Non-Compete and Trade Restraint Clauses under Massachusetts Law
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Non-Compete and Trade Restraint Clauses under Massachusetts Law
“Thou shall NOT…”
Maybe not exactly couched in old English, but your new or old employment contract may contain serious non-compete or trade restraint clauses that you need to beware of.
Unsurprisingly, employees hardly read or understand the full weight of their contract before signing. Understandably, the focus is always on the net income and benefits.
Nonetheless, if you breach the trade restraint clauses in your employment agreement, you may be liable for damages to your employer.
What are trade restraint clauses?
Restraint-of-trade clauses prevent an employee from performing certain acts that are against the interest of the employer either for a certain time, in a geographical location, or both. Trade restraint clauses can come in the form of:
- Non-compete clause: This prevents an employee from taking up employment with a competitor or setting up trade in a geographical location.
- Non-solicitation clause: Prohibits the employee from attempting to hire or get other employees to quit the job or obtain the employer’s clients, vendors, or contacts.
- Non-circumvention: Very similar to the non-solicitation clause, but it can be introduced even for independent contractors (freelancers) by cutting off a party (middleman) that introduces a client to the worker.
- Confidentiality or Non-disclosure agreements: This agreement primarily protects the employer’s trade secrets from wrongful disclosure during or after the work engagement.
In some cases, you may be able to prove to the court that the restraint or negative covenant is unreasonable, too broad and unnecessary, or illegal and, therefore, unenforceable.
Below are important things you should know about trade restraint clauses before you sign a new contract or exit your current job. This will also help employers in crafting reasonable and enforceable trade restraints and non-compete clauses in employment contracts.
If you are in any doubt, you can reach an experienced business tort or non-compete lawyer in the Law Offices of Richard in Massachusetts for a free consultation.
Is restraint of trade legal?
The restraint of trade is legal in the US, and if it has not violated antitrust laws (for example, the Sherman Antitrust Law is the federal law that criminalizes monopoly acts).
The state of Massachusetts has not outlawed the use of trade restraint in employment contracts. In Craig Boulanger vs. Dunkin’ Donuts Incorporated, the Massachusetts Court of Appeal held that a non-compete clause in a franchise agreement was enforceable. The appellate court decided in favor of the franchisor, holding that the clause was necessary for the protection of his legitimate interests, reasonably limited in time and space.
However, non-compete agreements in Massachusetts must meet certain strict requirements to be enforceable.
What is a non-compete clause in Massachusetts?
A non-compete clause is a contractual agreement between an employer and the employee or independent contractor that protects the employer’s market interests.
It ensures that the employee or independent contractor does not engage in competitive activities such as working for a competitor or setting up a competitive establishment:
- for a time during or after the period of engagement; and/or
- in a geographical location.
Are non-compete agreements enforceable in Massachusetts?
Non-compete agreements can be legally enforced in Massachusetts if they meet the following conditions:
The courts will only enforce a non-compete agreement if it is reasonable within the context of its application, both to the employee and the employer’s protectable interests. For instance, the court will consider the following factors:
- Nature of the business and the access or level of the employee
- The bargaining power of the parties at the time of entering the agreement
- The geographical area of restriction
- Public policy
B) Legitimate Interests
The non-compete clause must also be necessary to protect the employer’s business interests and not limit competition or antitrust. It should be to protect:
- trade secrets; or
- confidential information; and
- customer goodwill.
The Massachusetts non-compete law 2021
The Massachusetts Noncompetition Agreement Act (established in 2018, and amended in 2021) regulates the use of non-compete clauses in the state.
Massachusetts non-compete law prohibits the use of non-compete agreements for the following occupations:
- Undergraduates or interns
- Social workers
- Broadcasting industry
Other critical provisions in the law are that:
- All employees cannot be required to enter non-compete agreements: Employees cannot mandate non-exempt employees (those earning less than $23,600 per year or $455/week) and some other categories of employees to enter non-compete agreements.
- Compensation for “garden leave” period: Employers are to pay employees or compensate them with a mutually agreed consideration in writing. This will be for the length of the two years of at least 50% of the employee’s highest base salary.
- Special consideration: The concept of “continued employment” is no longer considered a sufficient consideration for non-compete agreements. Employers must offer special consideration in exchange for the employee’s agreement to a non-compete e.g., change of title, promotion, or increase in pay.
- Duration: Non-compete agreements are only valid for a period of one year, but extendable to two years if:
- the worker has carted away a property (soft or hardcopy) belonging to the employer; or
- it was designed to protect statutorily covered employer’s trade secrets; and
- covers a “reasonable” geographical scope
- Non-competes may be voidable depending on the reason for termination of employment: If a worker is relieved of his responsibilities without cause or retrenched, the clause may be unenforceable.
The Non-compete law does not apply to other trade restrictive covenants like non-solicitation, non-disclosure or confidentiality, and separation agreements.
How to get out of a non-compete agreement in Massachusetts
If you have a non-compete clause in your contract and you want to opt-out or void it, it is important that you speak to a business tort or employment lawyer in Massachusetts to review your contract and advise you.
You may either file a lawsuit to declare the agreement void or negotiate with your employer for a waiver.
How long does a non-compete last in Massachusetts?
A non-compete agreement is only valid for a maximum of one (1) year. An extension is only permitted if it:
- Protects the interests of a statutorily covered employer (g., trade secrets); and
- covers a geographical area that is reasonable for the protection of the employer’s protectable interests; or
- the worker has carted away a property (soft or hardcopy) belonging to the employer
Is non-compete legal in Massachusetts?
Yes, a non-compete agreement is legal and enforceable if it fulfills the conditions laid out in the Massachusetts Non-Compete Act. It must also meet statutory requirements such as:
- the reasonableness of the non-compete agreement
- the legitimate interest of the employer
- consonance with public policy
Is Massachusetts non-compete law 2021 retroactive?
The non-compete law came into effect on October 1, 2018. Therefore, it only applies to agreements entered on or after the effective date.
Are older agreements voided by the new law? No. However, employers should revisit the current non-compete agreements they have with employees and independent contractors to make them compliant.
If you think you have a restraint of trade clause in your contract or are an employer and you seek to draft an enforceable clause in Massachusetts, you should contact the Law Office of Richard Mucci.