Massachusetts New Noncompete Law: the Text

Last week, I posted an article explaining the new noncompete and trade secrets law reform legislation passed by the Massachusetts Legislature. See Massachusetts noncompete and trade secret reform has arrived: What you need to know.

Governor Charlie Baker is expected to sign it into law (by the August 10 deadline). The article above will tell you what you need to know.

However, it occurred to me that people might like to read the actual text of the noncompete bill (and the trade secrets bill – see Massachusetts New Trade Secrets Law: the Text).

Given that it’s part of a much larger economic development bill, I thought it would be easier to just reprint the text below (which I’ve done).

To see how it compares to other state noncompete laws, please see our 50 State and Federal Trade Secret Laws Comparison Chart. (First prepared in 2010, this chart is updated regularly, when, as will be the case if the Governor signs the bill, state laws change. So, to make sure you are up to the minute, please check for new ones periodically.)

Text of the bill:

SECTION 20. Chapter 149 of the General Laws, as appearing in the 2016 Official Edition, is hereby amended by inserting after section 24K the following section:-

Section 24L.

(a)  As used in this section, the following words shall have the following meanings, unless the context clearly requires otherwise:

“Business entity”, a person or group of persons performing or engaging in an activity, enterprise, profession or occupation for gain, benefit, advantage or livelihood, whether for profit or not for profit, including, but not limited to, corporations, limited liability companies, limited partnerships or limited liability partnerships.

“Employee”, an individual who is considered an employee under section 148B; provided, however, that the term “employee” shall also include independent contractors.

“Forfeiture agreement”, an agreement that imposes adverse financial consequences on a former employee as a result of the termination of an employment relationship, regardless of whether the employee engages in competitive activities following cessation of the employment relationship. Forfeiture agreements do not include forfeiture for competition agreement.

“Forfeiture for competition agreement”, an agreement that, by its terms or through the manner in which it is enforced, imposes adverse financial consequences on a former employee as a result of the termination of an employment relationship if the employee engages in competitive activities.

“Garden leave clause”, a provision within a noncompetition agreement by which an employer agrees to pay the employee during the restricted period and which shall become effective upon termination of employment unless the restriction upon post-employment activities are waived by the employer or ineffective under clause (iii) of subsection (c).

“Noncompetition agreement”, 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, including, but not limited to, a forfeiture for competition agreement; provided, however, that “noncompetition agreement” shall not include: (i) a covenant not to solicit or hire employees of the employer; (ii) a covenant not to solicit or transact business with customers, clients or vendors of the employer; (iii) an agreement made in connection with the sale of a business entity or substantially all of the operating assets of a business entity or partnership, or otherwise disposing of the ownership interest of a business entity, partnership or division or subsidiary of a business entity or partnership, when the party restricted by the noncompetition agreement is a significant owner of, or member or partner in, the business entity who will receive significant consideration or benefit from the sale or disposal; (iv) an agreement outside of an employment relationship; (v) a forfeiture agreement; (vi) a nondisclosure or confidentiality agreement; (vii) an invention assignment agreement; (viii) a garden leave clause; (ix) an agreement made in connection with the cessation of or separation from employment if the employee is expressly given 7 business days to rescind acceptance; or (x) an agreement by which an employee agrees to not reapply for employment to the same employer after termination of the employee.

“Restricted period”, the period of time after the date of cessation of employment during which an employee is restricted by a noncompetition agreement from engaging in activities competitive with the employee’s employer.

