MA Noncompete Bill: Summary of Potential Changes

This post is intended to answer many of the questions that I have been asked lately about the pending noncompete legislation.

First, two important points:

(1) The bill would not apply retroactively (i.e., it would not apply to noncompete agreements that exist when the law becomes effective).  Lawyers being lawyers, however, that’s not the end of the inquiry.  Lawyers seeking to help their clients avoid existing noncompete agreements will likely argue that the bill provides guidance that should be followed in interpreting existing agreements.

(2) The bill does not affect nondisclosure agreements, nonsolicitation agreements, anti-piracy agreements, other similar restrictive covenants, or noncompetition agreements outside of the employment context (for example, in the context of the sale of a business). Such agreements are specifically exempted from the scope of the bill.

With that said, the principal changes are as follows:

  • The bill codifies current law, insofar as noncompetition agreements may be enforced if, among other things, they are reasonable in duration, geographic reach, and scope of proscribed activities and necessary to protect the employer’s trade secrets, other confidential information, or goodwill. Similarly, courts may continue to reform noncompetition agreements to make them enforceable and refuse to enforce such agreements in certain circumstances.
  • The bill requires that noncompetes be in writing, signed by both parties, and, in most circumstances, provided to the employee two weeks in advance of employment. If the agreement is required after employment starts, the employee must be provided with consideration (beyond just continued employment). Ten percent of the employee’s then-current compensation is considered presumptively reasonable.
  • The bill prohibits enforcement of noncompete agreements against an employee whose average annual federal gross income derived from the employer during the three years immediately prior to the cessation of employment is $75,000 of less. This amount increases by $1,500 every year on the anniversary of the bill’s effective date.
  • The bill restricts noncompete agreements to one year
  • The bill identifies certain restrictions that will be presumptively reasonable and therefore enforceable (if all other requirements are met).
  • The bill requires payment of the employee’s legal fees under certain circumstances, primarily where the agreement is not enforced in most respects by the court or where the employer acted in bad faith. The bill does, however, provide a safe harbor for employers to avoid the prospect of having to pay the employee’s legal fees, specifically, if the noncompete is no more restrictive than the presumptively reasonable restrictions set forth in the bill. Similarly, an employer may receive its legal fees, but only if otherwise permitted by statute or contract, the agreement falls within the safe harbor, the noncompete was enforced, and the employee acted in bad faith.
  • The bill rejects the inevitable disclosure doctrine (a doctrine by which a court can stop an employee from working for a competitor of the former employer even in the absence of a noncompetition agreement).
  • The bill places limitations on forfeiture agreements (agreements that can otherwise be used as de facto noncompetition agreements).