In August 2018, Massachusetts enacted an important law that regulates non-competition agreements (“non-competes”). The law is called the Massachusetts Noncompetition Agreement Act (“MNCA”). * Its goal is to ensure that non-competes are narrow and reasonable. Companies can enforce non-competes against departing employees, but only to protect trade secrets, confidential information, and good will. Under MNCA, a non-compete can last one year from termination. That period can be extended a year when employees steal company property or breach their fiduciary duty. Non-competes must have a limited geographical reach and must relate to services provided by the employee. Employees must have ten or more days to consider a non-compete and to review with counsel. Non-competes must be supported by adequate consideration, such as a promise to pay “garden leave.” This is simply severance pay equivalent to at least half of the employee’s annualized base salary. Alternatively, companies may offer “other mutually agreed consideration.” Unfortunately, MNCA fails to discuss alternative consideration that is acceptable. Companies may decline to pay garden leave if they release former employees from non-compete restrictions.
Under the new law, certain employees cannot be bound by non-competes. These include employees who are eligible for overtime, employees who are laid off, workers who are terminated without cause, and certain others. Importantly, the new law only applies to non-competes that are executed in or after October 2018. The law also does restrict many other common employment agreements, including non-solicitation contracts, non-disclosure agreements (NDAs), severance agreements, and others.
*The full text can be found here: https://www.mass.gov/info-details/mass-general-laws-c149-ss-24l
Please contact us to learn more about non-competes. Given the complexity and ambiguity of the new law, companies should consult an attorney before utilizing or enforcing non-competes.
