A non-compete agreement is a contract that prohibits an employee from engaging in conduct that would compete with their employer following separation. If you are an employer, or an employee subject to a “non-compete,” it is critical to understand the requirements of these agreements and how they are enforced.
What makes a non-compete agreement enforceable?
To be enforceable in Massachusetts, a non-compete agreement must meet certain procedural and substantive requirements. Procedurally, the agreement must:
- Be in writing
- Be signed by both the employer and the employee
- State that the employee has a right to consult with a lawyer before signing the agreement
The employer is also required to provide notice of the agreement to the employee. The notice requirements change depending on when the employee is asked to sign the agreement.
When an employee is asked to sign the agreement at the beginning of his or her employment, the employer must provide a copy of the agreement to him or her before making a formal offer, or ten days before the employee starts, whichever is first. When an employee is required to sign a non-compete in the middle of his or her employment, the employer must give notice of the agreement no less than ten business days before the agreement would become effective.
Additionally, if an employer wants a current employee to sign a non-compete agreement, the worker must be compensated in some way. In legal parlance, it is said that the new agreement must be supported by additional “consideration.” Substantively, non-compete agreements must also:
- Be reasonable in duration: Non-compete agreements must not exceed a reasonable duration, which is defined by statute as no greater than one year following the termination of the employment relationship. The agreement must also be reasonable in terms of the geographic area it covers. It will be presumed geographically reasonable if it is limited to the places where the employee provided services or had a material presence or influence within the last two years of employment. The scope of the agreement should not exceed the activities the employee participated in during the employment period or other reasonable restrictions to protect a legitimate business interest.
- Protect a legitimate business interest: In Massachusetts, a non-compete is only enforceable to protect a legitimate business interest. Certain recognized interests include trade secrets, client lists, computer data, business plans and customer goodwill.
- Agree with good public policy: This favors an employee’s ability to move from one job to another without restriction. Only a narrowly tailored agreement designed to protect a legitimate business interest will meet this requirement.
- Contain a garden leave clause: Non-compete agreements must contain a “garden leave” clause, or some other form of mutually agreed-to consideration. This type of clause requires the employer to pay the employee at least 50 percent of his or her highest salary within the last two years during the duration of the non-compete period.
Employees who are exempted from non-compete agreements
Massachusetts does not allow non-compete agreements for certain professions, including physicians, nurses, social workers, broadcasters, and lawyers.
Additionally, non-compete agreements are not valid against low-wage employees. The law states that employees who are classified as “non-exempt” under the federal Fair Labor Standards Act (FLSA) may not be required to sign a non-compete agreement.
Non-competes are also prohibited or unenforceable when an employee is terminated without cause or laid off. These workers are not bound by the terms of any non-compete agreement that they have already signed with their employer.
Common professions using non-compete agreements
Some professions need non-compete agreements more than others. These include sales positions, CEOs and other executives, software developers, and marketing executives. These professions usually rely heavily on confidential client lists, computer data, and business plans, which are legitimate business interests the courts will protect.
Recent Changes in Massachusetts Non-Compete Laws
A new non-compete law in Massachusetts went into effect on October 1, 2018. It has a wide range of implications for employers and employees in Massachusetts.
Some of the most important changes are:
- Eliminating non-compete agreements when an employee is laid off or terminated without cause
- Requiring a new “garden leave” provision
- Establishing procedural requirements necessary to make non-compete agreements valid and enforceable
- Requiring notice to employees, and consideration if the agreement is to be signed after the employee was hired
- Setting the potential duration, scope, and geographical limits for non-compete agreements
- Identifying common business interests that can be protected by non-compete agreements
If you are a Massachusetts employer who wishes to use a non-compete agreement, or a person asked to sign a non-compete agreement, contact Silva & Salinas. We are experienced attorneys who have negotiated and litigated non-compete employment agreements.
Call 978-741-2000 or email us at [email protected].