The Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L, has been the law of the Commonwealth for almost four months. The statute only applies to agreements entered into between employers and certain employees and independent contractors on or after Oct. 1, 2018, so the law’s ramifications are still largely yet to be determined. Nevertheless, even in the short time the law has been operative, its implications for emerging technology and start-up companies have been significant.
The Push for Change Leads to Legislative Compromise
Many employees and even some employers had been clamoring for changes to the Massachusetts non-competition laws for some time. Critics of non-competition agreements have argued that the state of the law impeded innovation and did not adequately protect the interest of employees. Many from the start-up and venture capital community pushed for non-competition law reform, contending that employee mobility is critical to the freedom to innovate.
On the other hand, many employers and industry groups supported maintaining the status quo of non-competition law, or even favored stricter non-competition laws, citing their importance in guarding against the theft of intellectual property and confidential, proprietary information, also critical to incentivizing innovation.
In the end, the legislature reached a compromise providing both sides some, but not all, of what they wanted.
What Emerging Tech Companies Need to Know
Requirements for Entering Into a Valid Non-Competition Agreement
If entered into before employment, a valid non-competition agreement must now:
- be in writing;
- be signed by the employer and the employee;
- expressly state that the employee has the right to consult with counsel prior to signing; and
- be provided to the employee by the earlier of a formal offer of employment or 10 business days before the start of the employment.
If entered into during employment, a valid non-competition agreement must:
- be in writing;
- be signed by the employer and employee;
- expressly state that the employee has the right to consult with counsel prior to signing;
- notice must be provided to the employee at least 10 business days prior to its effective date;
- be supported by fair and reasonable consideration independent from continued employment.
Scope, Duration, and Enforceability
The duration of the non-compete cannot exceed 12 months from the date employment ended. As was previously the case, a non-compete restriction can only protect a legitimate business interest (such as trade secrets, confidential information, goodwill).
The new law also makes a non-compete “presumptively reasonable” where the geographic scope is limited to the geographic areas in which the employee provided services or had a material presence during the last two years of employment, and the scope of proscribed activities is limited to the specific types of services provided by the employee during the last two years of employment.
The statute expressly states the law shall apply to all employees who have been (for at least 30 days immediately preceding his or her cessation of employment) a resident of or employed in Massachusetts at the time of termination, and that no choice of law provision to the contrary shall be enforceable.
Garden Leave or Other Mutually-Agreed Upon Consideration
One of the most significant changes is the requirement that the employer provide consideration to the employee during the restricted period. Specifically, the law states that the employer must provide “garden leave,” defined as at least 50 percent of the employee’s highest annualized base salary paid by the employer within two years preceding termination, or “other mutually agreed upon consideration,” which is not defined.
Read the full Alert here
