The changing landscape of noncompetition agreements in Massachusetts
The legislature passed a bill last week, which, if the Governor signs, will provide for some big changes to the legal landscape governing non-competes in Massachusetts.
Despite signing 53 other bills yesterday, however, Governor Baker still has not signed the noncompete bill.
Here, I will set out a brief overview of some of the biggest changes this bill would provide. I'm not going to go into too much detail, however, given that we don't yet know what the Governor intends to do with it.
To begin, if passed, the bill would make noncompetes unenforceable against a few different groups of workers. This means that even if the agreement exists on paper, no Massachusetts court will enforce it as to:
Nonexempt employees -- These are employees who are classified under the federal wage and hour law as nonexempt and generally must be paid hourly. The purpose of this exemption presumably was to get at the scourge of noncompetes increasingly being provided to hourly workers such as fast food employees.
Students -- This exemption would apply to graduate or undergraduate students enrolled in school full or part-time and who take an internship or other short-term employment with an employer.
Minors -- This exemption would apply to those 18 years old or younger.
Employees laid off or terminated without cause -- Currently, employees are often laid off or terminated without cause yet their employers insist on enforcing the noncompetes the employees signed at the start of employment. It puts an employee in a very difficult position -- on the market, yet unable to compete fully. If being laid off or terminated without cause eviscerates one's noncompete, that changes the game for a lot of employees.
That said, the fact that this provision exists may also change the game in how employers terminate. If employers now have no or little incentive to terminate for cause, if they wanted to enforce a noncompete yet still terminate an employee, then they would have incentive to find cause. This could have substantial implications, including in terms of an employee's ability to collect unemployment or explanation to a prospective employer as to why he or she was terminated. More on this if and when the bill is signed.
The other piece of the bill that is getting the most talk is around the requirement of some sort of payment over the noncompete period. Thus, if the employee is not in one of the above groups and there is an otherwise valid noncompete in place, if this bill becomes law, the employer must also provide some sort of payment for the noncompete.
The murky thing about this part of the bill, however, is that while on the one hand, the legislature spelled out what they intended the employer to provide -- 50% of the employee’s annualized base salary to be paid on a pro rata basis during the restricted period -- they also provided a rather large back door as an option when they included the rather vague language "or other mutually-agreed upon consideration between the employer and the employee."
In other words, the employer must pay the 50% salary -- called "garden leave" -- or "other mutually-agreed upon consideration." There is no definition of the latter, and it would be up to the employee and employer to hammer out on a case-by-case basis. While it would have been more preferable if the legislature simply included the 50% pay requirement, this provision nonetheless gives employees some bargaining power in negotiating for pay over the noncompete period.
In sum, these would be some of the biggest changes to the legal landscape if the current bill becomes law. We will see what the Governor does with the bill, and I will update the blog accordingly.
Doorways Employment Law specializes in employment law counseling, strategic advice and representation to individuals and businesses across Massachusetts, including on noncompetition agreements, severance agreements and employment contracts. Contact Doorway Employment Law for an employment law consultation.