Massachusetts Legislature (Finally) Passes Non-Compete Law

by Jackson Lewis P.C.
Contact

The Massachusetts Legislature, at long last, has passed a bill regulating the use and enforcement of non-compete agreements in the private sector. Once “An Act relative to the judicial enforcement of noncompetition agreements” is signed by Governor Charlie Baker, it will take effect on October 1, 2018.

The Legislature has attempted for nearly a decade to negotiate a bill that could pass both the House and Senate. For more on the state’s contentious non-compete reform efforts, see Massachusetts Non-Compete Legislation – A Walk Through the ‘Garden’ … Leave Provision, Massachusetts Legislature Close to Deal on Non-Compete Law? and Massachusetts Legislature Pushes Forward With Amended Non-Compete Bill. During the 2017 legislative session, no fewer than six competing bills were submitted for consideration.

Definition of “Noncompetition Agreement”

The Act limits the ability of employers to enter into “noncompetition agreements” with, and ultimately enforce those agreements against, “employees” who work in the Commonwealth.

A “noncompetition agreement” is defined as:

[A]n agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended[.]

In addition to defining the types of agreements that it regulates, the Act identifies certain covenants that fall outside of the definition of a “noncompetition agreement.” Such covenants include:

  • Non-compete agreements made in connection with the sale of a business;
  • Non-compete agreements made in connection with the cessation or separation of employment (provided the employee is given seven business days to rescind acceptance);
  • Employee non-solicitation covenants;
  • Customer/client/vendor non-solicitation covenants; and
  • Non-disclosure of confidential information agreements.

Such excluded covenants will continue to be evaluated under Massachusetts common law.

Definition of Employee

Significantly, although the Act regulates only the use of noncompetition agreements with “employees,” the definition of a covered “employee” includes independent contractors.

The Garden Leave “Requirement”

Similar to three bills introduced in the 2017 legislative session, the Act requires the payment of “garden leave pay” or some “other mutually-agreed upon consideration.” (For more on the “garden leave” concept, see Massachusetts Non-Compete Legislation – A Walk Through the ‘Garden’ … Leave Provision.) Agreements that call for “garden leave pay” (as opposed to “other … consideration”) require the employer, during the restricted period, to continue paying the former employee an amount defined as “at least 50 percent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination.”

Unlike the 2017 garden leave bills, the Act imposes no specific requirements on the value or timing of any “other” consideration the employer and employee may agree upon as an alternative to garden leave. Under the 2017 bills, the value of the alternative consideration must be equal to or greater than the statutorily defined garden leave payments and the timing of the consideration must be in line with the applicable garden leave period. The Act imposes no such conditions. It appears to allow parties to agree to less valuable consideration that could be provided to the employee at any time, including the commencement of employment (e.g., a hiring bonus). Thus, what was proposed initially as a garden leave “requirement” appears to be more of an optional contractual provision.

Structural and Procedural Requirements

In addition to the garden leave provision, the Act imposes other structural requirements on non-compete agreements entered into both at and after the commencement of employment. All such agreements must:

  • Be in writing;
  • Be signed by both the employer and employee; and
  • Expressly affirm the employee’s right to consult with counsel prior to signing.

The Act’s requirements differ based on the timing of execution of the non-compete agreement. First, if a non-compete is signed at the commencement of employment, it must be presented to the employee at the time the offer of employment is made or 10 days before the commencement of employment, whichever is earlier. (One senator had proposed an exception for where it would be impractical for the parties to wait 10 days from the presentation of the non-compete until the commencement of employment. That amendment was withdrawn, and the exception is omitted from the Act.)

Second, the Act requires that a non-compete agreement signed after the commencement of employment be “supported by fair and reasonable consideration independent from the continuation of employment.” The implication is that the promise of continued employment would be sufficient, by itself, to support a non-compete signed at the commencement of employment. However, as explained above, all non-competes must provide consideration independent from the continuation of employment in the form of “garden leave pay” or some “other mutually-agreed upon consideration.” Therefore, it is unclear whether the Act actually requires additional consideration for a non-compete executed after the commencement of employment, as compared to one signed at the commencement of employment.

