Massachusetts Noncompete Bill – Hearing Date

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cropped-cimg27721.jpgLast night, we had our 5th Annual Symposium on Employee Non-Compete Agreements, Trade Secrets and Job Creation. Following that discussion, I spoke with Representative Lori Ehrlich about the status of the current version of her and Senator Will Brownsberger’s noncompete bill (described below). Representative Ehrlich told me that the Joint Committee on Labor & Workforce Development (of which Rep. Ehrlich is the co-chair) will be conducting the hearing on the noncomepte bill on September 10, 2013. (Given my involvement with the bill, I will be testifying at the hearing and will report the details afterward.)

In the meantime, to the extent that you would like a refresher on the details, the current version of the bill – called the “Noncompete Agreement Duration Act” – leaves most noncompete law in tact, and, as its name suggests, focuses on the duration of noncompetes (in the employer/employee context). As before, the bill does not affect the law of trade secrets, nondisclosure agreements, nonsolicitation agreements, no raid/no hire agreements, noncompetes in connection with the sale of business (if the restricted person owns at least a 10 percent interest and received substantial consideration) or outside the employment context, forfeiture agreements, or agreements not to reapply for a job.

The bill starts with, and is premised on, the following two findings:

  • “[T]he Commonwealth of Massachusetts has a significant interest in its economic competitiveness and the protection of its employers, and a strong public policy favoring the mobility of its workforce” and
  • “[T]he Commonwealth of Massachusetts has determined that an employee noncompetition agreement restricting an employee’s mobility for longer than six months is a restraint on trade and harms the economy.”

The bill then creates a presumption that a noncompete that lasts up to six months is presumed reasonable in duration. The bill also creates the opposite presumption: a noncompete that lasts more than six months is presumed unreasonable in duration. The presumptions are not absolute; they can be overcome. If a court determines that the duration is unreasonable, however, the noncompete will be unenforceable in its entirety (i.e., the court will apply a “red pencil” approach).

There are three instances in which a noncompete that is unreasonable in duration can still be enforced (though the court will shorten the duration to the length of time determined to be appropriate). Those three instances are as follows:

  1. “the employee has breached his or her fiduciary duty to the employer”;
  2. “the employee unlawfully taken, physically or electronically, property belonging to the employer”; or
  3. “the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.”
We are continuing to seek input and comment, and would be extremely interested in hearing from you.

Connecticut Noncompete Law is Not Undergoing Legislative Changes

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UPDATE/CORRECTION (7/17/2013): It turns out that I had been mistaken about this. The various reports that the governor had signed the bill were incorrect. The bill had only made its way to the governor, but he had not signed it. And, he has in fact now vetoed it. So, for the moment at least, Connecticut’s law concerning noncompetes will not be changing any time soon. My apologies for any confusion! 

Happy 4th of July! (I hope you’re not reading this today – it can wait until Monday!)

Starting October 1, 2013, Connecticut noncompete law would have changed in one very important respect: In the context of corporate mergers and acquisitions, employers will be required to jump through a procedural hoop before they will be able to enforce certain noncompetes. (The text of the new law is reproduced below and available here.; the legislative history is available here.)

The bill is a bit unclear about exactly which noncompetes come within the purview of the new law. Specifically, it seems to apply to noncompetes that are “presented . . . as a condition of continued employment . . . .” See Section 1(b)(2). However, immediately after, it talks about “such noncompete” not just “entered into,” but “renewed or extended . . . .” Id.

This raises a few serious questions, not the least of which is how can a noncompete be renewed or extended (which suggests that it already exists) when it also needs to be “presented” (which suggests a new agreement with the new company)? Similarly, is it to say that once a company is merged with – note, not “into” – another, all employees of the two merged entities are now within the scope of the law?

Does it mean that from the time of the merger or acquisition forward, the company will need to comply with this statute, regardless of how long ago the acquisition or merger was?

