Massachusetts Proposed Legislation Limiting Employee Non-Compete Agreements

Massachusetts made headlines in the area of non-compete law in 2009 when a bill was introduced in the state legislature that would have (had it been signed into law) prohibited employee non-competition agreements. Now, four years later, the same state senator who introduced the 2009 bill has partnered with another legislator to introduce a new bill that, if signed into law, would make non-compete agreements longer than six months presumptively unreasonable in Massachusetts.

Among the key provisions of the proposed legislation, termed the “Noncompetition Agreement Duration Act,” are the following:

(1) The Act would apply to employee non-competition agreements entered into on or after January 1, 2014;

(2) The Act would not apply to (i) covenants not to solicit or hire employees of the employer; (ii) covenants not to solicit or transact business with customers of the employer; (iii) non-competition agreements made in connection with the sale of a business or substantially all of the assets of a business, when the party restricted by the noncompetition agreement is an owner of at least a ten percent interest of the business who received significant consideration for the sale; (iv) non-competition agreements outside of an employment relationship; (v) forfeiture agreements; or (vi) agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee;

(3) An employee non-competition agreement restricting an employee’s mobility for no longer than six months would be presumptively reasonable;

(4) An employee non-competition agreement restricting an employee’s mobility for longer than six months would be presumptively unreasonable;

(5) An employee non-competition agreement determined by a court to be unreasonable in duration would be unenforceable, unless: (i) the employee breached his or her fiduciary duty to the employer; (ii) the employee unlawfully took, physically or electronically, property belonging to the employer; or (iii) the employee had, at any time, received annualized taxable compensation from the employer of $250,000 or more; and

(6) When any of the three exceptions in #5 above were present, a court would have the discretion (but would not be compelled) to enforce the employee non-competition agreement for any duration determined by the court to be appropriate.