Portfolio Media. Inc. | 111 West 19th Street, 5th Floor | New York, NY 10011 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | email@example.com New Mass. Law Would Make Enforcing Noncompetes Harder By Bret Cohen and Michael Steinberg (August 9, 2018, 1:08 PM EDT) For the better part of the last 10 years, the Massachusetts Legislature has considered, and ultimately failed to pass, numerous proposals for legislation regulating noncompete agreements. Finally, though, in the late hours of the last formal session of the 2017-2018 legislative calendar, the Massachusetts Legislature passed comprehensive noncompete legislation. The effective date of the new law, assuming it is signed by Gov. Charlie Baker, is Oct. 1, 2018. The new law places significant limitations on the scope of enforceable employee noncompetes, and accordingly employers should undertake a careful review of current practices to ensure that their employee noncompetes will be enforceable going forward. The new law will apply to most noncompete agreements entered into on or after Oct. 1, 2018, between employers and employees, with the exception of those made in connection with the separation of employment (although the law does require that any such agreement allow the employee seven days in which to revoke acceptance). Other types of restrictive employment covenants, such as nonsolicitation and confidentiality agreements, will not be governed by the new law — and thus the enforceability of such agreements will continue to be governed by Massachusetts common law. The new law also will not apply to noncompetes not arising from the employment relationship, such as those made in connection with the sale of a business. In a significant change from current law, the new legislation prohibits the use of noncompetes with certain types of employees, including employees who are nonexempt under the federal Fair Labor Standards Act, part-time college and graduate student employees, and employees under the age of 18. The most important change to the law is that an employer will not be able to enforce a noncompete executed on or after Oct. 1, 2018, against an employee whose termination is without cause or the result of a layoff. As a result, we believe that the enforcement of a noncompete will become a two-part fight: first, to prove that the termination was with cause, and second, to prove that the noncompete is otherwise valid and should be enforced. In addition, to be enforceable, noncompetes may not have a duration of more than 12 months following the employee’s separation (absent certain types of misconduct by the employee, such as a breach of fiduciary duty). This is also a substantial departure from current law, as Massachusetts courts have frequently upheld restrictions of significantly longer duration. It is worth noting that the new Bret Cohen legislation’s definition of “employee” includes independent contractors despite the significant legal distinctions between those two categories. Moreover, the law imposes new procedural safeguards. For noncompete agreements entered into at the commencement of employment to be valid, they must: (1) be presented in conjunction with a formal offer letter or at least 10 business days before the employee’s first day of work, whichever is earlier; (2) signed by both the employer and employee; and, (3) expressly indicate that the employee has a right to consult counsel before signing. For noncompetes entered into after the commencement of the employee’s employment, meanwhile, continued employment will no longer be sufficient consideration to support such an agreement — another departure from existing Massachusetts case law. Now, any post-commencement noncompete must be supported by “fair and reasonable” consideration independent of continued employment. As with precommencement restrictions, any post-commencement noncompete agreement must provide for at least 10 business days’ notice before it becomes effective, be signed by the employer and employee, and must expressly recite the employee’s right to consult with an attorney. As avid followers of the ongoing legislative debates over noncompete legislation in Massachusetts will know, one of the issues on which past efforts at reform had foundered was whether to require payment of so-called garden leave, which involves compensating former employees during the time they are prohibited from working at a competing company. The new legislation does not require garden leave, but rather provides that employers may offer garden leave in connection with a noncompete, in which case the employer must pay at least 50 percent of the employee’s annualized base salary during the noncompete period. In lieu of garden leave, a noncompete may provide “mutually agreed upon consideration” set forth in the agreement — the legislation does not specify the amount of such consideration or the timing of any payment. In many other respects, the new bill tracks the existing substantive requirements of Massachusetts case law. For example, as is the case under current common law, the new legislation provides that any agreement must be no broader in scope than necessary to protect the employer’s legitimate business interests, and must be reasonable in temporal and geographic scope. Relatedly, as under current law, to the extent that a court finds any provision of a noncompete to be overbroad, courts may reform or otherwise modify the agreement so that the restrictions are imposed only to the extent necessary to protect the employer’s legitimate business interests. The bill also contains venue provisions that will need to be clarified through judicial interpretation. All actions related to the enforcement of noncompete agreements under the new law must be commenced in the county in which the employee resides or, if mutually agreed upon by the employer and employee, in Suffolk County Superior Court. Curiously, however, the bill purports to provide that the Superior Court or Superior Court Business Litigation Session are to have “exclusive jurisdiction” over actions brought in Suffolk County. It is unlikely that this provision will be interpreted to preclude federal court jurisdiction over such actions, because a state legislature simply cannot control the scope of federal courts’ jurisdiction. Finally, the legislation contains a powerful choice-of-law provision under which employers are prohibited from applying any other state’s law to the construction or enforcement of a noncompete agreement with respect to any employee who lived in Massachusetts within the last 30 days before the termination of his or her employment. Thus, employers will need to take care to review any noncompete agreements that are in place with respect to employees who have recently moved to Massachusetts from another jurisdiction. As noted above, the new legislation only applies to noncompete agreements executed on or after the effective date of Oct. 1, 2018. Before the law goes into effect, employers with Massachusetts employees should thoroughly review current practices and employment agreements to ensure compliance going forward. Bret A. Cohen is a partner and chairman of the labor and employment practice and Michael E. Steinberg is an associate at Nelson Mullins Riley & Scarborough LLP. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.