New Proposed Noncompete Legislation in Massachusetts...
For anyone following the twists and turns in the Massachusetts noncompete discussion (see Freedom To Compete? A Symposium on Bills Affecting Employee Non-Compete Agreements below), you will be interested to know that the two legislators, Representatives Lori Ehrlich and Will Brownsberger, leading the charge have combined their efforts to arrive at a new proposed bill. This new proposed legislation (which I have been fortunate to have had opportunity to take the lead in drafting and, with others, including Rob Mantell, Caroline Huang, and Phil Gordon, to advise on) is available here, and is designed to provide a measure of clarity, predictability, and protection to both employers and employees.
Before identifying the primary elements of the bill, it is important to know that it applies to noncompete agreements arising in an employment context - not to those arising in other contexts (such as the sale of a business). Also, the legislation would not affect the use of other agreements, such as nondisclosure/confidentiality agreements, non-solicitation agreements, anti-piracy agreements, invention assignment agreements, or the like. (For a discussion of those other agreements, see Beyond the noncompete.)
So, onto the bill... If enacted, in addition to codifying, clarifying, and preserving much of the current law, the legislation would effect the following principal conceptual changes (applicable to employee noncompete agreements executed on or after January 1, 2010):
- Noncompete agreements would be required to be in writing and provided to the employee in advance of employment. If the agreement is entered into during the term of employment, in addition to the foregoing, the employee must be given reasonably adequate consideration (value) - beyond merely continued employment.
- The term of employee noncompete agreements would be limited to one year, except for garden leave clauses (i.e., noncompete agreements for which the employer pays the employee during the post-employment restricted period), which can last for up to two years, provided that they meet certain minimum consideration requirements (essentially, 50 percent of the employee's compensation).
- Presumptions of reasonableness and enforceability would arise for noncompete agreements that are limited in certain specified respects, such as durations of no more than six months.
- Employees earning less than $50,000 would be exempt from noncompetes. Those earning between $50,000 and $100,000 would be exempt, unless the noncompete is designed to protect trade secrets and/or confidential information. (In other words, an employee earning over $50,000 can be subject to a noncompetition agreement if the agreement is designed to protect trade secrets and/or confidential information. If the agreement is designed to protect only goodwill, however, the employee must be earning over $100,000 in total annual compensation.)
- If the noncompete is grossly overreaching or if reformed by a court in material respects, the employee would be entitled to legal fees - unless the noncompete was presumptively reasonable or was a garden leave clause meeting the requisite minimum thresholds for presumptive enforceability.
In sum, the legislation is designed to offer protections and incentives to both employers and employees, and make it easier for both sides to predict the outcome of any potential dispute, thereby reducing the need to resort to the courts for resolution of such disputes.