On July 14, 2016, the Massachusetts Senate passed its own version of a non-compete reform bill that is MUCH more restrictive than the compromise bill passed unanimously in the House on June 29, 2016. The Senate’s action calls into question whether non-compete reform can be achieved in this legislative session.
Review of current status (as of July 19, 2016): The House passed its version of a non-compete reform bill on June 29th. The Senate then passed its own bill on July 14th, which was markedly different from the House version. The Senate’s bill restricts non-compete agreements much more severely than the House version, and some have argued that it has imperiled the viability of non-compete reform in Massachusetts (at least for this legislative session). See State House, Senate leaders at odds over noncompete agreements. Both bills have been sent to a Conference Committee, which will to try to blend the competing versions into one bill that could pass both the House and the Senate.
Significant issues need to be reconciled between the two bills by the Conference Committee, including:
- the appropriate maximum length of non-competes (Senate bill = 3 months; House bill = 1 year);
- whether payment of continued wages (a/k/a “garden leave”) during some or all of the non-compete period should be required (House bill = 50% salary during garden leave; Senate bill = 100% of “earnings”);
- whether courts should be permitted to reform an overbroad agreement (House bill = permits reform; Senate bill = employs a “red pencil” approach, which requires judges to strike overbroad non-compete provisions);
- whether the employer and employee can agree to alternative arrangements instead of garden leave; and
- whether employers should be required to review existing non-competes with employees periodically.
There are several points of agreement between the two bills, including:
- adoption of a version of the Uniform Trade Secrets Act in Massachusetts;
- agreements must be in writing and signed by both the employee and the employer;
- requiring presentment of the non-compete before commencement of employment;
- employee has right to consult with counsel;
- non-compete period can be extended up to 2 years for certain employee misconduct (e.g., fiduciary duty breach, stealing property);
- requiring payment of fair and reasonable consideration when signed mid-employment;
- eliminating non-competes for certain categories of employees (e.g., non-exempt, students/interns, employees who are laid off, age 18 and under).
Additional differences exist between the two bills that I will not delve into here, as it is not possible to predict which nuances of which provisions will survive the Conference Committee process.
Because the Senate’s bill is so much more restrictive than the House bill, it is unclear whether the Conference Committee will be able to reach agreement on a blended version. If a blended bill is reported out of the Conference Committee, both branches of the Legislature will have to hold two votes – one procedural vote to accept the Conference report, and a second vote to enact the law (4 votes in total) — before the combined bill could be signed into law. The clock is ticking, as the Legislature has a deadline of July 31st to present a bill for the Governor’s signature.
The ultimate form the legislation will take, and indeed whether it will even pass, are still uncertain. What is clear, however, is that if enacted, non-compete reform will provide various significant and bright-line protections to employees that do not currently exist. In addition, employers will be required to be more thoughtful in their implementation of non-competes, and their administration of non-compete programs will become more complex. The good news for employers is that non-compete agreements, if handled correctly, will still remain a viable tool to help protect confidential information and valuable business relationships.
As a final footnote, it is interesting to note that at least one commentator in the tech-blog community is already planning for a potential alternative if non-compete reform fails this year. See If Noncompete Reform in Mass. Doesn’t Prevail, a Referendum Should Come Next, which suggests that the issue of non-compete reform should be resolved in a statewide referendum.
As noted above, this Legislative session ends July 31st — so we will all know soon whether non-compete reform will be passed in Massachusetts this year. Stay tuned …