Last year, Massachusetts reformed the law by passing the Massachusetts Noncompetition Agreement Act (Mass General Laws c. 149 §24L) Do you know whether your current practice adheres to the new law? Here’s what you need to know:
Noncompete agreements are designed to help employers protect valuable information from leaking when employees leave. Because these agreements restrict an employee’s ability to seek other employment, a balance must be struck that protects the needs of both parties. That’s the goal of the new Massachusetts law.
Whether employers require employees to sign noncompetition agreements varies from industry to industry. Before you consider implementing such a hiring policy, you should assess your business to determine if such an agreement is really necessary. The Act applies only to noncompete agreements between employers and employees (as opposed to contractors, for example), and it defines certain minimum requirements that must be met in order for the agreement to be enforceable.
Ten Day Review Period Required
In particular, employers cannot surprise prospective employees by springing a noncompete on them the day before they begin their new job; a noncompete must be included with the offer of employment or provided at least 10 days before the employee’s start date. Likewise, if the employer requires an existing employee to sign a noncompete, there must be a 10-day window before the agreement takes effect. This allows the employee sufficient time to review the noncompete and also to seek independent counsel. The agreement must state that the employee has the right to consult with his or her own independent counsel before signing.
“Reasonable” Restrictions for Employers and Employees
Regarding the scope of noncompetes, the legislature has sought to make restrictions reasonable for both parties. For example, the length of the noncompete agreement cannot exceed 12 months, and geographic restrictions cannot exceed the area in which the employee worked for the past two years. In addition, protectable information is limited to trade secrets, confidential information, and good will.
Compensation for Limiting Future Employment Opportunities
Finally, the agreement must include a “garden leave” clause, where the employee is paid during the noncompete period at a rate of at least 50 percent of their highest salary within their last two years of employment, or other mutually agreed upon consideration that compensates the employee for agreeing to enter the noncompete agreement, since he or she is relinquishing possible opportunities to work in that field upon signing.
If you’re an employer, and if you use noncompete agreements in your business for new hires, then make certain that you are adhering to Massachusetts Law. Alternatively, if you’re an employee and you have been given a noncompete agreement in connection with your employment, it’s best to have that document reviewed by your personal attorney before you sign.
If you have questions about noncompetition agreements, please contact me for a consultation: firstname.lastname@example.org; 508-756-2423.