As we last reported, just a few weeks ago, the Massachusetts House of Representatives unanimously approved a non-compete bill that revised the original draft bill and addressed some of the business community’s concerns (such as the mandatory garden leave provision, prohibition on judicial reform of overbroad agreements, etc.). However, the Senate yesterday introduced a version that would dramatically curtail the enforceability of non-competes in Massachusetts, making substantial changes to the House’s version (and in some cases, even going beyond the original bill prior to the House’s compromise edits). Most — if not all — of the revisions are sure to concern those companies that use non-competes as one tool to protect their intellectual property:
- The time limits for non-competes (except in cases where an employee has breached a fiduciary duty or engaged in misappropriation) would be limited to a mere three months, as distinct from the House’s 12 month provision;
- To be enforceable, an employer must inform the employee of its intention to enforce the non-compete within 10 days of the termination of the employment relationship;
- All non-competes must be “reviewed” with the employee at least once every 5 years after execution, although it is unclear what this “review” must consist of;
- The non-compete must be supported by a garden leave clause or other mutually agreed upon consideration — although unlike the House’s version, which required a garden leave provision whereby an employee would receive 50% of his or her annualized salary or other agreed upon consideration (without dictating what the consideration must be), the Senate’s version requires the garden leave and/or other consideration to be equal to or greater than 100% of the employee’s highest annualized earnings within the prior 2 year period (note that earnings can be substantially greater than salary);
- In addition to the numerous categories of employees that cannot be bound by non-competes under the House’s approved bill, the Senate’s version also prohibits enforcement of non-competes against employees “whose average weekly earnings . . . are less than 2 times the average weekly wage in the commonwealth” (based on the latest figures published by the United States Department of Labor, that would mean that employees making less than approximately $118,000 could not be bound by non-competes);
- The Senate’s bill would reinstate the provision in the original bill that a court could not judicially reform an overbroad non-compete — a major departure from the current state of the law in Massachusetts (and an about-face from the House’s compromise);
- The bill would also prohibit a court from relying on the “inevitable disclosure” doctrine to supplement non-competes or render an otherwise unenforceable agreement enforceable;
- The bill would prohibit any provision that would penalize an employee from defending against or challenging the enforceability of a non-compete agreement (in other words, attorneys’ fees provisions);
- Finally, Senator Mark Montigny of the Senate’s Committee on Rules has recommended that the bill be declared an “emergency law” — which would mean that if passed, it would go into effect immediately, rather than on October 1.
As previously noted, the current legislative session ends on July 31, so legislators will need to move quickly if this version is to pass. While we noted in our last post that the atmosphere in the Commonwealth seemed favorable to passage of the House’s version, we anticipate that the local business community will strongly voice its opposition to this latest draft.