Massachusetts Noncompete Bill Enhanced By Senate

IMG_0017The enormous efforts at the State House to reform Massachusetts noncompete law continue.

Today, Senator Mark Montigny, on behalf of the Massachusetts Senate Committee on Rules, recommended a revised version of the bill that the House passed – and suggested that it be declared an “emergency law,” meaning that (unlike the House bill which would become effective on October 1) it would be effective immediately upon becoming law.

Technical modifications aside, the most significant differences from the House version (discussed here) are as follows:

(1) A requirement that “To remain valid and enforceable, the employer shall review a noncompetition agreement with the employee not less than once every five years.” This is unprecedented in noncompete law, but provides a mechanism – and requirement – for ensuring that the employee understands the continuing application of the agreement, as oftentimes seems not the case with long-ago signed agreements.

(2)  A three month maximum restricted period (instead of the House’s 12 months). The bill does, however, retain the two year period when “the employee has breached a fiduciary duty to the employer or . . . has unlawfully taken, physically or electronically, property belonging to the employer.”

(3) A requirement that the employer notify the employee, within 10 days of the termination of the employment relationship, of the employer’s intent to enforce the noncompete. This requirement does not apply where “the employee has breached a fiduciary duty to the employer or . . . has unlawfully taken, physically or electronically, property belonging to the employer.”

(4) The garden leave is retained, but instead of requiring payment during the restricted period at the rate of 50 percent of the employee’s “salary,” the payment will be at the rate of 100 percent of the employee’s “earning” (which, although undefined, can be far greater than the employee’s salary). In addition, although this version retains the ability for the parties to avoid this requirement through negatation, the negotiation must occur within 30 days immediately following the termination of the employment relationship. The payment can stop only if the employee breaches or for the period beyond three months (i.e., if the restricted period is extended because of a breach of fiduciary duties or the misappropriation of employer property).

(5) The addition of another category of persons exempt from noncompetes: persons who earn (on average on a weekly basis) less than two times the average weekly wage in Massachusetts. This would create an enormous category of persons exempt from noncompetes in Massachusetts.

(6) The red pencil rule is back in. (The red pencil rule, sometimes called the “all or nothing” rule, means that a court may not remedy a noncompete that is drafted too broadly.) The effect of this is to require noncompete agreements to be drafted carefully and narrowly, with the consequent effect that it provides a more precise statement of the restriction to which the employee is subject.

(7) The inevitable disclosure doctrine cannot be used “to extend an expired noncompete or otherwise render enforceable a noncompetition agreement that fails to satisfy the requirements of” the law.

(8) The requirement of “exclusive” jurisdiction in state courts (which likely was unenforceable anyway) has been removed.

Next step will be to see what the Senate does and whether there will be a conference committee to harmonize the two versions.

The deadline for this to be completed for the Governor is July 31.

Stay tuned – I’ll keep you posted!