There has been a serious push to clarify the way Massachusetts regulates noncompetition agreements. Many legislators and those in the high tech industries have voiced concern that the current approach hampers Massachusetts companies from competing with California high tech businesses where noncompetition agreements are not enforceable because they are contrary to public policy. The advocates of this approach feel that the freer movement of employees between competitors would create more innovation and competition. But the issue is not clear cut. There are many that want to enforce noncompetition agreements with no change in approach to protect innovation that the company has created.
A bill that attempts to reach a compromise between these two views has been making its way through the legislature. Recently, the latest version of House No. H4607, is now with the House Committee on Steering and Policy which decides when the bill will be considered by the full House. The following is a summary of the highlights of the bill which amends Chapter 149 of the General Laws by inserting a new section 24L.
While the amendment allows noncompetition agreements, it provides the following:
- Noncompetition agreements made in connection with the sale of a business, sale of assets of a business, or otherwise outside the employment relationship.
- Agreements by which the employee agrees to not reapply for employment to the same company after termination.
II. ELEMENTS NECESSARY TO BE VALID AND ENFORCEABLE
- A separate agreement in writing signed by employee and employer. - Applicable to an employee with average annualized federal gross income of at least $75,000 plus $1,500 for each full year from the amendment’s effective date.
- If a condition of employment, to the extent feasible, must provide copy 7 days before commencement of employment with notice that it is a condition of employment. - If entered into after commencement of employment, must be supported by adequate consideration which cannot be continued employment. 10% or more of current annual pay is presumptively adequate.
- Must protect one of the types of legitimate business interests listed in the bill. -
- Reasonable duration, but in no case more that 1 year from cessation of employment. Duration of no more than 6 months is presumptively valid. Tolling is allowed under certain circumstances. - Reasonable geographical scope in relation to interests served. Area limited to where employee provided service or had influence is presumptively reasonable. -
- Limited in scope of proscribed activities. If limited to type of service that employee is performing at the time presumed reasonable.
- The Court can reform an agreement in its discretion to make agreement valid and enforceable
- The Court can refuse to enforce the agreement if:
- Against public policy.
- In extraordinary circumstances.
- Necessary to avoid a harsh result.
- Based on common law or equitable factors that would militate non-enforcement. -
- The Court can award attorneys’ fees to the employee or the employer under certain circumstances outlined in the bill.
- No choice of law allowed that would avoid Massachusetts law if the employee has been a resident and working in Massachusetts for at least 30 days.
According to prevailing views about the pending legislation, additional changes will certainly be made. We will report on its progress.