Massachusetts Non-Compete Agreements Soon to Require Garden Leave
On August 1, 2018, Massachusetts legislators passed a bill that would require employers to provide garden leave when enforcing non-compete agreements with former employees. Garden leave is a concept that keeps former employees on the payroll to prevent them from working for competitors during a restricted period.
The bill would require employers enforcing non-competes to continue paying certain employees (including independent contractors) for a year after employment ends. Employers would be required to pay former employees either an agreed-upon amount or at least half of the highest annual salary earned within the prior two years. Additionally, the bill would require that all non-competes (1) be in writing, (2) be signed by both the employer and the employee, and (3) expressly affirm the employee’s right to consult with counsel prior to signing. Furthermore, the bill prohibits non-competes for non-exempt employees, part-time undergraduate or graduate students, minors, and anyone terminated without cause or laid off.
The bill limits non-competes to one year, they must be no broader than necessary to protect a legitimate business interest, and reasonable in both geographic scope and "in the scope of proscribed activities in relation to the interests protected." Courts are permitted to blue-pencil non-competes.
The bill excludes certain covenants from the definition of "noncompetition agreement," including:
- Certain non-competes made in connection with the sale of a business;
- Non-competes made in connection with the cessation or separation of employment (employee must be provided seven business days to rescind acceptance);
- Certain employee/customer/client/vendor non-solicitation covenants; and
- Non-disclosure of confidential information agreements.
If signed into law, the bill would take effect October 1, 2018, and would apply to agreements entered into on or after that date. Massachusetts employers using non-competes should consult their employment attorneys to determine whether their non-competes comply.