Most readers are probably aware that the Massachusetts legislature, after a decade of starts and stops, passed a very detailed bill retaining but reforming the use of employee noncompetition agreements last summer. While we were the first New England state to get a bill over the goal line, the summer of 2019 saw three of our neighboring states – New Hampshire, Maine and Rhode Island – get in on the act and pass their own noncompetition agreement reform bills. For employers whose business crosses state lines within the region and who use or are thinking of using noncompetition agreements, it is important to be aware of the highlights/lowlights/differences/similarities between those three new statutes and our Massachusetts Noncompetition Agreements Act which took effect on October 1, 2018.
In this series of posts, I will provide a quick refresher on the Massachusetts statute and compare and contrast the other states’ new acts to it.
The Massachusetts Noncompetition Agreement Act Basics
The Massachusetts Act, codified at Massachusetts General Laws chapter 149, section 24L, preserves the ability of employers to continue to use noncompetition agreements. It does, however, impose a number of new requirements and restrictions on their use. Most notably, it provides:
- Noncompetition agreements cannot be used with non-exempt employees, young employees (under age 19) or student interns;
- Even if valid when executed, the noncompetition restriction vanishes if the employee is terminated without cause or laid off;
- A new employee must be given advance notice at the time of the offer of employment that he will be required to sign a noncompete;
- A noncompetition agreement given to a current employee to sign cannot take effect before 10 business days have passed after the employee is given notice of it;
- One asked to sign a noncompetition agreement must be notified in writing of her right to have legal counsel review the agreement before signing;
- “Fair and reasonable” consideration must be provided to a current employee in return for agreeing not to compete (this is a very confusing aspect of the Act and differs from the consideration that must be given to a new employee asked to sign);
- The permissible geographic scope of the noncompetition restriction is more narrowly defined;
- The permissible scope of the post-termination subject matter restrictions is also more narrowly defined; and
- The Act provides no punishment for an employer who has an employee sign an agreement that is not in compliance with these new provisions – the only apparent penalty is the likelihood that the agreement will not be enforced if the employee then competes.
Aside from these specific provisions, the Act also provides not-so-subtle encouragement to employers to use other forms of restrictive covenants rather than noncompetition agreements to protect their goodwill, confidential information and trade secrets. Specifically, the Legislature nudged employers in the direction of using nondisclosure and customer and employee non-solicitation agreements rather than noncompetition agreements. It did so by expressly excluding such agreements from the scope of the new Act thereby permitting employers to avoid the troublesome restrictions and limitations listed above.
The Other Acts
None of the new laws in the other three New England states are nearly as complex, far-ranging or as difficult to interpret and apply as the Massachusetts statute. The only common thread is the banning of noncompetition agreements for certain low wage or low level employees although each state goes about in different ways.
Beyond that single common thread, each state’s Act addressed only a few of the issues embedded in the Massachusetts Act. As a result, none come close to the complexity found in the Massachusetts statute.
The New Hampshire statute which takes effect September 8, 2019 is extremely limited in scope. It bans the use of noncompetition agreements with low wage employees as that term is defined above. It has no other impact.
The Maine statute which takes effect September 19, 2019 is more detailed than New Hampshire’s, but still quite modest. Like Massachusetts, it imposes advance notice requirements. The Maine statute, however, differs from the Massachusetts law in a few important ways – a waiting period before the restrictions become enforceable, $5,000 penalties for overreaching employers; and a ban on no poaching agreements (referred to as “restrictive employment agreements”).
The Rhode Island statute which takes effect January 15, 2020 on its face has more in common with the Massachusetts statute, but it still pales by comparison in terms of complexity. Like Massachusetts, it broadens the employees with whom noncompetition agreements may not be used and also expressly excludes from its coverage nondisclosure and non-solicitation agreements as well as noncompetition agreements executed in connection with a business sale or severance agreement. Unlike Massachusetts and Maine, it does not require any advance notice to the employee. It also does not apply to independent contractors.
Perhaps what is most noteworthy about each of these new laws are the areas addressed in the Massachusetts law which are left untouched in this summer’s enactments.
More details on these new laws and their comparison with the Massachusetts precursor will be set forth in Part 2.