Yesterday, the Massachusetts House of Representatives passed a comprehensive non-compete reform bill that, if enacted into law, will have significant impacts on businesses in the Commonwealth seeking to impose non-compete agreements on their employees.
Four provisions of the Massachusetts Noncompetiton Agreement Act are worth noting for their potential to restrict employer-friendly non-compete agreements:
Garden Leave – The new law would require that non-compete agreements contain a “garden leave” clause, obligating employers to pay an employee subject to a non-compete, post-termination, “at least 50 percent of the employee’s highest annualized base salary” during the two years before the termination.
Termination – Under the new law, non-competes would not be enforceable against employees who are terminated without cause or laid off. This would leave non-competes enforceable only against employees who are terminated for cause or those who terminate their employment voluntarily.
Amending Agreements - The new law would prevent courts from revising non-compete agreements in order to render them valid and enforceable. Overbroad agreements would be invalidated in their entirety.
Choice of Law – Under the new law, employers would not be able to avoid complying with the law by designating the controlling law to be that of another (more noncompete-friendly) state if the employee has been a resident of Massachusetts or employed in Massachusetts for 30 days before termination of employment.
Given that the Senate last year passed a somewhat similar bill, it seems quite likely that a new non-compete law will be passed—in some form—by the Legislature before the close of the current session on July 31.