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Massachusetts Legislature Tables Non-Compete Reform

By August 22, 2016 No Comments

Non-compete reform has been under heavy debate in Massachusetts, with both the Senate and House previously passing their own versions of potential reform bills. The state legislature was expected to pass and present a compromise bill during its most recent session on July 31, but was unable to reach an agreement before the legislative session year ended. While non-compete reform in the state is tabled for now, employers should still be aware of current non-compete rules and pay attention to new developments in reform that would affect them.

Background

Non-competition (non-compete) agreements are used by employers as a condition of employment and are signed by new hires during onboarding. They restrict employees from working for competitors upon resignation or termination typically from anywhere between one to three years. Since most states do not yet have legislation for non-compete agreements, any potential legal standards in this area have been determined by individual cases. Many tech employees and start-up businesses are moving to states that do not enforce non-competes, such as California, which in turn affects the Massachusetts economy and job market.
Supporters of non-compete law reform argue that signing the bill will create much-needed legal clarity in this area, along with enhancing employee mobility rights and stimulating business development. Conversely, opponents state that a lack of non-compete regulation helps employers protect their investments in training and hiring and reduces the potential of former employees revealing trade secrets or other confidential information to competitors that may hire them.

Proposed Reforms

Proponents of the compromise bill support major changes in Massachusetts law governing non-competes, including:

• Putting a cap on the amount of time that prohibits former employees from accepting jobs with competitors
• Requiring employers to compensate former employees who are restricted from working during the whole or part of their notice period (referred to as “garden leave”)
• Establishing limitations on the types of employees who could be restricted by a non-compete;
• Requiring that non-compete agreements be presented to new employees with the offer of employment, or no later than 10 days before the start of employment

The disagreement between the House and Senate versions of this bill focuses on two specific issues: the duration of a non-compete agreement and the amount of money employers would need to compensate former employees during periods of restricted employment.

Our Recommendation

While these regulations are now on hold, it is extremely likely that they will be reintroduced during the next session due to growing support. Governor Charlie Baker has also previously indicated he is ready to sign a reform bill. Therefore, employers should stay updated on these regulations and also review their own non-compete policies, if applicable, to be prepared for changes.

Have any questions about upcoming policy that could affect your business? Please feel free to contact us.