The Joint Committee on Non-Compete Reform, made up of both state Senators and Representatives are now ironing out the final details on Non-Compete Law reform in Massachusetts, and it result in significant changes in many key industries. Start-ups, Technology and the BioPharam industry, software sales, and healthcare (hospitals, doctors, nurses, etc.) all rely on non-compete agreements to retain top talent, and prevent poaching and sabotage from the inside. In fact, non-competes many times factor into an employee’s employment agreement. The previous test under Massachusetts law – “what is reasonable given the industry, job position, management responsibilities, role, customs for that position, and usually not more than 1 year” – is changing. Specifically, H. 4434 (House version of the noncompete reform bill) was passed on June 29, 2016. The Senate Version, a much more strict version, was passed on July 14, 2016 and, provides for the following:
- TIME LIMITS: Non-competes would generally be limited to 3 Month periods, instead of the usual 1 Year. This new strict limit could have significant limits on employers hiring and retaining top talent in competitive industries, especially since most employment contracts are annual (or renewable one-year periods), not 3-month periods.
- GARDEN PAY: (Pay the Employer must Pay the non-working former employer who is abiding by the non-compete and is restricted from working): Following the employee’s departure, the Employer must pay Garden Pay of 100% of the employee’s highest annualized earnings over the past 2 years. Certainly employer’s are not happy about having to pay a full year salary for an employee who chooses not to work – the possibilities for abuse of this garden pay provision are high and despite objection from employers, the Massachusetts Legislature (in its infinite wisdom) has decided to force employers to pay an employee’s salary when he is not working under a noncompete agreement.
- PREVENTING JUDICIAL REFORM: The bill specially prohibits a Judge or Court to reform overbroad noncompete provisions. Currently, Judge’s can rewrite and tailor noncompetes to make them more reasonable. The new reform strips judges (who are likely in the best position to do so) of offering this relief to create reasonable circumstances.
- 10 DAY NOTICE: Employers would be required to inform employees in writing within 10 days of termination of the employer’s intent to enforce the noncompete.
- EXEMPT PERSONS: Persons making under $125,000.00 annually would essentially be exempt from the non-compete law reform.
Massachusetts lawyers, employers, and employees should all recognize that these sweeping changes could have a significant impact on your current non-compete cases, agreement, employment agreement, and what relief a Court can provide. It also could have a significant on your ability to be paid (Garden Pay) while you are hindered or restricted from working under a non-compete.
While the Senate Bill (much harsher) was amended after the House Bill was passed, the Bill must now go to a Joint Committee, made up of both House and Senate Members, to come to an agreement on a final version of this reform bill. All indications show that this bill could be presented and passed sometime in August 2016, and go into effect as early as October 1, 2016.
While the changes are not retroactive, any agreement entered into on or after October 1, 2016 could be implicated. Why is this important? Because you could currently be an employee in negotiations or in the process of accepting a job offer with an employment contract and accompanying non-compete agreement presented on October 1, 2016 or after. If that happens, your agreement is governed by the new law (above), not the previous law.
While Massachusetts considers itself progressive, and presents this bill in a way that protects employees from harsh noncompete agreements, the truth is the reform may not offer employees much protection except for Garden Pay if they are truly unable to work at all during their restricted period. Lower wage earners and what most refer to as “Non-Executives” making less than $125,000 a year seem to be exempt for the most part, which certainly helps persons who usually are not in a position to negotiate heavily or afford to turn down a job offer. The reform will certainly make its way to the Courts eventually, and the first few decisions issued by the Superior Court could set new law in Massachusetts, interpreting a bill that for the most part, is new territory for Massachusetts parties and courts.