Does “noncompete” mean just traditional noncompetes, or does it include garden leave clauses, nonsolicitation agreements, nondisclosure agreements, and other restrictive covenants? (This was a similar issue raised by New Hampshire’s recent noncompete statute, which I discussed at the time here.)

Does it apply to an employment agreement where only one portion contains the noncompete (as is often the case)?

I’m sure that these issues would have all be the subject of litigation at some point.

On the positive side (though admittedly not ideal for employers), the ambiguities could have been largely avoided by following the procedural requirement of providing a reasonable period (what’s is “reasonable,” you ask?) for the employee to consider the agreement before signing it.

Note that at a minimum, the period must be one week. Will that always be considered reasonable? Unclear. (I, for one, would want to consider the attendant circumstances before concluding that one week is sufficient.)

And, finally, the consequence of failing to comply is important: The agreement would have been void. That’s a big deal. As with much of the bill, however, that too is unclear. Would the entire agreement be void, or just the noncompete portion?

The full text is as follows:

AN ACT CONCERNING EMPLOYER USE OF NONCOMPETE AGREEMENTS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective October 1, 2013) (a) As used in this section:

(1) “Employee” means any person engaged in service to an employer in the business of the employer; and

(2) “Employer” means a person engaged in business who has employees, including the state and any political subdivision thereof.

(b) If (1) an employer is acquired by, or merged with, another employer, and (2) as a result of such merger or acquisition an employee of the employer is presented with a noncompete agreement as a condition of continued employment with the employer; any such noncompete agreement entered into, renewed or extended on or after October 1, 2013, between the employer and employee shall be void, unless prior to entering into the agreement, the employer provides the employee with a written copy of the agreement and a reasonable period of time, of not less than seven calendar days, to consider the merits of entering into the agreement.

(c) Nothing in this section shall be construed to limit or deny any rights an employee may have at law or in equity. An employee may waive the right provided under subsection (b) of this section if such waiver is reduced to a separate writing, sets forth the right being waived and is signed by the employee prior to entering into the agreement.

By the way, were you wondering about the image? It is nutmeg; it’s there because Connecticut is the Nutmeg State. 

New Computer Fraud and Abuse Act Bill

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Last week (on June 20, 2013), Representatives Zoe Lofgren (D-CA), James Sensenbrenner (R-WI), Mike Doyle (D-PA), Yvette Clarke (D-NY), and Jared Polis (D-CO) introduced a new (bipartisan) version of Rep. Lofgren’s prior bill to modify the Computer Fraud and Abuse Act (“CFAA”). The new bill, “Aaron’s Law Act of 2013,” is named for Aaron Swartz (the computer programmer behind RSS and Internet activist who committed suicide in the midst of being prosecuted for allegedly violating the CFAA).

One of the frequently-litigated issues concerning the CFAA is the scope of activity to which it applies. See CFAA: The Wait for the Supreme Court ContinuesAaron’s Law Act of 2013, if passed, would amend the CFAA to legislatively adopt the narrow interpretation of the law.

To do so, the bill would strike “exceeds authorized access” in section 1030(e)(6) (which is the definitional section) and replace it with “access without authorization,” which would be defined to have a three part test. Specifically, it would be defined to mean:  “(A) to obtain information on a protected computer; (B) that the accesser lacks authorized to obtain; and (C) by knowingly circumventing one or more technological or physical measures that are designed to exclude or prevent unauthorized individuals from obtaining that information.”

The bill would then modify the CFAA throughout to replace “unauthorized access, or exceeding authorized access, to a” with “access without authorization of a protected” and to strike “exceeds authorized access.”

Finally, the bill would  eliminate section 1030(a)(4) as redundant (one might question whether it is in fact redundant) and modify the penalties section, with the main goal of making the criminal penalties proportionate the harm caused by the crime.

