Fate of Massachusetts Competing Noncompete Bills To Be Determined

The Massachusetts House and Senate have passed competing bills that stand to alter the landscape of noncompete law in the Commonwealth, though the ultimate impact on current law remains to be seen and will remain so at least until July 31, 2016, the end of the current legislative session.

On June 29, 2016, the Massachusetts House of Representatives passed a comprehensive noncompete reform bill, H.4434. The bill focuses on traditional non-competition agreements and would not change current law with regard to other restrictive covenants, such as non-solicitation agreements and non-competition agreements arising out of the sale of a business. The law would limit the duration of noncompetes to twelve months, although the employer could increase the duration to as long as two years if the employee has unlawfully taken property of the employer or breached his or her fiduciary duty to the employer. The law would prohibit noncompetes for certain workers, including non-exempt employees and employees terminated without cause or laid off. The House bill also requires that any noncompete agreement be provided to a new employee at the time of a formal offer of employment or ten business days before the employee’s start date, whichever is earlier.

Following passage of the House bill, on July 14, 2016, the Massachusetts Senate passed a bill, S.2418, that, although similar to the House bill, would more severely limit the use of noncompete agreements. For example, the Senate bill generally limits the duration of noncompetes to only three months, although it also allows for a restrictive period of two years in the event of certain wrongdoing by the employee. Unlike the House bill, it requires “garden leave” during the restricted period (3 months) equal to 100% of the employee’s highest annualized earnings during the prior two years of employment. The House bill calls for the employer to continue to pay 50% of salary during the restricted period. In short, under both versions the employer will need to pay the former employee not to compete.

The House and Senate will now attempt to resolve these differences before the end of the current session.

Prince Lobel will continue to monitor these legislative developments and the impact on Massachusetts employers. If passed, the legislation is likely to require modifications to existing agreements. However, in light of the uncertainty about whether a bill will pass, and, if it does, what it will contain, it is best to wait and see what form the legislation ultimately takes before amending current agreements or forms.

If you have any questions about the information presented here, or have any employment law concerns, please contact Daniel S. Tarlow, chair of the firm’s Employment Practice Group, at 617 456 8013 or dtarlow@princelobel.com.