncompetes, and invention assignment provisions. Here are the most significant features:
- Noncompetes would be limited to 12 months in duration, unless the employee has breached his or her fiduciary duty to the employer or has unlawfully taken property of the employer, in which case the duration can be a long as two years.
- Noncompetes would be prohibited for several significant categories of workers:
- non-exempt (i.e. overtime eligible) employees;
- employees who are terminated without cause or who are laid off;
- undergraduate or graduate interns; and
- employees aged 18 or younger.
- A noncompete must state that the employee has the right to consult with counsel prior to signing and must be provided to the employee by the earlier of a formal offer of employment or 10 business days before the start date.
- If a noncompete is entered into during employment, it must be supported by additional consideration other than continued employment.
- The noncompete must have a Garden Leave clause “or other mutually-agreed upon consideration between the employer and the employee, provided that such consideration is specified” in the agreement. This departs substantially from recent drafts of the bill that would have required that the agreement promise Garden Leave consisting of payment of at least 50% of the employee’s base salary for the duration of the restricted period.
- The current bill also dispenses with earlier language that would have prohibited a judge from reforming or otherwise revising a provision so as to render it valid and enforceable. The bill passed yesterday allows such reformation, as is the case under current common law.
- The law would apply only to agreements entered on or after October 1, 2016.
We will know more in the coming weeks.
Mike – Can you speculate on how you might advise companies to consider the meaning of “other mutually-agreed upon consideration,” if that provision of the House bill were to become law as is? — Thanks, Kevin
The operative language is this: “The noncompetition agreement shall be supported by a garden leave clause or other mutually-agreed upon consideration between the employer and the employee, provided that such consideration is specified in the noncompetition agreement.” The bill provides no further guidance. One might speculate that the intention here is that the employer and employee must agree upon additional post-employment consideration, but my view is the bill does not require this. As written, the bill simply requires that the agreement specify what the consideration is. Under current law, for example, sufficient consideration could include a number of possibilities, including the employee’s hire, specific compensation apart from wages (say, $1,000), stock options, a bonus plan, etc. We’ll have to see what happens as the Senate considers this issue.