Proposed Noncompete Legislation Continues to Loom

January 17, 2011

Employers dodged a bullet with the recent tabling of legislation that would have significantly restricted an employer's ability to enforce noncompetition agreements in Massachusetts. Nevertheless, employers are not yet completely out of the water.

As have most states, Massachusetts has traditionally taken a dim view of noncompetition agreements. Under current Massachusetts law, noncompetition agreements are considered valid and enforceable, provided that they are reasonable in duration, geographic scope, and restricted activities. Thus, Massachusetts employers have been able to use noncompetes to minimize the potentially harmful effects of an employee leaving the business to work for a competitor, taking with him valuable information and trade secrets that are the essence of the employer's business.

However, the enforcement of restrictive noncompetition agreements has troubled employees who have parted ways with former employers while in search of new opportunities. Often, an employee will argue that the enforcement of a noncompetition agreement against him is an unfair restraint on his right to engage in the employment of his choice, especially if his separation was not by choice. Employees often view a layoff followed by enforcement of a noncompete as a particularly egregious deprivation of the right to earn a living.

Last April, Massachusetts legislators took steps towards limiting the scope and enforceability of noncompetes, in an effort to create a more equal balance between the protection of employers' interests and the rights of employees to find new work in the industry. If passed, the proposed legislation, entitled "The Employee Noncompetition Agreement Act," would have resulted in extremely narrowed enforceability of the agreements. Being largely pro-employee, the bill featured some very specific and somewhat irrational provisions, including the following:

  • No noncompetition agreement made with an employee whose annual salary is $75,000 or less is valid or enforceable. This ignores the possibility that employees under the salary threshold would have access to trade secrets and other proprietary information that employers seek to protect.
  • The noncompete can be no greater than one year in duration, with a six month limitation being presumptively reasonable.
  • A noncompetition agreement will be presumptively reasonable in geographic scope if it covers a geographic area limited to that in which the employee provided services or had a material presence or influence, removing from consideration any industry or market factors that would otherwise make such a geographic scope unreasonably narrow.
  • Similarly, a noncompetition agreement will be presumptively reasonable in its scope of restricted activities if it is limited to only the specific types of services provided by the employee at any time within the last two years of his employment with the employer, again removing specific industry or market factors from consideration.
  • A court may reform a noncompete to make it "reasonable" as defined by the statute. This permits a court to rewrite the agreement, altering the terms to which both the employee and employer had agreed, and substituting terms that the court thinks are reasonable. This is not so much of a change in the law as Massachusetts judges often reform non-competition agreements and covenants, as it is a codification of that right.
  • An employee would be entitled to attorneys' fees from the employer if he is required to defend against the enforcement of a noncompetition agreement, regardless of whether the agreement is found enforceable against the employee. The employee is also entitled to attorneys' fees if the employee commences the litigation for the purpose of challenging the enforceability of the agreement.

Clearly, the proposed legislation would have had a substantial effect on both the employer-employee relationship and the way employers do business. Thus, the bill was initially met with great opposition and died in committee.

Still, it appears that some form of bill will be refiled in the next legislative session. Representative William N. Brownsberger, D-Belmont, reportedly intends to reintroduce a bill, perhaps with amendments, in early 2011. The ultimate look of the bill, including the number of material changes made since it was last before the legislature, is expected to have a significant effect on its likelihood of becoming law.

For more information on the use of noncompetition agreements in your business, or if you have questions related to the enforceability of a noncompetition agreement, contact a member of Parker | Scheer's Business Litigation Practice Group.