Massachusetts Considering Changes to Non-Compete Agreement Laws

I recently attended a panel lecture on trade secrets and non-compete agreements. One of the panel guests was Massachusetts State Representative Lori Ehrlich, who is one of the sponsors of a bill this legislative session that would reform the laws regarding non-compete agreements in the Commonwealth; her bill was one of the focal points of discussion of the panel. Although the session ends today and therefore the bill almost certainly will not pass before the end of business today, Representative Ehrlich has stated her intention to resubmit the bill in the next legislative session next year. As of right now, Representative Ehrlich intends to submit the bill again in its current form; however, she also stated her openness to changing the bill before introducing it again, depending on citizen and business input.

Currently, Massachusetts is considered one of the more liberal states when it comes to enforcement of non-compete agreements, unlike states like California where non-competes are almost categorically unenforceable except in narrow situations such as sale of a business. The panel I attended highlighted the chilling effects on innovation that non-competes can have; many (but not all) business owners don’t want to move greatly in the direction of the California standard, so the proposed bill simply attempts to equalize the balance of power between employers and employees when it comes to non-competes so that employees have more bargaining power and more flexibility to leave their jobs and seek similar work.

The proposed bill makes two major procedural changes to non-compete agreements. First, the bill would for the first time require notice (5 business days for new employment, and 10 business days for continued employment [additional consideration is also required in the case of continued employment]) and right to counsel for employees before they are required by the employer to sign a non-compete. Second, in the event of litigation arising from the non-compete, the employee’s attorneys’ fees become mandatory in many circumstances, while the employer’s attorneys’ fees are awarded at the court’s discretion (the goal of awarding attorneys’ fees is ostensibly to reduce non-compete litigation or encourage the parties to settle their dispute outside of the courts, and potential give employee additional flexibility to seek new work, by shifting the costs of enforcement onto the employer).

The bill also give some statutory guidelines to courts in addressing the substantive issues of (1) time, (2) space, and (3) scope in non-compete agreements. The bill puts a more definite cap on the acceptable length of non-compete enforcement: Massachusetts courts have in the past largely settled on one year as a cap for most non-competes, and that carries over to the bill as a hard cap, while the bill also makes the rebuttable presumption that a non-compete period of 6 months or less is reasonable, and also allows for a 2-year garden leave (a garden leave is a non-compete provision where the company compensates the employee for staying out of the workforce for the period of the agreement). In terms of space and scope provisions, the bill makes a rebuttable presumption that the geographic area in which the employee worked and the services that the employee provided, within the last 2 years of employment, are reasonable geographic and employment scope provisions in a non-compete agreement.

The rest of the common law relating to non-compete agreements is left largely unchanged by the bill. It is unclear whether the bill will pass or even make it to a vote in the next legislative session; according to Representative Ehrlich, the legislature is relatively evenly divided on the issue.