Given the Obama’s continuing initiative to combat intellectual property theft (see Obama Administration Issues New Strategic Plan for Intellectual Property Enforcement) and the fact that the CFAA has been used more and more in recent years to target trade secrets misappropriation, it will be interesting to see what happens with bill, as it could be viewed by the Obama Administration as counter to its efforts.

Obama Administration Issues New Strategic Plan for Intellectual Property Enforcement

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In February 2013, the Obama Administration issued Administration Strategy on Mitigating the Theft of U.S. Trade Secrets. Part of that plan included the Administration’s solicitation of public comment. I, like a handful of others (13 of us in total), submitted comments. My  summary comments are available here (the PDF at the bottom (and here) has my full submission); links to all 13 submissions are available here.

On Thursday (June 20, 2013), the Obama Administration issued its 2013 Strategic Plan for Intellectual Property Enforcement. As explained by U.S. Intellectual Property Enforcement Coordinator Victoria Espinel, the Strategic Plan “builds on our efforts to protect intellectual property to date, and provides a roadmap for our work over the next three years.”

Ms. Espinel described in her blog how the new Strategic Plan fits in with prior plans as follows:

Since the first Joint Strategic Plan was released in 2010, the Administration has made tremendous progress in intellectual property enforcement. Coordination and efficiency of the Federal agencies has improved; U.S law enforcement has increased significantly and we have successfully worked with Congress to improve our legislation. We have increased our focus on trade secret theft and economic espionage that give foreign governments and companies an unfair competitive advantage by stealing our technology. We have pressed our trading partners to do more to improve enforcement of all types of intellectual property. We have encouraged the private sector to do more on a voluntary basis to make online infringement less profitable as a business, consistent with due process, free speech, privacy interests of users, competition law and protecting legitimate uses of the Internet.

Of particular relevance to trade secrets lawyers, Ms. Espinel focused on legislation as follows: “We will review our domestic legislation to make sure it is effective and up-to-date.”

As many readers of this blog know, there has already been some activity on that front with respect to the Economic Espionage Act and the Computer Fraud and Abuse Act. See here.

Stay tuned for more.

Trade Secret | Noncompete – Issues and Cases in the News – April 2013 Update

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extras_03True to the unfortunate limit of 24 hours in a day, my posts continue to written during my vacations. This time, given the extended delay between vacations, and therefore posts on issues and cases making trade secrets | noncompete news, I am posting just some highlights of the past few months. Here we go…

Obama Administration: In February 2013, the Obama Administration issued Administration Strategy on Mitigating the Theft of U.S. Trade Secrets. In furtherance of that strategy, on March 19, 2013, the Administration solicited public comment on possible trade secrets “for an Administration legislative review related to economic espionage and trade secret theft.” The notice is available here. Comments are due by April 22, 2013. Peter Toren has commented already; his comments are here: Read My Federal Register Comments on Existing Laws Related to the Enforcement of Trade Secrets.

Second Circuit (personal jurisdiction): The Second Circuit, in a trade secrets misappropriation case, found personal jurisdiction over a former employee of a Connecticut company, who was a citizen of Canada, residing and working in Canada. The former employee was accused of misappropriating the company’s confidential information by emailing it to herself between the time she found out that she had been terminated and her last day of work. The employee’s contacts with Connecticut (and the United States) were extremely limited. However, the Court found significant that the employee’s employment agreement contained notice to the employee that the company’s email servers were located in Connecticut and that the employee could not transfer the company’s information to her personal email. The Court concluded that this language in the employment agreement put the employee on notice that any misconduct using the company’s email would be directed into Connecticut (a factor in the analysis of whether to exercise personal jurisdiction). See MacDermid, Inc. v. Deiter.

Sixth Circuit (BYOD risks): Eric Osteroff wrote a nice post on the Sixth Circuit’s decision in Kendall Holdings, Ltd. v. Eden Cryogenics, LLC concerning the perils of BYOD (bring your own device) policies. BYOD practices can have significant ramifications for trade secrets risks and need to be carefully considered in light of an overall trade secrets policy and approach. See Ken Vanko‘s post, The BYOD Thicket: Some Basic Steps to Take for BusinessesSee also My phone or yours? EEOC official provides best practices for “bring your own device” policies.

