Non-competition agreements (often referred to as “non-competes”) continue to generate much discussion in the business world, particularly in Massachusetts. Non-competition agreements are usually found in two contexts: between an employer and employee, and in a sale of a business. Most of the press surrounds the employer/employee context, as that is the far more common non-compete scenario that potentially impacts businesses and employees throughout the state. Some states have a non-compete statute that sets forth the legality and requirements, but Massachusetts does not have such a statute (although Massachusetts does have a few statutes that bar non-competes for specific professions, such as physicians, nurses, and social workers). Instead, the Massachusetts non-compete scheme has developed via case-law.
Many people have heard of non-competes and are familiar with the basic idea, but as with many legal concepts, the devil is in the details. At a basic level, in order for a non-compete to be enforceable, it has to be reasonable. What is meant by “reasonable”? In addition to being no more restrictive than necessary to protect the employer’s legitimate interest, courts will look at three metrics: duration, geography, and purpose. For duration, Massachusetts courts have enforced non-competes with a one or two-year duration. Anything longer will be viewed with judicial skepticism and require a truly compelling reason. For geography, Massachusetts courts will generally enforce limitations related to the employee’s territory, the employer’s operating area, and the employer’s current clients. Although a nationwide restriction has been upheld, the business must actually operate nationwide. The final metric is purpose. Despite the title, merely avoiding ordinary competition is not a good reason to have a non-compete. Instead, the non-compete has to be necessary to protect a legitimate business interest. Courts need to see the protection of confidential information, such as customer lists, customer data, customer good will, business plans, marketing strategies, proprietary data and processes, and the like.
Non-competes can be a useful tool for employers, but non-competes must be drafted carefully in order to maximize the chance of a court enforcing it. Both employers seeking an effective non-compete, and employees subject to a non-compete, should seek the advice of a competent Massachusetts employment attorney to ensure legal compliance.