Over the past few years, we have reported on the Massachusetts Legislature’s unsuccessful attempts to alter non-compete law in the Commonwealth. In 2016, the Legislature was tantalizingly close to passing legislation before adjourning in July without reaching a compromise, and no fewer than six non-compete bills were introduced in 2017.
This year, on April 17, 2018, the Joint Committee on Labor and Workforce Development submitted a new bill, House Bill 4419, in place of the prior bills.
Significant points of H.B. 4419 include the following:
Garden Leave Requirement
Likely the most contested issue in the competing non-compete bills filed last year—variations of so-called “garden leave” requirements appeared in three of the six bills—H.B. 4419 requires “garden leave” payments or “other mutually-agreed upon consideration” to an employee. If an employer opts for garden leave payments, they must be 50 percent of the employee’s salary over the last two years of employment on a pro rata basis over the entirety of the restricted period.
Interestingly, while in the previous bills the “other mutually-agreed consideration” had to be at least equal to the amount of the garden leave payment, this is not so in H.B. 4119. The newest bill provides no requirements as to the amount of the “other mutually-agreed consideration.” Similarly, unlike the previous bills, H.B. 4419 offers no guidance as to timing of payment of “other mutually-agreed consideration,” so an employer could provide it at any time, perhaps at the inception of employment.
The language of garden leave provisions were a sticking point in prior bills, and H.B. 4419 will likely be no different.
Other Potential Changes to Current Massachusetts Law
If enacted, H.B. 4419 would alter current Massachusetts non-compete law, but not as drastically as prior non-compete bills:
- In contrast to current law, the bill requires additional consideration beyond continued employment for non-compete agreements entered into after the commencement of employment. If enacted, Massachusetts would be among a very small minority of states with such a requirement.
- In contrast to current law, advance notice of the non-compete must be provided to employees. For non-competes entered into in connection with the commencement of employment, the non-compete must be provided to the employee the earlier of a formal offer of employment or 10 business days before employment commences. For non-competes entered into after commencement of employment, the non-compete must be provided to the employee at least 10 business days before it is to become effective. Again, if enacted, Massachusetts would be part of a very small minority of states with an advance notice requirement.
- Most of the 2017 bills would have prohibited courts from “blue-penciling” or reforming overbroad non-competes, thereby rendering an overbroad non-compete totally null and void. This would have been a massive change to existing law. H.B. 4419 instead allows courts to “reform or otherwise revise” an overbroad non-compete, consistent with current practice.
- Non-competes would be banned altogether for certain employees, such as FLSA non-exempt employees, students, and those employees terminated without cause.
Given the long history of attempted non-compete reform in Massachusetts, we are not holding our breath that H.B. 4419 makes it out of the Legislature by the July 31, 2018 deadline. If enacted, however, employers will have a lot of work to do on non-competes that will be entered into after the bill’s October 1, 2018 effective date.