Ninth Circuit: The Mattel v. MGA saga continues, with the reversal of MGA’s $170,000,000 trade secret verdict. See Ninth Circuit Takes Away MGA’s $170 Million Trade Secret Award Against Mattel

District of Columbia: Most noncompete and trade secrets litigation starts with the sending of a “cease and desist” letter. One concern is that the sending of such a letter might, if the facts turn out to be wrong, give rise to a defamation counterclaim. However, on March 18, 2013, the United States District Court for the District of Washington rejected just such a claim. Specifically, the court held that the letter was protected by the litigation privilege, and therefore could not give rise to a defamation claim. For a discussion of the case, see Kara Maciel‘s (from my former firm, Epstein Becker & Green) post, Cease and Desist Letters Enjoy An Absolute Privilege From Libel ClaimsAs John Marsh of Hahn Loeser points out, however, the fact that a defamation claim doesn’t lie, does not equate to no risk of a tortious interference claim. Cease and Desist Letters: Defamation May Not Be An Issue But Watch Out for Tortious Interference.

Federal Circuit: The Federal Circuit in Phillip M. Adams & Assoc., LLC v. Dell Computer Corp applied the discovery rule to toll the statute of limitation in a trade secrets case. For more discussion, see Federal Circuit Addresses Uniform Trade Secrets Act Discovery Rule by Eric Ostroff.

Florida: Notwithstanding a confidentiality agreement and nonsolicitation agreement, the United States District Court for the Middle District of Florida (Tampa) permitted a former employee to use her former employer’s customer list to mass email an announcement (sometimes called a “wedding-style announcement”) to her former employer’s customers. See The Variable Annuity Life Insurance Company (VALIC) v. Laeng. For additional reading, see Mass-Mailing To Public Employees Did Not Violate Non-Solicitation Agreement by John Nefflen at Burr Forman.

In another interesting case, Florida’s Fifth District Court of Appeals affirmed an injunction where the employer offered testimony establishing that it secured the noncompete to protect its goodwill, that the defendant had been offering similar services for less money, and that the employer lost business. For more, see Fox Rothchild‘s Jason Cornell‘s post, United States: Enforcing a Non-Compete Agreement in Florida: What Evidence is Relevant?

New York (CFAA): The United State District Court for the Southern District of New York has opted for the more narrow interpretation of the Computer Fraud and Abuse Act in Advanced Aerofoil Technologies, AG v. Todaro. For more, see The Computer Fraud and Abuse Act, and Protecting Employer’s Electronic Data by Kristin Parsons of Burr & Forman and Another Court Construes the CFAA Narrowly and More of My Thoughts on the Statute by Ken Vanko.

New York (jurisdiction/venue): On January 10, 2013, the New York Appellate Division, First Department, in Aon Risk Services v. Cusack, rejected efforts to dismiss a noncompete case in favor of a prior filed action in California. For an in-depth discussion, see Battle Rages On In Epic Restrictive Covenant Dispute by David Clark of Epstein Becker & Green.

North Carolina: The North Carolina Court of Appeals held a noncompete in a staffing case – involving the sale of business – to be unenforceable. The agreement covers a number of legal points, any one of which would be sufficient to invalidate the agreement based on its language.  The court noted the plaintiff’s admission that there were no trade secrets or proprietary information at issue and that the employees were “general laborer[s].” The court then determined that the agreement was overly broad and really directed toward preventing ordinary competition, rather than the protection of goodwill. See Phelps Staffing, LLC v. C. T. Phelps, Inc. Most interesting about the case, however, is that the plaintiff purchased the staffing company from its then-owned, defendant Sheila Phelps. But, Ms. Phelps’s husband, who had been working with her, had started a competing venture shortly before the sale. He was present at the sale, presumably understood the terms, and received substantial benefit from it (the sale was $1.4 million). Oddly, he was not required to sign any documents – although one of the agreements required him not to interfere. Accordingly, even though he was a clear threat, neither the trial court nor the Court of Appeals was willing to restrain him even though he benefited substantially from the sale. Compare that with Zions First National Bank v. Macke, discussed by Amy Dehnel at Berman Fink Van Horn in Can an Employee Use a Spouse to Circumvent Restrictive Covenants? Georgia Court of Appeals Says “No.”

