Executive Summary: For several years, Massachusetts has tried—and failed—to pass restrictions on non-compete covenants, and this year is no exception. Massachusetts’ 2017-18 legislative session includes seven bills focusing on reforming non-compete covenants. Yet just this week, Massachusetts’ legislature released a new economic development bill, S.2625, that would significantly limit the use of non-compete clauses in employment.
The Bill’s Proposed Limitations
If enacted, the bill seeks to ban non-compete agreements for hourly employees, students, employees under 18 years of age, and employees terminated without cause. Resolving a split among previous bills, the act would cover independent contractors. Furthermore, current employees asked to sign non-compete agreements must be provided with additional consideration beyond continued employment, placing Massachusetts in the minority of states with such a requirement.
The bill would require non-competes to be no broader than necessary to protect the legitimate business interests of the employer. It would also impose a new one-year limit on post-employment non-compete obligations and limit the geographic reach of non-compete restrictions to the area of the employer’s economic interests.
The Introduction of Garden Leave
Further significant, the bill requires payment of “garden leave” or “other mutually-agreed consideration” if the employer chooses to enforce a non-compete provision. If “garden leave” is selected, the employer must pay the former employee 50 percent of the employee’s salary during the restricted period years of employment on a pro rata basis during the restricted period. Unlike previous bills, S.2625 imposes no requirements on the value or timing of the “other mutually-agreed consideration” option. Accordingly, the parties might be able to agree to less consideration.
The Bottom Line: If passed, this bill will dramatically increase protections for employees and change Massachusetts’ treatment of non-compete agreements. With the Massachusetts legislative session ending on July 31, 2018 lawmakers will need to scramble to pass this bill. Accordingly, it is difficult to predict whether this latest non-compete reform effort will become law. Regardless of the fate of this bill, this should serve as a reminder to all employers that state lawmakers are attempting—and in some areas, succeeding—in limiting employers’ freedom to enter into and enforce non-compete covenants. Employers should be prepared to adjust to such a seismic shift in the non-compete landscape.
Mark Saloman is Co-Chair of FordHarrison’s Non-Compete, Trade Secrets and Business Litigation practice group. If you have any questions regarding this decision, please feel free to contact Mark at msaloman@fordharrison.com or Chelsey Lewis, cmlewis@fordharrison.com. You may also contact any member of the practice group or the FordHarrison attorney with whom you usually work.