Locke Lord QuickStudy: Non-Competition Agreements in ‎Massachusetts: An Update

Locke Lord LLP
August 26, 2021

As many already know, in the fall of 2018, Massachusetts dramatically altered its non-compete landscape. See Locke Lord QuickStudy: Meet the New Noncompete Law in Massachusetts: FAQ, linked here. Among other provisions, the 2018 law a/k/a the Massachusetts Non-Competition Act (MNCA) generally limits non-competition agreements to one year, requires advance notice and an opportunity to consult with counsel. A non-compete agreement for a new employee must be in writing, signed by the ‎employer and the employee, state that the employee has the right to consult with ‎counsel before signing, and be given to the employee with a formal offer of ‎employment or 10 days before the start of employment, whichever is earlier. For current employees, the agreement must be in writing, signed by the employer and the employee, and ‎state that the employee has the right to consult with counsel before signing.‎‎ Whereas, previously courts in Massachusetts had viewed non-competition agreements as requiring consideration, including new or continued employment, the MNCA for new employees now requires garden leave “or other mutually-agreed upon consideration . . . specified in the noncompetition agreement.” Agreements entered into after the commencement of employment “must be supported by fair and reasonable consideration independent from the continuation of employment.”

The 2018 law raised various questions. For example, if “fair and reasonable consideration”  applies to a new noncompetition agreement with an existing employee, what does “mutually agreed upon consideration” require for a new employee if an employer elects not to provide garden leave? The conservative view is that other consideration that reasonably could be construed as the equivalent of the garden leave provision (i.e. “at least 50 percent of the employee’s highest annualized base salary within the 2 years preceding the employee’s termination”) would suffice. Others contend that provided the parties negotiate the agreement, including the involvement of counsel on both sides, virtually any consideration will suffice.

So what have we learned about this law since the autumn of 2018? In Nuvasive, Inc. v. Day, 2019 WL 2287709 (D. Mass. May 29, 2019), Judge Caspar found sufficient the receipt of “monetary consideration, Company goodwill, confidential information, restricted stock units and/or specialized training . . .” In other words, the consideration involved in many jobs may suffice as “other mutually-agreed upon consideration.”

Non-solicitation agreements are specifically exempted from the MNCA. However, in Gertz v. Vantel Int’l ‎Pearls in the Oyster, Inc., 2020 WL 3977404 (D. Mass. July ‎‎14, 2020), the court indicated that a non-solicit agreement may be ‎unenforceable to the extent it restricts an employee from accepting business he ‎did not solicit. More recently, in Automile Holdings v. McGovern, 136 N.E.3d 1207, 1220-21 (Mass. 2020)‎, the Supreme Judicial Court upheld an anti-raiding ‎provision in a non-solicitation agreement.

Most recently, on July 15, 2021, in KPM Analytics North America Corporation v. Blue Sun Scientific, LLC et al., 2021 WL 2982866, United States District Judge Timothy S. Hillman made it abundantly clear that for post-MNCA agreements, employers need to  adhere closely to each of the contours of the 2018 enactment. In that instance, Judge Hillman ruled that a noncompetition agreement was unenforceable because the agreement failed to indicate that the employee had a right to consult with counsel before signing it and it did not contain either a garden leave provision or the inclusion of other mutually agreed upon consideration.

Finally, as many readers also may know, on July 9, 2021, President Biden issued his “Executive Order on Promoting Competition in the American Economy” calling upon the Federal Trade Commission “to curtail the unfair use of non-compete clauses and other clauses that may unfairly limit worker mobility.” See Biden Administration Executive Order Seeks to “Curtail the Unfair Use of Non-Compete Clauses,” linked here.

So as summer draws to a close, where does that leave Massachusetts employers who continue to utilize non-competition agreements? While the FTC cloud may someday rain on employers’ non-compete parade, in Massachusetts at this time, the picture for employers, while not as sunny as it once was, rests upon the MNCA. That means non-solicit agreements still remain in the employer toolbox and non-compete agreements are still viable, though employers must comply with each element of the MNCA. Many pre-MNCA considerations remain. Among them are continuing to draft non-compete agreements to spell out the trade secrets and confidential information employers seek to protect, the applicable customer goodwill and relationships so key to their business, and any relevant specialized and unique training methods they view as sacred. They also need to address the unusual skills, knowledge and abilities of the employees they desire to restrain from competing and, of course, the reasonableness of provisions relating to geographic scope and time and whether an employee’s role has changed perhaps necessitating a new agreement. Of course, this list is not all-inclusive. The bottom line remains: careful drafting will avoid future headaches for Massachusetts employers.