Wyoming: According to RT, “A district judge in Wyoming has shot down a group of environmentalists who tried to gather information about the long-term effects of fracking . . . .” See Fracking chemicals to stay ‘trade secrets.’

Legislation and Bills: A handful of states have recently proposed legislation relating to noncompetes and/or trade secrets. Ken VankoJohn Marsh, and I recorded a FairlyCompeting podcast discussing some of that proposed legislation.Here is some additional information:

Illinois: The Illinois House of Representatives has introduced a bill that, although saying it would allow “noncompetes,” would actually ban noncompetes, though allow  nonsolicitation agreements if they meet certain defined criteria. Although the bill is too long to post its contents, the full text can be found here. Ken Vanko has a nice discussion of the bill in A Brief Commentary on Illinois’ Proposed Noncompete Agreement Act.

Maryland: The Maryland Senate introduced a bill that would render noncompetes enforceable if the employee were terminated and therefore eligible for unemployment benefits. The operative text is as follows:

IF AN INDIVIDUAL WHO IS UNEMPLOYED HAS APPLIED FOR AND IS FOUND ELIGIBLE TO RECEIVE UNEMPLOYMENT INSURANCE BENEFITS AS PROVIDED IN TITLE 8 OF THIS ARTICLE, THE INDIVIDUAL MAY NOT BE BOUND BY A NONCOMPETITION COVENANT ENTERED INTO WITH THE INDIVIDUALS PRIOR EMPLOYER.

The bill would apply only prospectively to noncompetes entered into after October 1, 2013 (the putative effective date of the statute). The bill has, however, been reported unfavorably out of the Finance Committee.

Massachusetts: I previously discussed the proposed, scaled-down noncompete legislation in Massachusetts, limiting the duration of noncompetes, unless one of three exceptions exists. See New Massachusetts Noncompete Bill. The bill has been referred to the Committee on Labor and Workforce Development.

In addition, Massachusetts is again considering adopting the Uniform Trade Secrets Act (HB 27). This time, however, there is a competing UTSA bill (HB 1225) that combines the UTSA with an outright ban of employee noncompetes. The text relating to noncompetes provides:

Section 19 of Chapter 149 of the General Laws of Massachusetts is hereby amended by inserting at the end the following new paragraphs:

Any written or oral contract or agreement arising out of an employment relationship that prohibits, impairs, restrains, restricts, or places any condition on, a person’s ability to seek, engage in or accept any type of employment or independent contractor work, for any period of time after an employment relationship has ended, shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement.

For the purposes of this section, chapter 149, section 148B shall control the definition of employment.

This section shall be construed liberally for the accomplishment of its purposes, and no other provision of the General Laws shall be construed in a manner that would limit its coverage. Nothing in this section shall preempt tort or contract claims, or other statutory claims, based upon an employer’s use, or attempted use of an unlawful contract or agreement to interfere with subsequent employment or contractor work.

This section shall apply to all contracts and agreements, including those executed before the effective date of this act.

Both UTSA bills were referred to the Judiciary Committee, and remain there.

