March 28, 2023
This Week in Massachusetts – March 28
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Posted on February 21, 2023
I have been hearing recently about a federal effort to ban non-compete agreements. Is it really going to happen?
There is an effort by the US Federal Trade Commission (FTC) to ban non-compete agreements across the country. Is it going to happen? Maybe.
The federal rulemaking process is usually lengthy, complex and contentious. And it often ends up in the courts. Recall the effort to have the Occupational Safety and Health Administration (OSHA) issue COVID vaccine requirements in 2021 or the Fair Labor Standards Act (FLSA) white collar regulations in 2016. Both proposals were adopted by enforcement agencies but ultimately nullified by court decisions.
Bottom line – The proposal is high profile, underscored by the fact that the President referenced it in his State of the Union speech, but we can expect a long wait until it takes effect, if it does.
Several states enforce restrictions on the use of non-compete agreements within their borders. California, North Dakota, Oklahoma, and Washington, D.C., have outright bans on non-compete agreements. Other states focus on protecting lower-income workers from the adverse consequences of having to sign a non-compete agreement. That list of states includes Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington.
Any AIM member with operations in any of those jurisdictions should check for the dollar threshold as it varies by state ranging from $30,000 a year in New Hampshire to $100,000 a year or more in Oregon, Washington, and Colorado.
Massachusetts passed a non-compete law in 2018.
Under the law, a non-compete agreement (NCA) is defined as an agreement between an employer and an employee in which the employee or expected employee agrees that he or she will not engage in competitive activities with his or her employer after the employment relationship has ended. In return, the employer must provide consideration (defined below) to the employee or an applicant who has been offered a position.
In general, NCAs place limits on the ability of a former employee to take information from her or his current employer to compete against the former employer in a defined area for a defined time period. The courts must consider on a case-by-case basis whether the NCA is reasonable in purpose, geography and time. The Massachusetts statute reframes the NCA discussion by dramatically limiting the scope of the purpose, geography and time criteria of all NCAs.
Some of the other key provisions in the law include a “garden leave” provision and a specific limitation on the categories of employees subject to an NCA.
Under the Massachusetts non-compete law, the agreement must meet the following requirements:
In a 2022 decision, a Massachusetts court considered the question of whether a specific NCA was enforceable. The court determined that the NCA failed on at least two counts. First, it took effect immediately without the employee receiving at least 10 days’ advance notice and, second, the 2020 NCA did not expressly state that the employee had the right to confer with an attorney before entering into the NCA.
An employer may not use an NCA for certain classes of employees, including:
NCAs may include:
The Massachusetts law may prompt employers to consider whether having employees sign a non-compete is worth it. Part of that evaluation will be whether the employer is prepared to enforce the NCA in the event of a breach. Consult with outside legal counsel to evaluate all the possible options and ensure compliance with the law.
AIM members with questions about this or any other human-resources issue may call the AIM Employer Hotline at 1-800-470-6277.