Locke Lord QuickStudy: UPDATE: Massachusetts Gets Closer To Law Limiting Non-Competes

July 5, 2016

We reported in May that the Massachusetts Noncompetition Agreement Act, a new bill regulating non-compete agreements in Massachusetts, had made its way out of committee and onto the floor of the House. On June 29, 2016, the House passed an amended version of the bill, improving the odds that non-compete legislation will reach the Governor’s desk before the legislative session ends on July 31, 2016. Below, we highlight the significant changes that were made in the amended House bill.

Garden Leave

The House amendments primarily targeted the proposed Act’s “garden leave” provision, which had been especially unpopular in the Massachusetts business community. Under the prior version of the bill, every non-compete agreement was required to include a “garden leave clause” providing for continuation of the employee’s salary at 50 percent or higher while the post-employment restriction remained in effect. The proposed Act now provides that a non-compete must be supported by either a garden leave clause or “other mutually-agreed upon consideration.” It is not clear from the text of the proposed Act whether this consideration would need to be paid upon termination of employment, and therefore in addition to any consideration given at the time the non-compete is signed, but it appears that may have been the drafters’ intent.

Judicial Reform of Invalid Non-Competes
The earlier bill expressly deprived courts of the discretion to revise invalid non-competes to render them enforceable, which would have made drafting non-competes a do-or-die proposition. In a complete reversal, the proposed Act now specifically authorizes courts to revise invalid non-competes. Employers would still be wise to tailor their non-competes to the requirements of the proposed Act, however, because the decision to salvage an overreaching non-compete is left to the discretion of the court. 

Effective Date
Finally, the House pushed the effective date of the proposed Act to October 1, 2016, exempting noncompetes entered before that date from the new law’s requirements.

Likelihood of Enactment
By passing the bill with more than a month remaining in the current legislative session, the House has improved the likelihood that the proposed Act could become law this year. As the session winds down, Locke Lord’s Public Policy and Labor & Employment groups will continue to monitor the bill and keep you up-to-date.