The question of whether and how to reform the law governing employer use of non-compete agreements is the subject of hot debate on Beacon Hill. As the current legislative session rushes to a close, the political maneuvering is intensifying.
Some of the key reform themes that are being considered by the Legislature include:
- requiring presentment of the non-compete before commencement of employment;
- providing the employee with opportunity to consult with counsel;
- requiring employers to review existing non-competes with employees periodically;
- eliminating non-competes for certain categories of employees (e.g., non-exempt, low-wage, students, interns);
- limiting the maximum length of non-competes (the current proposed ranges are as low as 3 months and as high as 1 year);
- extending non-compete periods up to 2 years for employee misconduct (e.g., breach of fiduciary duty, stealing data/property);
- whether the payment of continued wages (a/k/a “garden leave”) during some or all of the non-compete period should be required, and whether garden leave can be avoided by alternative agreements; and
- restricting the court’s ability to reform an overbroad agreement (the House bill permits courts to reform overbroad non-compete provisions, but the Senate’s version employs a “red pencil” approach, which requires judges to strike overbroad non-compete provisions).
Current status of the pending legislation: The House passed its revised version of a non-compete reform bill on June 29th. For more details on the House bill, see a good summary on the AIM blog. The House then referred its bill to the Senate Rules Committee, which recommended several changes to the House bill on July 11th. The ball is still in the Senate’s court. Senate amendments are due by Tuesday, July 12th, and the Senate is scheduled to vote on its own version of the non-compete reform bill on Thursday, July 14th. Assuming there are still differences between the bills (which is highly likely), both bills would be sent to a conference committee to try to blend the two versions. If agreement is reached in the conference committee, both branches of the Legislature will still have to hold two separate votes – one to accept the conference report, and a second to enact the law (4 votes in total). The clock is ticking, as the Legislature has a deadline of July 31st to present a bill for the Governor signature. This is a lot to accomplish in a very short span of time, but there does seem to be more momentum behind this potential legislation than in prior years. Perhaps this will be the year non-compete reform is finally enacted?
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 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-compete agreements, and their administration of non-compete programs will become more complex as a result of increased regulation.
Amidst all of this, there is good news for employers. First, Massachusetts is not doing away with non-competes (which was originally pushed by certain interests early in the reform movement, who sought to align Massachusetts law with California, which generally prohibits most non-competes). Thus, if employers handle non-compete agreements correctly, they will still remain a viable tool to help protect confidential information and valuable business relationships. Second, it is important to note that all versions of the proposed legislation expressly state that other contractual protections commonly utilized by employers remain unaffected by the impending law: non-disclosure/confidentiality provisions; inventions and developments agreements designed to protect IP; and non-solicitation of employees, customers, prospects, and other valuable business relationships.
I will continue to report on developments as they occur, and will likely present both in-house and outside seminars on the reform legislation if it passes. Stay tuned …
(See also, my prior posts on the subject: Mass. House Speaker Pushes for Compromise on Noncompete Reform Legislation, Speculation about Noncompete Law Reform in Massachusetts Continues, Last Ditch Efforts of Patrick Administration to Carry-over Noncompete Law Reform to Baker Administration, Massachusetts Noncompete and Trade Secret Law Reform Update, Massachusetts Legislature Fails to Implement Non-compete or Trade Secret Law Reform.)