Several states have recently seen changes to their laws concerning the enforcement of employee covenants not to compete (sometimes called “noncompetition agreements” or, more colloquially, “noncompete agreements”). Some of those changes have come from the courts (California, Georgia, Illinois, Texas, and Wisconsin), while others have come from state legislatures (Oregon, Idaho, and Connecticut). In the meantime, other states have been reexamining their own noncompetition laws (Georgia, Illinois, and Massachusetts). We reported on Georgia's status on March 29, 2010 (see http://www.foley.com/publications/pub_detail.aspx?pubid=6963).
Legislation in Massachusetts, drafted by Foley Partner Russell Beck at the request of Massachusetts State Representatives Lori Ehrlich and Will Brownsberger, was reported favorably out of a joint committee of the Senate and House of Representatives. This was a significant development and considerably increases the likelihood that the bill will become law by August 31, 2010, the end of this legislative year.
The bill would make sweeping changes to Massachusetts noncompetition law, most significantly, the following:
- Adding a requirement of advance notice before a noncompete agreement can be required
- Limiting the use of noncompete agreements to employees earning a minimum income (initially, $75,000)
- Limiting the term of noncompete agreements to a maximum of one year
- Requiring attorneys' fees to be paid to the employee in certain circumstances, but providing safe harbors for an employer to avoid that possibility
The bill is a game-changer and provides strong incentives for employers to write reasonable noncompete agreements.
Companies located or doing business in Massachusetts should consider examining their existing restrictive covenants and overall trade secret protection programs to ensure the greatest likelihood that their agreements will be enforced and their trade secrets protected.