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Massachusetts Law Restrictions on Non-Compete Agreements
A non-compete agreement – also known as a restrictive covenant – is a practice of employers asking their new and existing employees to agree not to start a competing business or work for the employer’s competitor for a specific period of time after termination of employment.
It is understandable why employers get their employees to sign non-compete agreements. After all, these contracts minimize the risk of employees using knowledge of how the employer’s business works to compete against or outperform the business.
Non-compete agreements have been criticized in various states, including Massachusetts, for decades because they let employers control their former employees’ actions long after the employment ended.
Massachusetts passed laws regulating employee non-compete agreements. The rules limiting non-competes in the state of Massachusetts took effect on October 1, 2018.
It has been more than a year since the law regulating non-competes became effective, but many employers and employees in Massachusetts are still confused about some of the provisions of the 2018 legislation.
Does Massachusetts Limit All Non-Competes?
No. The 2018 state law only applies to restrictive covenants, including forfeiture for non-competes, entered into effect on or after October 1, 2018.
The law does not limit or restrict the following types of agreements:
- Non-disclosure or confidentiality agreements
- Non-compete made with owners regarding the sale of a business
- Garden leave clauses
- Invention assignment
- Non-compete agreements made regarding the termination of employment if the employee has seven business days to revoke acceptance
- Agreements by which a worker agrees not to reapply for the job after termination
- Any non-compete agreement entered into before October 1, 2018
Speak with a Massachusetts employment lawyer to find out whether or not your employer has legal grounds to enforce a non-compete against you.
What Workers Are Not Covered by Non-Competes in Massachusetts?
After the implementation of the 2018 law, non-compete agreements are not enforceable against the following types of employees in Massachusetts:
- Workers are classified as non-exempt under the Fair Labor Standards Act
- Undergraduate and graduate students engaged in an internship or short-term employment opportunities
- Employees who have been laid off or terminated for no reason
- Workers who are 18 or younger
However, courts in Massachusetts may impose non-compete restraints on any protected employee through preliminary or permanent injunctive relief or as a result of a breach of another agreement, statutory, or common law duty.
When Can an Employer Provide a Non-Compete to an Employee?
When hiring a new employee, an employer may provide the non-compete agreement either (a) at or before the time of a formal offer, or (b) within ten business days before the beginning of employment, whichever comes first.
If an employer wishes to provide a non-compete agreement to a current worker, he or she must provide ten business days’ notice before the agreement’s start date.
In addition to that, the agreement must provide “fair and reasonable consideration” that is not dependent on the continuation of employment. If you were provided a non-compete, consult with a Massachusetts employment lawyer to learn about your rights.
Are There Any Rules for Creating a Non-Compete Agreement?
The 2018 legislation sets forth the following requirements for creating non-competes between employers and employees in Massachusetts:
- The agreement must be in writing.
- The agreement must be signed by both the employer and employee to be enforceable.
- It must expressly state that the employee has the right to consult with a lawyer or counsel before signing.
Does the Law Set Forth Any Limits on Enforceable Non-Competes?
Since the 2018 law became effective in Massachusetts, there is a 12-month cap on non-compete agreements. The agreement can be extended by up to a year when the employee has breached the fiduciary duty to his or her employer or unlawfully taken the employer’s property.
The law also limits restrictive covenants to the geographic area in which the employee provided services to the employer or had a material presence or influence during the last two years (24 months) of employment.
Non-compete agreements are also limited to the specific types of work provided by the employee during the last two years of employment.
Also, the employer cannot propose unreasonable terms that are not necessary to protect his or her legitimate business interests, such as confidential information and trade secrets.
Is Garden Leave Always Required in Non-Competes?
Under Massachusetts law, restrictive covenants must be supported by garden leave, which is continued salary payment during the non-compete period. However, the law provides that employers may opt for “other mutually-agreed upon consideration” between them and the employees as an alternative to garden leave.
Unfortunately, the law does not elaborate on what constitutes “mutually-agreed upon consideration.” In most instances, employers who provide non-compete agreements to their employees choose the garden leave option.
In that case, Massachusetts law requires garden leave to be:
- Paid on a pro-rata (proportional) basis for the duration of the non-compete period;
- At least 50% of the employee’s highest annual salary paid by the employer during the last 24 months of employment; and
- Paid until the end of the non-compete period without the option of being unilaterally discontinued unless there has been a breach by the employee.
When the 12-month cap is extended because the worker breached his or her fiduciary duty to the employer or unlawfully taken any items of the employer’s property, the employer is not required to pay garden leave during the extended period.
When a non-compete is enforced during the course of employment or after hiring, the law requires the agreement to be supported by “fair and reasonable consideration” not dependent on the continuation of work.
If your employer provides a non-compete agreement to you as a new or current worker, it is best to consult a Massachusetts employment lawyer from The Law Offices of Richard Mucci to find out if the restrictive covenant is necessary to protect your employer’s legitimate business interest. Call our lawyers at 781-729-3999 to get a free consultation.