Michigan: The Michigan Senate introduced SB 786, which, if passed would, like New Hampshire (see here), require advance notice of noncompetes. The text of the bill is as follows:

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 4a. (1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.
THIS SUBSECTION APPLIES to covenants and agreements entered into after March 29, 1985.
(2) AN EMPLOYER SHALL NOT REQUIRE AND A COURT SHALL NOT ENFORCE AN AGREEMENT OR COVENANT UNDER THIS SECTION AS A CONDITION OF EMPLOYMENT IF THE EMPLOYER DID NOT INFORM THE EMPLOYEE OF THE REQUIREMENT AT OR BEFORE THE TIME OF THE INITIAL OFFER OF EMPLOYMENT. THIS SUBSECTION APPLIES TO AN AGREEMENT OR COVENANT ENTERED INTO AFTER THE EFFECTIVE DATE OF THE AMENDATORY ACT THAT ADDED THIS SUBSECTION.
Ken Vanko has an interesting discussion of the bill here.

Minnesota: The Minnesota House of Representatives introduced H. F. No. 506, which contains the following text:

 A bill for an act relating to commerce; regulating employment agreements; voiding certain noncompete agreements; proposing coding for new law in Minnesota Statutes, chapter 325D.

 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

 Section 1. [325D.72] NONCOMPETE AGREEMENTS VOID.

 A contract that prohibits a party to that contract from exercising a lawful profession, trade, or business is void with the following exceptions:

(1) a seller of a business’ goodwill can agree to refrain from carrying on a similar business in a specified county, city, or part of one of them if the buyer carries on a like business in that area;

(2) partners dissolving a partnership can agree that one or more of them will not carry on a similar business in a specified county, city, or part of one of them where the partnership transacted business; and

(3) a member, when dissolving or terminating their interest in a limited liability company, can agree that the member will not carry on a similar business in a specified county, city, or part of one of them where the business has been transacted if another member or someone taking title to the business carries on a like business in that area.

 EFFECTIVE DATE. This section is effective the day following final enactment.

For additional reading, see Minnesota House Bill Threatens to Void Non-Compete Agreements by Faegre Baker Daniels.

New Jersey: The New Jersey Assembly introduced a bill A3970 much like the bill introduced by Maryland (see above). The text is as follows:

BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:

      1.    An unemployed individual found to be eligible to receive benefits pursuant to the “unemployment compensation law,” R.S.43:21-1 et seq., shall not be bound by any covenant, contract, or agreement, entered into with the individual’s most recent employer, not to compete, not to disclose, or not to solicit. This section shall not be construed to apply to any covenant, contract, or agreement in effect on or before the date of enactment of P.L.   , c.  (C.   )(pending before the Legislature as this bill).

      2.    This act shall take effect immediately.

Thank you to both Douglas Neu and Janette Levey Frisch for bringing this to my attention. For some additional reading, see Heated discussion as attorneys debate merits of noncompete bill and New Jersey Joins Wave Of States Considering Limitations on Noncompete Agreements. Thanks to Sue Reisinger for her article, Looking at the Future of Cybersecurity.

Texas: The Texas legislature is considering SB 953, which would effectively adopt the Uniform Trade Secrets Act, making Texas the 48th state to adopt some version, leaving just Massachusetts and New York as the last-remaining holdouts.

Related Items of Interest:

Fairly Competing – A New Podcast

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FairComp LogoI am thrilled to announce that I have been given the opportunity to work with two of my favorite (though far more prolific) bloggers, Ken Vanko and John Marsh, to create a brand new podcast: Fairly Competing, a Competition Law Podcast. It is among the first podcasts devoted to trade secrets, restrictive covenants (noncompetes), and related unfair competition laws.

We have recorded two episodes so far, and will be recording our third soon. We hope to record one every two weeks or so. They will generally last about 20-25 minutes, after the first episode (which was about 40 minutes). The will be available to listen to through the three speakers’ blogs, on iTunes, and on Fairly Competing.

The first episode is an examination of a few of the most significant trade secrets/noncompete/unfair competition developments in 2012 (sort of an abbreviated year in review).

