New Massachusetts Noncompetition Law Takes Effect on October 1, 2018, and Will Likely Increase Litigation Due to Confusing Terms

After years of debating the issue, the Massachusetts legislature finally passed a noncompetition bill during its last-minute voting crunch in July. The new law nominally impacts only non-compete agreements entered after October 1, 2018, though its statements on Massachusetts public policy suggest a far broader impact. The immediate question for employers is whether the law entitled, “An Act Relative to Economic Development in the Commonwealth,” will deliver clarity that will promote economic growth or confusion that will result in ever more noncompetition litigation.

Betting odds favor the latter outcome. As the product of compromise between those who believe non-competes are essential to protect business, and others who think they hurt employees and undermine the Massachusetts economy, the new law includes a host of contradictions and vague clauses. As it imposes strict requirements for enforceable noncompetition agreements that may prevent an employee from work in a given industry, the statute excludes a broad array of restrictive covenants (such as agreements not to solicit the company’s customers) and employs qualifying language open to various interpretations. The result is likely to be a new era of courtroom debate as judges are forced to decide what it all means.

The Act begins with definite standards that all employers must satisfy if they wish to enforce noncompetition agreements entered with their employees after October 1. They include the following:

  • For new employees, non-compete forms must be delivered in writing at least 10 days before work begins and must expressly alert employees they have a right to consult with counsel;
  • For existing employees, something of value other than continued employment must be given, and the 10-day notice period and right to consult counsel still apply;
  • Non-competes cannot last longer than 12 months after employment ends, unless extenuating circumstances exist;
  • Agreements must be reasonable in scope and can be used only to protect trade secrets, confidential information or customer relationships; and
  • Employers must pay affected employees at least half their regular pay during any applicable period of noncompetition.

While that all sounds straightforward enough, much of it is conditional to one degree or another. Take the requirement that employees be paid. The seemingly straightforward rule can be supplanted by “mutually-agreed upon consideration between the employer and the employee.” What that means is anyone’s guess, particularly since bargaining power between employers and employees often varies based on economic conditions. Neither does the statute make clear the type or value of benefits that existing employees must get to support a non-compete. That issue, too, will likely be left to judges to decide. And noncompetition restrictions might not be enforceable at all, even where all necessary conditions are met, when lesser limits will do. So too may they be forced to grapple with the meaning of a 10-day notice period, which is plainly aimed at protecting employees but may often be too short a timeframe to permit them to meaningfully consult with counsel.

The takeaway from all this for employers is the need to carefully review existing noncompetition agreements – which may very well be impacted by terms in the new law despite the overt statement to the contrary – and modify them as required going forward. In some cases, it may be prudent to stop using non-competes altogether and replace them with other more targeted restrictions that are likely to be enforceable. Now more than ever, noncompetition agreements should always be tailored to be only as restrictive as is absolutely necessary to protect employer interests. Fights over their enforcement are certain to continue, and employers will be far better off taking the high ground in those battles.