Section Review

From left: Dahlia C. Rudavsky and Ellen J. Messing

Following enactment of the Massachusetts Noncompetition Agreement Act, two of our colleagues who represent management opined in a Massachusetts Lawyers Weekly article that the new statute “will only create more confusion, uncertainty and litigation.” They concluded their review of the law by saying, “Nothing had to be done … why fix something that is not broken?”

From a plaintiff/employee perspective, a great deal has been “broken” in Massachusetts for a long time. The new law — while far from perfect — constitutes an important advance over the uncertain, unregulated common-law jurisprudence that employees have been up against.

The new statute creates several important limits on employers. First — and unaccountably ignored by most early commentators — noncompete agreements cannot be enforced against workers who are laid off, nor against those terminated without “cause.” Plaintiffs’ lawyers commonly face the painful prospect of advising employees fired without cause, perhaps in a setting suggesting discrimination or other unlawful motive, who had signed a noncompete as part of their employers’ onboarding paperwork. Not only are such people out of a job through no fault of their own, but also their best prospects for new work are cut off. The new law prohibits such cruelty, preventing this particular type of insult from being added to the injury of sudden job loss.

The second highly significant feature of the new law is that it bars the draconian imposition of noncompete agreements on people who cannot in any meaningful way impair employers’ protectible interests — goodwill and trade secrets. Although it is hard to conjure a set of facts where it would be appropriate to bar blue-collar or low-level administrative workers from competing, many employers have done so, sweeping their entire staffs into the ambit of a noncompete requirement regardless of its factual illogic. The new law forbids enforcement of noncompetes against low-wage (non-exempt) workers, students and youth. That, too, is a great improvement over the status quo.

Third, the law requires transparency. Employees must be given advance notice of an impending noncompete obligation. We have seen too many cases where a person has accepted a new position and left their former job, only to learn on the first day of work, or even later, that they’ll need to sign a noncompete to enter into or continue employment. The new statute forbids this sort of ambush.

Fourth, the employer must give “fair and reasonable” consideration beyond ongoing employment to an existing employee in exchange for the restrictions. The statute sets up as a norm the payment of half the employee’s highest annual wages (“garden leave”) for the period the noncompete is in place, and the use of the “fair and reasonable” descriptor suggests that no significant variation from that standard would pass muster.

Fifth, the new law fixes one year as the maximum duration for any noncompete, even those of highly paid employees with specialized knowledge (except in cases of misappropriation by the employee of certain employer property, where the limit is two years). The practice of employers using noncompetes to tie up their highly trained workers for years on end will no longer be tolerated.

Finally, the new statute clearly articulates standards of reasonableness for the scope of restrictions and their geographic reach. The statute does more than restate existing Massachusetts common law: It provides a template for future drafters, avoiding the in terrorem effect that so many overbroad pre-existing clauses have on employees unwilling to chance (or unable to finance) a court battle with their ex-employers.

To be sure, the new law is far from perfect. Although it went into effect on Oct. 1, 2018, it left in place existing agreements that would not survive the new restrictions. For a period of time into the future, Massachusetts employees who signed noncompetes that fail the new standards will have to rely on their prior employers’ discretion not to seek enforcement of now-questionable restrictions. It would have been far better to simply void noncompete terms that violate the new standards.

Second, the law should not have exempted separation agreements, which (like noncompetes presented to employees in connection with the start of employment) are often forced on employees at a time when they are uniquely vulnerable.

But in spite of these flaws, the new law is a great advance over the old, unpredictable common-law standards. It will protect the vast majority of Massachusetts workers. The next step for the legislature will be to address the negative impact of noncompetes on relatively higher-paid, higher-skilled workers, and to extend the new restrictions to noncompetes in separation agreements.