Massachusetts’ new law affecting noncompete agreements, set to take effect October 1, retains certain aspects of current law—namely that a noncompete must be necessary to protect a legitimate business interest—but also enacts changes seemingly designed to reduce employers’ reliance on noncompetes.
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The new law applies only to noncompetes that are entered into on or after October 1 and either at the start of or during a relationship with an employee or independent contractor. The law includes so-called “forfeiture for competition” agreements, by which employees or contractors are allowed to compete but must give up some type of benefit to which they would otherwise be entitled.
The law doesn’t apply to (1) other types of noncompetes, such as those entered into upon the termination of the relationship or with the sale of a business or (2) other types of restrictive covenants, like nonsolicitation agreements and nondisclosure agreements.
Law’s Requirements
To be enforceable under the new law, noncompete agreements must satisfy requirements dealing with what category employees fall under, the duration of the agreement, procedures and timing, and consideration.
Category. The law makes noncompetes unenforceable for several categories of employees—all who are classified as nonexempt under the Fair Labor Standards Act (FLSA), those who are terminated without cause or laid off (unless the noncompete is part of a severance agreement), all undergraduate and graduate students who don’t work full-time, and any employees who are under 19.
Duration. To be enforceable, a noncompete is limited to 12 months unless the employee has breached fiduciary duties or unlawfully taken the employer’s property, and even then, the duration may not exceed two years.
Procedures and Timing. All noncompetes must be in writing and signed by both parties and must clearly state that the employee has the right to consult with legal counsel before signing.
Consideration. All noncompetes must be supported by, and clearly define, some form of agreed-upon consideration (i.e., something of value given by the employer in return for signing them).
Enforceability Standard
The new law doesn’t change the basic test for when a noncompete will be enforced by a court—it must be necessary to protect a legitimate business interest; reasonable in time, space, and scope; and consistent with public policy. But the new law changes how that test will be applied in court. Specifically, the following presumptions will apply:
- Noncompetes may be presumed to be reasonably necessary when the employer’s legitimate business interests can’t be protected by other restrictive covenants.
- They will be presumed to be reasonable in space if they’re limited to areas where the employee provided services or had a “material presence or influence” during the last two years of employment.
- They will be presumed to be reasonable in scope if they’re limited to the types of services the employee provided during the last two years of employment.
For more information on Massachusetts’ new noncompete law, see the October issue of Massachusetts Employment Law Letter.
Erica E. Flores is an attorney with Skoler, Abbott & Presser, P.C. in Springfield, Massachusetts. She can be reached at eflores@skoler-abbott.com.