On Friday, July 22, Governor Baker nodded to the legislature that he prefers the House version of the noncompetition bills pending in the Legislature. The Governor supports reforming noncompetition agreements but did want to abolish noncompetition agreements. The Senate version as a practical matter would make noncompetition agreements extremely limited and extremely costly to enforce.
The House bill and the Senate bill are presently in a conference committee and under the Legislature’s election year rule, effectively have to be resolved by July 31, when the present session of the Legislature will end.
As previously reported by Agency Checklist on July 18, 2016 in an article, Employee Noncompetition Compensation Law May Not Pass If No Compromise By July 31st, the House and the Senate have passed noncompetition bills that overlap in many parts but have a sharp disagreement over material terms as set out in the table at the end of this article.
Major disagreements between bills may break in favor of House bill version
The major disagreements between the two bill version deal with the length of allowed noncompetition agreements and on compensation required before an employer can enforce a noncompetition agreement. The Senate version has a maximum of 3 months for a noncompetition agreement while the House has up to 1 year. During that 3-month period, the Senate version would require an employer to pay the restricted employee 100 percent of their previous highest salary in the last 2 years. The House version would only require a maximum of 50 percent of the employee’s salary during that 1‑year period. Also the House provision would allow the employer and the employee to modify the 50 percent payment while the noncompetition agreement is enforced to “other mutually agreed consideration.”
Critics of the House version fear that employers will use economic leverage to obtain agreements that essentially gut the right of the employee to receive compensation while being restrained from any similar employment under the “other mutually agreed consideration” exception.
However, based on the short time before this session of the Legislature, Governor Baker’s tilt toward the House bill gives that version additional impetus. Because of the legislative July 31 deadline, Governor Baker has added leverage, since any veto of a bill unacceptable to him could not be overridden.
A final bill if passed would have the undisputed provisions of both bills
Both the House and Senate bill versions would radically change existing law and require that all future noncompetition agreements provide that:
- Any new employees receive before, at least 10 days’ advance notice before signing of a non-compete, with the prospective employee being advised of their right to seek independent legal advice.
- Existing employees required to sign a non-compete must receive the same 10 day-notice, advice on seeking legal advice, and fair and reasonable consideration independent other than consideration of continued employment.
- Noncompetition enforcement periods would be limited by law (See differences below).
- Prohibit the enforcement of a noncompetition agreement where the employer terminates without cause or lays off an employee.
- Require the payment of compensation where an employer enforces a noncompetition agreement against an employee that has voluntarily left his or her employment.
- Geographic constraints based on where employee worked within the last 2 years of employment.
Based on Governor Baker’s support, a final bill may have most, if not all of the House version’s disputed provisions
The conflicting provisions of the two proposed bills still provide enough differences that the passage of an agreed bill will require substantial compromise between the two chambers. These conflicts include:
| Maximum duration of a noncompetition restriction | |
| House version: One year. | Senate version: Ninety days. |
| Garden leave period | |
| House version: Up to one year. | Senate version: Ninety days. |
| Garden leave pay | |
| House version: Garden leave payment equal to fifty percent of the employee’s highest base salary within the two-years preceding termination or “other mutually agreed consideration.” Other-agreed-consideration in the House version could conceivably be negotiated a part of the original noncompetition agreement and could provide less of a garden leave payment. | Senate version: Garden leave payment equal to one hundred percent of the employee’s highest base pay within the last two years or other mutually agreed upon consideration between the employer and the employee which shall be equal to or greater than one hundred per cent of the employee’s highest annualized earnings within the 2 years preceding the employee’s termination… |
| Noncompetition agreements illegal for certain persons | |
| House version: Noncompetition agreement void if it restricts an employee terminated or laid off without cause; overtime eligible workers; undergraduate and graduate students; employees under age 18. | Senate version: Includes House’s exclusions but adds to the exclusions, employees earning less than two-times the state’s average weekly wage and independent contractors. |
| Definition of employees to whom the law will apply | |
| House Version: Noncompetition agreement is void if it applies to an employee terminated or laid off without cause; overtime eligible workers; undergraduate and graduate students; employees under age 18. | Senate version: Same exclusions employees in House version but adds to exclusion employees earning less than two-times the state’s average weekly wage and independent contractors. |
| Time allowed for issuing notice of intent to enforce noncompetition agreement | |
| House version: Employer not required to give employee any notice of its intent to enforce a noncompetition agreement after employees leaves employer’s employ. | Senate version: Employer must give employee notice of employer’s intent to enforce a noncompetition agreement within 10 days of employee leaving employer. The Senate bill then states: “If the employer fails to provide such notice, the noncompetition agreement shall be void.” |
| Court authority to revise unreasonably broad noncompetition agreements | |
| House version: Present court decisions that allow Massachusetts courts to revise or otherwise reform unreasonable noncompetition agreement will continue to apply. | Senate version: Prohibits a court form “reform[ing] or otherwise revis[ing] a noncompetition agreement so as to render it valid and enforceable…” As a result, overly broad noncompetition agreements will not be revisable and if found unreasonable, the courts will have to find the agreements unenforceable. |
| Date after which new noncompetition agreements must comply | |
| House version: October 1, 2016 | Senate version: Emergency preamble to Senate bill makes law effective immediately when signed by the Governor. |
Both the House and Senate version only apply to defined noncompetition agreements
Both versions of the proposed law apply only to noncompetition agreements. Both the House and Senate version define a noncompetition agreement as:
an agreement between an employer and an employee arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees not to engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended…”
Under each version of the act, “noncompetition agreements” include forfeiture for competition agreements, but do not include:
- Covenants not to solicit or hire employees or independent contractors of the employer;
- Covenants not to solicit or transact business with customers of the employer;
- Noncompetition agreements made in connection with the sale of a business or substantially all of the assets of a business where restricted person is a substantial owner;
- Noncompetition agreements outside of an employment relationship;
- Forfeiture agreements;
- Non-disclosure or confidentiality agreements;
- Invention assignment agreements;
- Garden leave clauses;
- Noncompetition agreements made in connection with the cessation of or separation from employment if the employee is expressly given seven business days to rescind acceptance; or
- Agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.
Agency Checklist will advise its readers if the Legislature meets its July 31 deadline and sends a noncompetition bill to the Governor.
