Tag Archives: non-compete

Non-Compete Reform Comes to Massachusetts

By on August 30, 2018

     After years of trying to find common ground on non-compete reform, the Massachusetts legislature passed a bill – which Governor Charlie Baker signed into law on August 10, 2018 – that promises to significantly change the employment landscape in the Commonwealth. The new law will take effect on October 1, 2018.

The following is a brief, non-exhaustive overview of some of the law’s most notable features:

  • The law defines a non-competition agreement as an “agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that the employee will not engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended,” but excludes certain agreements from its purview, including: (1) non-compete agreements made in connection with the sale of a business; (2) non-compete agreements made in connection with the cessation or separation of employment (provided the employee is given seven business days to rescind acceptance); (3) employee non-solicitation covenants; (4) customer/client/vendor non-solicitation covenants; and (5) non-disclosure of confidential information agreements.                                                                                                                                                                                                                   
  • Both traditional employees and independent contractors are covered under the law.                                                                                                                                                                                              
  • All agreements must be in writing and signed by both parties, and must expressly affirm an employee’s right to consult with counsel before signing.                                                                                                                                                                                                                                                                                                       
  • If a non-compete agreement is signed at the beginning of an employment relationship, it must be given to the employee when the employment offer is made or 10 days before the commencement of employment, whichever is earlier.  Agreements signed after the commencement of employment must be “supported by fair and reasonable consideration independent from the continuation of employment.”                                                                                
  • The law requires so-called “garden leave pay” or some “other mutually agreed-upon consideration.” Garden leave pay refers to an agreement in which the employer, during the course of the restricted period, continues to pay the former employee at least 50 percent of the “highest annualized base salary” that employee received within the two years preceding his or her termination. The law does not further define or elaborate upon what “other consideration” might be acceptable in lieu of garden leave pay, however.  In addition, it remains to be seen whether garden leave pay constitutes sufficient consideration for those non-competes executed after the commencement of an employment relationship, or whether some consideration above and beyond the garden leave pay is required in those circumstances.                                                                                                                                                  
  • Agreements not to compete must be “reasonable.” They can be no broader than necessary to protect a legitimate business interest; they cannot exceed one year in duration; their geographic scope must be reasonable; and they must otherwise be reasonable “in the scope of proscribed activities in relation to the interests protected.”                                                   
  • Non-compete agreements may not be enforced against non-exempt employees; undergraduate or graduate students engaged in short-term employment; employees who have been terminated without cause or laid off; or employees who are 18 years old or younger.                                                                                                                                                      

These new requirements apply only to non-compete agreements entered into on or after October 1, 2018. Nevertheless, employers may wish to revise existing non-compete agreements for current employees in order to avoid disparities amongst employees, as well as potential future litigation.

 

 

An Overview of Massachusetts Non-Solicitation Agreements

By on May 18, 2016

Non-competition agreements (“non-competes”) often contain clauses referred to as “non-solicitations.” These provisions are sometimes viewed as synonymous to a non-competition clause but there are important distinctions between the two. Massachusetts courts use a similar analysis on the two types of provisions, non-solicitation provisions serve a different function. The usual purpose of a non-solicitation is to prevent a former employee from stealing clients, prospective clients or other employees from their former employer.  As such a non-solicitation contrasts with a non-compete which ordinarily intends to bar a former employee from directly competing with the former employer in subsequent employment.

The basic non-solicitation clause is simple, usually stating that the employee agrees not to solicit certain categories of individuals for some period of time.  As with non-competes, non-solicitations will be enforced when they are supported by valid consideration and are generally reasonable to protect a legitimate business interest.  Protecting employer good will towards employees and/or customers qualifies as a legitimate business interest. Businesses have an interest in protecting the customer relationships developed by employees during employment, which also relates to an employer’s legitimate interest in protecting customer good will.  While non-competes require a narrowly tailored provision to be enforceable, Massachusetts courts will often enforce non-solicitations for longer periods than non-competes, as a non-solicitation is less of a burden on an employee who is still otherwise able to work. 

