A new law covering non-compete agreements went into effect in Massachusetts on October 1, 2018. Ten years in the making, the law will undoubtedly have a significant impact on employment litigation, as the courts, business owners, and employees try to interpret the language. As a business owner, here’s a synopsis of what you need to know to draft a valid and enforceable non-compete agreement:
- This law applies to both Employees and Independent Contractors
- The non-compete agreement is limited to a maximum of 12 months (with some exceptions)
- If a business owner has an employee enter into a non-compete starting with the date of employment:
- The agreement must be signed by the employee and the employer; and
- The agreement must state that the employee has the right to consult counsel prior to signing; and
- The agreement must be given to the employee at the time of formal offer or ten (10) business days prior to starting employment, whichever is earlier
- If you don’t have a non-compete with a current employee, but want to put one into place, consult with an attorney first to ensure compliance with the required“fair and reasonable consideration”.
- “Garden Leave” (paying someone during the period that they are restricted by the non-compete) or “other mutually-agreed upon consideration” is required in an enforceable non-compete agreement. It requires that the employer pay the employee during the restrictive period, at a rate of 50% of the employee’s highest base salary in the two preceding years. In lieu of that, the employer and employee may agree to “Other mutually-agreed upon consideration”, but it must be specified in the agreement. Since this phrase is not defined in the law, there is no way to determine what a court deems as acceptable consideration.
- Non-compete agreements are banned for the following groups:
- Nonexempt employees under the FLSA
- Undergrads and grad students who are not working full time
- Employees who are terminated without cause or laid off
- Anyone 18 or younger
As always, the best course of action when drafting or enforcing a non-compete is to consult with a trusted advisor who understands the law and the risks associated with non-compliance.
Kelly Pappas, JD, CPCU, AIC, Co-Chair EM NARI Membership Committee