The Massachusetts legislature is back at it again — as the Boston Globe reports, the Joint Committee on Labor & Workforce Development has sponsored a compromise bill with the goal of limiting non-competes in the Commonwealth.
As our readers may recall, for nearly a decade, Massachusetts legislators have attempted to pass legislation regarding non-competes, to no avail. In fact, in recent years, there have been unsuccessful attempts to join California in banning non-compete agreements outright (including a failed proposal by former Governor Deval Patrick himself).
Now, with still over 2 months to go before the formal legislative session ends, legislators are once more taking a crack at it, although unlike the attempts to ban non-competes 2 years ago, the current bill may not be nearly as concerning to proponents of non-competes.
That said, the proposed legislation is not controversy-free. In fact, the inclusion of a provision requiring “garden leave,” which would force employers to pay former employees bound by non-compete agreements 50% of their highest annualized salary over the last 2 years of employment for the restricted period, has prompted many in the business community to express their concern. Some, such as executive vice president of the Associated Industries of Massachusetts, Chris Geehern, have noted that employees who are bound by non-competes are often highly-paid employees to begin with, who may receive the benefit of inflated compensation in their base salary to reflect the fact that they are so bound. Likewise, the Greater Boston Chamber of Commerce’s president and CEO, Jim Rooney, told the Boston Globe that the inclusion of the garden leave provision was “unexpected,” and likely “would be a problem for [the Chamber].” Notably, we are unaware of any other jurisdiction in the United States that requires — statutorily or otherwise — “garden leave” payments as a prerequisite for the enforcement of non-competes.
Other provisions of the proposed legislation may cause some consternation for businesses, or at the very least, may require those businesses to change their practices. For example:
Additionally, as we have observed in many posts on our Wage and Hour Litigation Blog, the FLSA’s overtime exemptions are not always a model of clarity and can be a moving target. Accordingly, if an employee is exempt (and otherwise can legally be bound by a non-compete agreement under the proposed legislation) at the time of execution, but later becomes non-exempt due to changing FLSA regulations or caselaw, it is unclear whether a court would enforce a non-compete against the employee. Given that the bill provides that a “noncompetition agreement shall not be enforceable against . . . an employee who is classified as nonexempt” (emphasis added), as opposed to “was classified as nonexempt at the time of execution,” it appears likely that changes in the FLSA regulations could instantaneously prohibit an employer from enforcing certain non-compete agreements that were enforceable the day prior, without any change in an employee’s roles or responsibilities.
Not all provisions of the bill will be concerning to employers. For example, the legislation will not be retroactive — a major improvement over previous attempts to limit non-competes. Nor would the bill affect non-solicit provisions, non-disclosure agreements, non-competes made in connection with the sale of a business (or otherwise made outside of employment relationships), forfeiture agreements, or agreements not to reapply for employment. Other uncontroversial provisions include requirements that the agreement be signed, in writing, state that the employee has the right to consult with counsel, and must be provided to the employee by the earlier of a formal offer of employment or 10 business days before the commencement of the employee’s employment (which are already considered best practices for enforcement of non-competes in Massachusetts). Finally, the bill also would adopt the Uniform Trade Secret Act, which would leave New York as the lone hold-out.
At this point, the bill may move straight to a vote, or may be further discussed in the Ways & Means committee. In any event, given the apparent appetite in the Commonwealth both in the legislature and in the business community to come to some form of compromise, it appears that there is a fair chance we will see some non-compete legislation passed this year, or early in the next session.