As we previously reported, Massachusetts is making yet another go at non-compete reform, as the Joint Committee on Labor & Workforce Development introduced a compromise bill at the end of May that has many in the Commonwealth talking. As we noted, there were several provisions that gave some commentators pause, including most notably a garden leave provision that would require employers to pay former employees bound by non-compete agreements 50% of their highest annualized salary over the last 2 years of employment for the restricted period.
House leaders have recently made edits to the bill that might provide some comfort to employers who rely on non-compete agreements and were wary of the bill’s provisions. First, the revised bill would allow an employer to agree to “other mutually-agreed upon consideration” as an alternative to garden leave, provided such consideration is specified in the agreement. This change has already made some in the business community more comfortable with the bill; for example, the Greater Boston Chamber of Commerce’s CEO, Jim Rooney, acknowledged that “it’s better than what we were working with.”
The revised bill would also maintain the status quo by allowing judges in the Commonwealth to reform non-competes that they deem overbroad (for example, by replacing a 100-mile geographic scope with a 50-mile one), which is a significant departure from the bill’s original text, which would have forced judges to invalidate such agreements even if they were largely enforceable, but only slightly overreaching. The original “red pencil” text, like the garden leave provision, was quite concerning to many in the business community, so this change will likely comfort many employers.
Additionally, an amendment revised the jurisdictional provision of the bill, and now provides that all civil actions relating to employee non-compete agreements be brought in either the county where the employee resides, or Suffolk county (where such actions would be brought in the Business Litigation Session) — although this still leaves some confusion as to whether a claim relating to a non-compete agreement could be brought in federal court. If not, the bill might lead to claim-splitting where an employer seeks to assert a Defend Trade Secrets Act claim. Finally, the revised bill would only apply to agreements entered into on or after October 1, 2016, allowing employers with additional time to revamp their agreements.
Yesterday, the House voted unanimously to approve the revised bill, sending it to the Senate, which will consider the legislation after July 4th. That said, despite the improvements noted above, there are still many provisions in the bill that might give employers heartburn; as we mentioned in our last post, among other things, the bill eliminates “continued employment” as sufficient consideration for such agreements, and prohibits non-competes across-the-board for certain categories of employees, including most notably those classified as non-exempt under the Fair Labor Standards Act.
It remains to be seen whether legislators will continue to revise the bill to address these (and other) concerns. However, given that the Senate voted unanimously to ban non-competes outright fairly recently, we anticipate that the bill will meet with considerable success in the Senate.
Finally, even assuming the bill passes, it’s still unclear whether Governor Baker will sign or veto it, given that his administration has not strongly signaled one way or the other how he views the pending legislation. That said, in the face of the unanimous vote in the House (and potential for a unanimous vote in the Senate), Governor Baker may be hard-pressed to justify a veto.