(b)  A noncompetition agreement shall not be valid or enforceable unless:

(i) in the case of an agreement that was entered into in connection with the commencement of employment, the agreement: (A) is in writing signed by both the employer and employee; (B) expressly states that the employee has the right to consult with counsel prior to signing; and (C) is provided to the employee before a formal offer of employment is made or 10 business days before the commencement of the employee’s employment, whichever comes first;

(ii) in the case of an agreement that was entered into after commencement of employment but not in connection with the separation from employment: (A) the agreement is supported by fair and reasonable consideration independent from the continuation of employment; (B) notice of the agreement was provided not less than 10 business days before the effective date of the agreement; (C) the agreement was in writing; (D) the agreement was signed by both the employer and employee; and (E) the agreement expressly states that the employee has the right to consult with counsel prior to signing;

(iii) the agreement is no broader than necessary to protect one or more of the following legitimate business interests of the employer: (A) the employer’s trade secrets, as defined in section 1 of chapter 93L; (B) the employer’s confidential information that otherwise would not qualify as a trade secret; or (C) the employer’s goodwill; provided, however, that the agreement may be presumed necessary where the legitimate business interest cannot be adequately protected through an alternative restrictive covenant, including but not limited to a non-solicitation agreement, a non-disclosure agreement or a confidentiality agreement;

(iv) the stated restricted period within the agreement does not exceed 1 year from the date of cessation of employment; provided, however, that if the employee has breached the employee’s fiduciary duty to the employer or the employee has unlawfully taken, physically or electronically, property belonging to the employer, the restricted period may be not more than 2 years from the date of cessation of employment;

(v) the agreement is reasonable in geographic reach in relation to the interests protected; provided, however, that a geographic reach that is limited to only the geographic areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence shall be presumptively reasonable;

(vi) the agreement is reasonable in the scope of proscribed activities in relation to the interests protected; provided, however, that a proscription on activities that protects a legitimate business interest and is limited to only the specific types of services provided by the employee at any time during the last 2 years of employment shall be presumptively reasonable;

(vii) the agreement includes a garden leave clause or other mutually-agreed upon consideration between the employer and the employee; provided, however, that such consideration shall be specified in the agreement; provided further, that a garden leave clause within the meaning of this clause shall: (A) provide for the payment, consistent with the requirements for the payment of wages under section 148 of chapter 149, on a pro-rata basis during the entirety of the restricted period of at least 50 per cent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination; and (B) except in the event of a breach by the employee, not permit an employer to unilaterally discontinue or otherwise fail or refuse to make the payments; provided, however, if the restricted period has been increased beyond 1 year as a result of the employee’s breach of a fiduciary duty to the employer or the employee has unlawfully taken, physically or electronically, property belonging to the employer, the employer shall not be required to provide payments to the employee during the extension of the restricted period; and

(viii) the agreement is consistent with public policy.

(c) A noncompetition agreement shall not be enforceable against: (i) an employee who is classified as nonexempt under the Fair Labor Standards Act, 29 U.S.C. 201-219, inclusive; (ii) an undergraduate or graduate student that partakes in an internship or otherwise enters a short- term employment relationship with an employer, whether paid or unpaid, while enrolled in a full-time or part-time undergraduate or graduate educational institution; (iii) an employee that has been terminated without cause or laid off; or (iv) an employee that is 18 years old or younger.

(d) Nothing in this section shall render void or unenforceable the remainder of a contractor agreement containing an unenforceable noncompetition agreement or preclude the imposition of a noncompetition restriction by a court, whether through preliminary or permanent injunctive relief or otherwise, as a remedy for a breach of another agreement or a statutory or common law duty.

(e) A court may, in its discretion, reform or otherwise revise a noncompetition agreement so as to render it valid and enforceable to the extent necessary to protect the applicable legitimate business interests.

(f) No choice of law provision that would have the effect of avoiding the requirements of this section shall be enforceable if the employee is, and has been for at least 30 days immediately preceding the employee’s cessation of employment, a resident of or employed in the commonwealth at the time of the employee’s termination of employment.

(g) All civil actions relating to noncompetition agreements subject to this section shall be brought in the county wherein the employee resides or, if mutually agreed upon by the employer and the employee, in the county of Suffolk; provided, however, that in any such action brought in the county of Suffolk, the superior court or the business litigation session of the superior court shall have exclusive jurisdiction.

***

SECTION 55. Section 24L of chapter 149 of the General Laws shall apply to employee noncompetition agreements entered into on or after October 1, 2018.

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