Non-Compete Law Blog

Last month, the Court of Appeals for the First Circuit found that a Delaware choice of law provision in a non-competition and non-solicitation agreement with a former Massachusetts employee was sufficient to invoke Delaware law. Notably, the non-compete agreement at issue was entered into prior to the October 1, 2018 effective date of the Massachusetts Noncompetition Agreement Act (the “Noncompetition Act”).

As we previously reported in the context of low-wage workers, Rhode Island recently passed the Rhode Island Noncompetition Agreement Act, which will be effective January 2020. This legislation extends protections far beyond low-wage workers, however. The Act contains many provisions similar to (and clearly based on) Massachusetts’ recently passed non-competition legislation, but also several major differences.

Last month, the Supreme Judicial Court dismissed a suit brought by a Massachusetts employer to enforce a non-compete on its California-based employee on the ground of forum non conveniens. The SJC held that the non-compete’s Massachusetts choice of law provision was unenforceable and that California substantive law should apply. Recall that even with the recent change in Massachusetts non-compete law, such restrictive covenants are still permissible, while in California, employee non-competes are subject to an outright ban.

This week, the Massachusetts Noncompetition Agreement Act became effective. For employers, this means that all non-compete agreements entered into on or after October 1, 2018 must comply with the new law’s requirements. It is likely that most Massachusetts employers will have to revise their existing agreements.

In the early morning hours of August 1, 2018, the Massachusetts House and Senate passed long-awaited non-compete legislation. Assuming that Governor Baker signs the bill into law, the legislation will become prospectively effective October 1, 2018. The Massachusetts Noncompetition Agreement Act (the “Noncompetition Act”) is many years in the making, as Massachusetts legislators have made numerous, but unsuccessful, attempts to enact a law addressing non-competes over the past several years. 

On October 31, 2017, the Joint Committee on Workforce and Development once again held a hearing to discuss the possibility of legislative changes to Massachusetts non-competition and trade secrets laws. There were several bills up for discussion. One significant provision in most of the bills that is not receiving as much attention as it perhaps should is a requirement that any lawsuit to enforce a non-competition agreement as to a Massachusetts resident be brought in a Massachusetts court. Such a constraint would have a profound effect on the application of non-compete laws, and in particular, on out-of-state corporations. Where potential large-scale employer companies such as Amazon are considering expanding their presence in the Commonwealth’s flourishing market, such a drastic change in Massachusetts law could loom large. 

As we previously reported, the Massachusetts House and Senate passed contrasting versions of non-compete reform bills in 2016 but were unable to come to an agreement by the end of the legislative session. Efforts began anew last month as Senator William Brownsberger and Representative Lori Ehrlich filed a new non-compete bill on January 20: An Act relative to the judicial enforcement of noncompetition agreements (Bill SD.1578). The bill builds on previous versions of legislation introduced in Massachusetts and would make significant changes to the landscape of both non-competes and trade secrets in the state.

This week, the Obama Administration continued its ongoing efforts to curb what it considers to be the “gross overuse” of non-compete agreements. In a “State Call to Action,” the White House encourages legislatures to adopt certain recommendations for non-compete reform. Tuesday’s announcement follows the Obama Administration’s May 2016 report, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses” discussed in an earlier blog post, which highlighted the variety of ways workers may be disadvantaged by non-competes.

In what may be a trend, several courts around the country this year have embraced strict interpretations of non-compete agreements, refusing to blue pencil or equitably reform overbroad or unreasonable clauses in non-compete agreements. Traditionally, courts have exercised the doctrine of equitable reformation to re-write provisions to render them reasonable, or at the very least, strike unreasonable provisions to save those that are reasonable.

Our firm’s Executive Comp Exchange blog recently added a post that is useful to employers who utilize confidentiality provisions in any of their employment documents. The blog post addresses the complications of confidentiality provisions of employee agreements and perceived constraints on the employee’s ability to report relevant information or conduct to certain government agencies. The National Labor Relations Board and now the SEC appear to be ramping up efforts to address what they believe are undue restraints by employers in this area.