Non-compete reform remains a high priority for the Massachusetts Legislature. At the end of the 2016 session, the Massachusetts House and Senate each passed their own versions of non-compete reform bills, but the houses could not agree on a final compromise bill before the legislative session closed. We expect to see the Legislature focus attention on non-competes again in 2017, and we are recommending that our clients update their existing non-competes in anticipation of potential reforms.
Last year, the Senate proposed radical reforms to Massachusetts non-compete law. These changes included:
- A 3-month limit on the duration of the non-compete period;
- Employers required to pay 100% of a departing employee’s total earnings (including salary, commission, and bonuses) during the non-compete period;
- A complete prohibition on non-competes for hourly employees, students, employees under 18, employees who have been laid off or terminated without cause, independent contractors, and anyone earning less than twice the Massachusetts average wage (less than approximately $120,000).
The House proposed more modest changes, including a 1-year term limit, 50% pay of salary only during the non-compete period, and a prohibition on non-competes for hourly employees, students, employees under 18, and employees who have been terminated without cause.
It remains to be seen whether either house will resurrect their non-compete bills – or draft entirely new bills – in the upcoming session. Under the prior bills, existing, valid non-competes would be grandfathered in.
However, if you have not updated your non-competes as your employees have progressed in the company, your existing non-competes may no longer be valid. Massachusetts strongly follows the “material change” doctrine. Under this doctrine, if an employee’s position, duties, or pay have materially changed since they last signed a non-compete, that agreement may not be enforceable.
For example, many businesses ask new employees to sign non-competes at the time of hire. Over several years, an employee may be promoted several times, take on new responsibilities, and receive raises. On the flip side, an employee may be demoted or transferred to a different role for performance or business reasons. If these changes are significant enough that the employee is no longer doing the job they were originally hired to do, their old non-compete may no longer be enforceable.
We recommend that our clients revisit their non-competes, particularly for key employees with access to sensitive, competitive information, and make sure that the non-compete in place corresponds with the job each employee is now performing.
As always, feel free to contact us if you need assistance reviewing or updating your employee agreements.