Non-Competition Agreements: Massachusetts Meets California Halfway

By Thomas Carey. Chair of our Business Practice Group

California has long led the nation in its disdain for noncompetition agreements.  Pressed by venture capitalists who believe that this gives California an advantage over other states, the Massachusetts legislature has finally adopted a statute that curtails, but does not eliminate, noncompetition agreements. It applies whether the person bound by it is an employee or a consultant.

The recently enacted statute contains no grandfather provision that would allow existing noncompetition agreements to remain effective.  Thus, it is time to dust off old agreements to see whether they are still valid and, if not, to determine whether it is possible to amend them to make them enforceable.

Under the new statute, a noncompetition agreement generally must not have a term that exceeds one year and must be supported by continuing consideration such as “garden leave” pay that provides at least 50% of the annualized base salary of the former employee or consultant during the last two years of employment.  The “garden leave” clause allows for “other mutually-agreed upon consideration … specified in the non-competition agreement.”  It is not clear whether non-monetary consideration, such as accelerated vesting of a stock option, might be sufficient.

An employee or consultant who is terminated because of a breach of fiduciary duty or because he/she has unlawfully taken the employer’s physical or electronic property may be subjected to a second year of noncompetition obligation, and that second year need not be supported by garden leave or other consideration.

A noncompetition agreement will not be enforceable if:

• It is not in writing
• It is not signed by the employee or consultant
• It does not advise the employee or consultant of a right to consult with counsel and give that person 10 days to do so
• It is broader than need be to protect trade secrets, confidential information or goodwill of the employer
• It covers an unreasonably broad geographic reach. The region in which the employee or consultant provided services, or had a material presence or influence in the last two years of employment is presumed reasonable
• The employee or consultant is
  • nonexempt under the Federal Fair Labor Standards Act (FLSA), or
  • a student partaking in an internship or short-term employment relationship, or
  • age 18 or younger.
• The employer terminates the employee or consultant without cause or by a layoff.

No provision in the noncompetition agreement choosing the law of another state will be effective if the employee has been a resident of or employed in Massachusetts for at least 30 days immediately preceding his or her termination of employment.

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