Standard non-solicitation language is relatively straightforward.  It can be surprisingly difficult, however, to determine when a solicitation has occurred, and Massachusetts courts have not yet worked out all of the details.   For instance, if a former employee subject to a non-solicitation is directly contacted by a client of the former employer, has the employee breached the non-solicitation merely by receiving the business? As with many legal questions, the short answer is that it depends.

Massachusetts courts have observed that the line between solicitation and acceptance of business is a hazy one. Thus far, the courts have not drawn a bright line legal distinction between circumstances when the client makes first contact with the former employee, and when the employee makes first contact with the client. Instead, courts look to the facts of the case to determine whether the former employee made an improper solicitation. Further complicating the analysis, while a former employee may be barred from soliciting, the employee’s new employer is under no such restriction and neither are the customers in question because those parties are not subject to the non-solicitation agreement entered into by the employee and former employer.  Nevertheless, the employee and new employer should tread carefully to ensure that the employee and new employer’s actions do not yield other causes of action for the aggrieved former employer, such as an unfair business practice claim for behavior that may not strictly run afoul of the non-solicitation provision.

Judicial analysis of non-solicitations recognizes that the context of the particular industry is important. When the individual subject to a non-solicitation is selling fungible, off-the-shelf goods, initial contact with prohibited parties is likely quite important, as there is probably little to differentiate the sellers.  Where a complex transaction is involved and products are highly customized, prohibited contact may be less important to securing a sale. Further distinction can be drawn between an overt direct solicitation, and a more subtle indirect solicitation. Directly inviting an employee or customer to engage with a new company would clearly breach a non-solicitation, but more subtle “nudge-nudge wink-wink” approaches can be equally damaging.   The courts will look at the overall context of the business relationship and the agreement at issue to resolve whether particular conduct breaches the non-solicitation agreement.  Given the fact specific nature of the inquiry, it can be a difficult question to determine in any particular instance whether contact with a client is prohibited by the non-solicitation.  

Non-solicitation agreements are another powerful tool for employers to protect legitimate business interests.  Like non-competes, non-solicitations must be drafted and implemented carefully to be enforceable and useful. Massachusetts courts will engage in a fact-intensive analysis to determine whether a non-solicitation is valid and under what circumstances the provision has been breached. Both employers and employees should consult with an experienced Massachusetts employment attorney to determine their rights and obligations with respect to any particular non-solicitation provision.

Protecting Confidential Business Information

By on January 19, 2016

While the Massachusetts legislature continues to debate whether to ban “non-competition agreements,” support for the protection of trade secrets and confidential information remains strong. Although the Commonwealth has not adopted a version of the Uniform Trade Secrets Act, Massachusetts protects trade secrets in several overlapping ways: state law provides that the theft of a trade secret can lead to double damages for the aggrieved party; the Massachusetts Consumer Protection Act allows for the recovery of double or triple damages and attorney’s fees for misappropriating trade secrets; courts will enforce contracts requiring employees to maintain the confidentiality of secret information learned on the job; and courts will grant injunctions barring the improper use of confidential information in certain circumstances. However, just because a business states that information is confidential does not mean that a court will agree. Massachusetts uses a six-factor test to determine whether information is confidential:

(1) the extent to which the information is known outside of the business;

(2) the extent to which it is known by employees and others involved in the business;

(3) the extent of measures taken by the employer to guard the secrecy of the information;

(4) the value of the information to the employer and to his competitors;

(5) the amount of effort or money expended by the employer in developing the information; and

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Examples of trade secrets can include manufacturing processes, price lists, financial information, sales strategies, and product development plans. The six-factor test emphasizes that the information has to be a secret, and the business had to make a genuine effort to maintain its secrecy. The business does not ordinarily need to employ heroic measure to maintain secrecy, using armed guards and bank vaults. While appropriate efforts to maintain secrecy are a fact-based determination, businesses will often use non-disclosure agreements signed by employees, limit the internal disclosure of information to an as-needed basis, and ensure that no information is made publicly available (such as via the business’s website).

Businesses concerned about preserving information secrecy, or aware of a confidentiality breach, should contact a Massachusetts business attorney to ensure their interests are protected.

Massachusetts Non-Compete Agreements – What Are Your Business Interests?

By on September 9, 2015

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.