In August, the Massachusetts Legislature passed the long-awaited Noncompetition Agreement Act, which regulates noncompetition agreements in the private sector. The following summary provides an overview, in question-and-answer format, of the types of employment agreements covered by the Act, as well as its various legal requirements and limitations.
What is the Noncompetition Agreement Act?
It is a law governing the enforceability of employment-related noncompetition agreements entered on or after October 1, 2018. Specifically, it limits the ability of employers to enter into "noncompetition agreements" with "employees" (current employees, new hires, or independent contractors) working in Massachusetts.
When does the Act take effect?
October 1, 2018.
What is considered a "noncompetition agreement" under the Act?
A "noncompetition agreement" is defined as:
"[A]n agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee's employer after the employment relationship has ended."
What is not considered a "noncompetition agreement" under the Act?
There are several categories of agreements that are excluded under the Act. They are:
- non-compete agreements made in connection with the sale of a business;
- non-compete agreements made in connection with a separation from employment (i.e., severance and separation agreements), if the employee is expressly given seven business days to rescind acceptance;
- agreements not to solicit employees;
- agreements not to solicit customers/clients/vendors;
- agreements not to disclose confidential information; and
- forfeiture agreements.
Who cannot be subject to a noncompetition restriction under the Act?
Employers may not enter into a non-compete agreement with:
- employees who are classified as nonexempt (i.e., paid on an hourly basis) under the Fair Labor Standards Act;
- undergraduate or graduate students who are engaged in short-term employment;
- employees who have been terminated without cause or laid off; and
- employees who are 18 years old or younger. Additionally, attorneys, physicians, registered nurses, social workers, and broadcasters in Massachusetts remain subject to their own separate laws governing restrictive covenants in employment agreements.
Are there any procedural requirements that must be satisfied for a noncompetition agreement to be enforceable under the Act?
Yes. Enforceable noncompetition agreements must be:
- in writing;
- signed by both parties; and
- expressly affirm the employee's right to consult an attorney before signing.
New hires must receive the agreement with their offer letter or 10 business days before their start date, whichever is earlier. Current employees must receive the agreement 10 business days before its effective date. It must also be supported by a garden leave clause (i.e., a provision in which an employer agrees to pay the employee during the restricted period) or other mutually agreed upon consideration, which must be identified in the agreement. Although the Act does not specify how much consideration is necessary for an agreement to be enforceable, it makes clear that continued employment alone is insufficient consideration for current employees.
Are there any substantive requirements that must be satisfied for a noncompetition agreement to be enforceable under the Act?
Yes. A noncompetition agreement is only enforceable if it is meets all of the following requirements:
- It protects an employer's legitimate business interests (i.e., trade secrets, confidential information, employer's goodwill), which cannot be adequately protected by a less burdensome alternative (e.g., non-solicitation, nondisclosure, or confidentiality agreements);
- It does not exceed one year in duration beginning from the separation date, unless the employee has breached his or her fiduciary duty and/or unlawfully taken property of the employer, in which case the restriction may be extended to 2 years;
- It is limited geographically to areas in which the employee provided services or had a "material" presence or influence within the last 2 years of his or her employment; and
- It is limited to the types of services provided by the employee during the last 2 years of his or her employment.
What will a court do to an overly broad noncompetition agreement under the Act?
The Act permits a court to revise an overly broad agreement to make it enforceable, otherwise known as blue-penciling. It also permits courts to sever unenforceable noncompetition agreements from otherwise valid agreements.
For additional information
For additional information on the Massachusetts Noncompetition Agreement Act, please contact
Mark Peters, Heath Edwards or any member of the Waller Labor and Employment practice at 615.244.6380.