Massachusetts Considers Severe Limitations on Noncompetes

In 2009, two Massachusetts
state legislators filed a bill calling for an outright ban of all noncompete
agreements in Massachusetts.
While that bill died on the vine, the attempted legislative assault on
noncompetition agreements continues.   

A bill
titled "An Act Relative to Noncompetition Agreements" was recently
recommended favorably by the House Joint Committee on Labor and Workforce
Development. If this bill becomes law, it will dramatically change the legal
landscape for employment noncompetition agreements. Some of the bill’s salient
features include:

  • Restricting noncompetes to employees who earn
    more than $75,000 a year, an amount that would increase by $1,500 each
    year
  • Limiting agreements to a period of no more than
    one year, and declaring a six-month restriction "presumptively
    reasonable"
  • Mandating that employers give candidates advance
    notice that signing a noncompete agreement will be required as a condition
    of employment
  • Requiring employers to provide consideration for
    agreements entered into after employment has commenced  (i.e.,
    continued employment will no longer be sufficient); the bill specifically
    provides that 10% of the employee’s then-compensation is considered
    "presumptively reasonable" consideration

The bill
makes an employer’s decision to seek judicial enforcement an
inherently risky one. Unless the restriction is presumptively reasonable (e.g.,
a six-month noncompetition period), the employer must pay the employee’s reasonable
legal fees in defending an enforcement action if the court either
does not enforce a material restriction or it reforms a restriction in a
material respect. 

The proposed
legislation contains a number of other features that will have a profound impact
on when and how employers use and seek to enforce noncompetition agreements in Massachusetts. For
example, the bill defines the presumptively reasonable geographic scope of a
noncompete as the area in which the employee provided services for the employer.
Under existing practice, noncompetes are commonly written to cover the
geographic scope of the employer’s entire business.

Prince Lobel
will closely monitor the progress of this bill, and will provide a timely
update should it become law.

If you would like more information
about the use or enforcement of noncompetition agreements or other
restrictive covenants, please contact Daniel
S. Tarlow
, the author of this Alert, at 617 456 8013 or dtarlow@princelobel.com