If the payment of “garden leave [or] other mutually-agreed upon consideration” is required even for non-competes signed at the commencement of employment, then the question is what additional consideration, if any, would be required for a subsequently executed non-compete? The Act leaves this unanswered.

Reasonableness Requirements

Pursuant to the Act, a non-compete covenant must be reasonable. The non-compete must:

  1. Be no broader than necessary to protect a legitimate business interest. The Act recognizes three “legitimate business interests”: (a) the employer’s trade secrets; (b) the employer’s confidential information that otherwise would not qualify as a trade secret; and (c) the employer’s goodwill. Under the Act, the non-compete covenant will be presumed to satisfy this element if the employer can demonstrate that no other type of restrictive covenant (e.g., a non-solicitation or non-disclosure covenant) would be sufficient to protect the legitimate business interest at issue.
  2. Not exceed one year in duration. An exception to this requirement is where an employee is shown to have breached a fiduciary duty to the employer or has unlawfully taken (physically or electronically) property belonging to the employer. The exception allows the restricted period to be tolled for up to two years from the date of cessation of employment.
  3. Be reasonable in geographic scope. Under the Act, the geographic scope will be presumed reasonable as long as it is limited to the geographic “areas” in which the employee, “during any time within the last 2 years of employment, provided services or had a material presence or influence.” The vagueness of the geographic term (“areas”) virtually guarantees that this presumption will be heavily contested in litigation.
  4. Be reasonable “in the scope of proscribed activities in relation to the interests protected.” Under the Act, if a non-compete agreement’s “proscription on activities … protects a legitimate business interest and is limited to only the specific types of services provided by the employee at any time during the last two years of employment,” such proscription will be afforded a presumption of reasonableness. For example, it would not be reasonable if a pharmaceutical company seeks to prohibit one of its scientists from subsequently working as a janitor for a competing pharmaceutical company.

Excluded Employees

Under the Act, non-compete agreements may not be enforced against the following types of employees:

  • Employees who are classified as non-exempt under the Fair Labor Standards Act;
  • Undergraduate or graduate students who are engaged in short-term employment;
  • Employees who have been terminated without cause or laid off; or
  • Employees who are 18 years of age or younger.

Blue-Penciling and Severance Permitted

The Act permits courts to “reform or otherwise revise” an overly broad non-compete covenant to the extent necessary to protect the applicable legitimate business interests. This concession is particularly notable as most of the bills proposed in 2017 would have rendered overly broad covenants null and void.

Additionally, if a court elects not to blue-pencil a non-compete covenant and instead declares the covenant null and void, the Act provides that such action will not affect any other provisions in the agreement. Rather, the non-compete covenant will be severed and the remainder of the agreement will remain in effect.

Inconsistent Venue Requirements

According to the Act, a party seeking to enforce or challenge a non-compete agreement must bring the action in the county in which the employee resides or, if the parties mutually consent, in Suffolk County. Further, the Act requires that any actions in Suffolk County must be brought in the state-level “superior court or the business litigation session of the superior court.”

By attempting to confer the superior court with exclusive jurisdiction over any non-compete actions brought in Suffolk County only, the Act appears to prohibit parties from commencing such actions in, or removing them to, the federal court located in that county (oddly, the Act imposes no similar restrictions on actions brought outside of Suffolk County). For now, it is unclear how the courts will interpret this restriction, or whether they will find it to be legitimate. Generally, defendants are entitled to initially file in, or remove certain actions to, federal court where the action includes at least one federal claim or where there is diversity of parties and the amount in controversy exceeds $75,000.

Effective Date

The Act will apply only to agreements entered into on or after October 1, 2018.

Employers may wish to have current employees execute new restrictive covenants in compliance with the Act for more predictability as to potential enforcement in the future.

Next Steps

Employers who maintain non-competes for Massachusetts employees should consult with qualified employment counsel to determine how to ensure their agreements are in compliance with the requirements of the Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jackson Lewis P.C. | Attorney Advertising

Written by:

Jackson Lewis P.C.
Contact
more
less

Jackson Lewis P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.