Earlier this week, the Joint Committee on Labor and Workforce Development released proposed amendments to the Uniform Trade Secrets Act, which would include the creation of the Massachusetts Noncompetition Agreement Act. The legislation, if enacted, would significantly alter the non-compete landscape, rendering unenforceable or practically unworkable most Massachusetts employers’ non-competition agreements. Here are some of the highlights:
- A non-compete can be no longer than 12 months after the employment ends, unless the employee breaches a fiduciary duty to the employer or unlawfully takes the employer’s property, in which cases the covenant may extend to 24 months.
- A non-compete must contain a non-discretionary garden leave clause under which the employer will pay the employee during the restricted period at least 50% of the employee’s highest annualized base salary in the 2 years prior to the termination of employment regardless of whether the employee gains other employment.
- If a non-compete is entered into prior to the start of employment, the employer must provide it to the employee by the earlier of the offer of employment or 10 business days before the start of employment.
- If a non-compete is entered into after commencement of employment, it must be supported by consideration independent from continued employment, and must be offered to the employee with ten days notice.
- A non-compete cannot be broader than necessary to protect one or more of the following legitimate business interests: trade secrets, other confidential information, or goodwill. The business interests of investments in employees, including training, will not be sufficient.
- A non-compete will not be enforceable against an employee who is laid off or otherwise terminated without cause, an employee who is non-exempt under the FLSA (and keep in mind the shifting definition of non-exempt effective December 1st), or student interns.
While these requirements would impact most employment-related non-competition agreements, they would not apply to certain related agreements. The following would be carved out from the new limitations: agreements made in connection with the termination of employment, agreements made in the context of the sale of business, non-solicitation agreements, and nondisclosure agreements.
Finally, of great significance is that the bill would strip Massachusetts courts of their longstanding equitable powers to exercise discretion in reforming non-competition agreements to render them fair to both parties.
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Although not an outright ban, a cocktail of a one-year limitation, a mandatory garden leave provision, and a prohibition on judicial discretion would fundamentally change the state of non-compete law in Massachusetts. However, this remains just a draft bill, and particularly the provisions that were not previously outlined in Speaker DeLeo’s statements in March will be subject to substantial debate and possible amendment in the weeks to come.
In the rapidly changing business world, protecting a company's human capital and proprietary information is critical to maintaining a competitive edge. On this blog, Nutter's experienced Business Litigation and Labor, Employment & Benefits attorneys offer news and insights on all aspects of restrictive covenants and trade secrets—from analyzing a rapidly evolving body of case law, to summarizing new legislation and legislative efforts, to providing other need-to-know updates and more.