When the clock struck midnight on July 31, the 2016 Massachusetts legislative session ended and with it ended any hope for noncompetition reform legislation this year.
Disagreement on “Garden Leave” provision
Both the House and the Senate had passed bills substantially modifying the existing law in Massachusetts on noncompetition agreements that some businesses commonly use. The bills, however, had certain material differences that a conference committee made up of members of the House and the Senate attempted to reconcile until late Saturday evening. The Senate and the House conference committee gave a good effort but could not agree on a compromise bill before the session ended.
Apparently, all of the major differences, but one, were worked out by the conference committee. The sticking point was the issue of compensation to persons who are restricted under a noncompetition agreement from working. The House had passed what it called a “Garden Leave” provision that required the payment of up to one year at fifty percent of an employee’s salary if that employee could not work because of valid noncompetition agreement. The Senate version only allowed 3 months for a covenant not to compete to be effective and required 100 percent of the employee’s salary to be paid.
Additionally, the House version had a kicker to its garden-leave provision that many considered a major loophole. The House version provided that the statutory garden leave payments due a restrained employee could be modified by the employer paying “other mutually agreed consideration.”
Venture capital is disappointed.
The New England Venture Capital Association that represents many of the startups in Massachusetts and the venture capitalists that fund such startups supported the Senate version of the bill. They argue that Massachusetts law that allows noncompetition agreements put the Bay State at disadvantage to states like California that prohibit employment restrictions like noncompetition agreements. The Senate version for all intents and purposes made noncompetition agreements extremely expensive and difficult to enforce.
Established business like noncompetition agreements the way they are
The Boston Chamber of Commerce and the Associated Industries of Massachusetts supported either no change to the law or compromised on the House version that allowed covenants not to compete for up to 1 year.
Bills certain to be refiled when Legislature reconvenes in January.
The result of the failure of the House of representatives and the Senate to agree is that the noncompetition bills of both the Senate and the House are dead for this session. In January the competing parties will almost certainly file similar bills and push for their adoption.
Status quo for now
Based on the failure of a noncompetition bill to pass, the common law relating to noncompetition agreements in Massachusetts remains the same. The agreements are enforceable as long as they are reasonable in space and time. The consideration for these agreements is the persons employment and businesses using noncompetition agreements have no obligation to pay any additional compensation to enforce them.
