Massachusetts Legislature Tables Non-Compete Reform
Contrary to apparent indications, the Massachusetts legislature ended its most recent session on July 31, 2016, without approving legislation reforming the Commonwealth’s laws regarding employee non-competition agreements. Although the House and Senate had passed separate measures that would have brought about sweeping changes in this area of the law, House and Senate negotiators were unable to reach agreement on a compromise bill to present to Governor Baker, who had indicated that he was prepared to sign a reform bill.For the immediate future, then, non-compete reform in Massachusetts is on hold. Nonetheless, given the recent strong momentum toward reform, employers should continue to pay close attention to developments in this area, particularly when the legislature convenes for its next session.
For the immediate future, then, non-compete reform in Massachusetts is on hold. Nonetheless, given the recent strong momentum toward reform, employers should continue to pay close attention to developments in this area, particularly when the legislature convenes for its next session. Background
Non-competition agreements restrict employees from working for competitors for some period of time after their employment terminates. Because Massachusetts (like most states) has no comprehensive statute relating to non-competition agreements, the courts have developed, on a case-by-case basis, the legal principles governing their enforceability.
Proponents of non-compete reform – including start-up technology companies and the venture capitalists who fund them – maintain that a comprehensive statute would provide much-needed clarity in this area of the law. In addition, they argue, by narrowing the circumstances in which non-competes may be enforced, a reform measure would enhance employee mobility and, therefore, stimulate business development.
By contrast, opponents counter that limiting the enforceability of non-competes would undermine businesses’ ability to protect their trade secrets and other confidential information.
Although the bills passed by the House and Senate included significant differences, each of them would have provided for major changes in Massachusetts law governing non-competes, including:
- A cap on the period of time over which an employer could require a former employee to refrain from competition;
- A requirement that an employer compensate a former employee during any restricted period (so-called “garden leave”);
- Limitations on the types of workers who could be restricted by a non-compete;
- A requirement that a non-compete presented to an employee after the start of his or her employment be supported by independent consideration, beyond continued employment; and
- A requirement that an employer provide a non-competition agreement to a new employee in conjunction with the offer of employment, or at least 10 business days before the commencement of employment.
It appears that an attempted House-Senate compromise bill foundered on disagreement over two major issues: (i) the permissible duration of a non-competition covenant, and (ii) the extent to which employers should be obligated to compensate former employees during restricted periods.
Recommendations For Employers
Despite the failure of non-compete reform this year, Massachusetts businesses should remain alert for potential future changes in this area of the law. After failing to gain much headway in prior legislative sessions, reform legislation came very close to being enacted this year, and it seems almost certain that similar measures will be introduced in the next session.
Thus, there appears to be good reason to anticipate that a non-compete reform statute may still be enacted in the future – likely providing for some version of the changes outlined above.
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Please feel free to contact us with any questions about the proposed reforms to Massachusetts non-compete law or non-competition agreements generally.