For anyone interested in a more detailed review of the trade secrets developments in 2012, I have provided here my (quite lengthy) materials for the trade secrets portion of this year’s Boston Bar Association’s annual IP Law Year in Review CLE. In addition, both Ken Vanko (here) and John Marsh (starting here) have excellent posts covering similar issues.

The second episode covers the recent prosecution of internet activist and Reddit founder, Aaron Swartz, under the Computer Fraud and Abuse Act (CFAA). We discuss the forces that shaped this tragic case, consider whether changes to the CFAA are needed, and debate whether Silicon Valley Congresswoman Zoe Lofgren’s proposed amendment to the CFAA goes far enough.

The third episode will cover recent and proposed noncompete legislation around the country.

To subscribe to our podcast on iTune, click here.

We hope you will listen and enjoy them as much as we do!

New Massachusetts Noncompete Bill

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cropped-cimg27721.jpgThere is a new noncompete bill in Massachusetts. (Jump to the end for the details.) It is not yet docketed, however, so I do not have an official version to post at this time.

Those following the Massachusetts legislature’s efforts to improve Massachusetts noncompete law will recall that in 2008, then-Representative, now Senator, Will Brownsberger and Representative Lori Erhlich each separately introduced their own noncompete bills. Brownsberger’s bill took the approach in California, Oklahoma, and North Dakota, banning noncompetes in the employee context. Ehrlich’s bill took a moderated approach, focusing on procedural and other limits.

In the spring of 2009, Rep. Brownsberger and Rep. Ehrlich decided to work together toward modifications acceptable to both. After extensive input from many different interests, they arrived at a “compromise bill” designed to codify, clarify, and modernize Massachusetts noncompete law. The compromise bill was revised over time and developed quite a bit of steam during the 2008–2009 legislative session, but ultimately died. Then, a revised version of the bill was introduced in 2010, though it too ultimately died.

This session, Senator Brownsberger and Representative Erhlich have tried an entirely new, streamlined approach. (As readers of this blog will know, I was involved with the bills from the very beginning, including this new bill, and have been the principal draftsperson; I view my role, however, as purely advisory and that of scrivener. I give my opinions on the pros and cons of the various possible approaches and language, but take no position on the policy.)

The new bill – called the “Noncompete Agreement Duration Act” – leaves most noncompete law in tact, and, as its name suggests, focuses on the duration of noncompetes (in the employer/employee context). As before, the bill does not affect the law of trade secrets, nondisclosure agreements, nonsolicitation agreements, no raid/no hire agreements, noncompetes in connection with the sale of business (if the restricted person owns at least a 10 percent interest and received substantial consideration) or outside the employment context, forfeiture agreements, or agreements not to reapply for a job.

The bill starts with, and is premised on, the following two findings:

  • “[T]he Commonwealth of Massachusetts has a significant interest in its economic competitiveness and the protection of its employers, and a strong public policy favoring the mobility of its workforce” and
  • “[T]he Commonwealth of Massachusetts has determined that an employee noncompetition agreement restricting an employee’s mobility for longer than six months is a restraint on trade and harms the economy.”

The bill then creates a presumption that a noncompete that lasts up to six months is presumed reasonable in duration. The bill also creates the opposite presumption: a noncompete that lasts more than six months is presumed unreasonable in duration. The presumptions are not absolute; they can be overcome. If a court determines that the duration is unreasonable, however, the noncompete will be unenforceable in its entirety.

There are three instances in which a noncompete that is unreasonable in duration can still be enforced (though the court will shorten the duration to the length of time determined to be appropriate). Those three instances are as follows:

  1. “the employee has breached his or her fiduciary duty to the employer”; 
  2. “the employee unlawfully taken, physically or electronically, property belonging to the employer”; or
  3. “the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.”
I expect that the bill – as well as another bill taking the California approach – will continue to be the subject of much discussion. If you have input, we would be extremely interested in hearing from you.

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