Governor of Massachusetts Proposes the Elimination of Non-Competition Agreements in Massachusetts
On April 10, 2014, Governor Deval Patrick unveiled legislation to prohibit Massachusetts companies from requiring employees to sign non-competition agreements as a condition of their employment. This proposal is part of a greater economic development bill entitled An Act to Promote Growth and Opportunity (the Act) and is tied to the Commonwealth adopting what is labeled as a “Uniform Trade Secrets Act.” Specifically, the Act provides:
Any written or oral contract or agreement arising out of an employment or independent contractor relationship that prohibits, impairs, restrains, restricts, or places any condition on, a person's ability to seek, engage in or accept any type of employment or independent contractor work, for any period of time after an employment or independent contractor relationship has ended, shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement. Nor shall this section affect (i) covenants not to solicit or hire employees or independent contractors of the employer; (ii) covenants not to solicit or transact business with customers of the employer; (iii) non-disclosure agreements; (iv) noncompetition agreements made in connection with the sale of a business or substantially all of the assets of a business, when the party restricted by the noncompetition agreement is an owner of at least a 10 percent interest of the business who received significant consideration for the sale; (v) noncompetition agreements outside of an employment relationship; (vi) forfeiture agreements; or (vii) agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.
Currently, although there already are some statutory exceptions for certain professions, Massachusetts courts will uphold non-competition agreements as long as the following conditions are met:
The agreement is narrowly tailored to protect legitimate business interests;
The agreement is limited in time, geography, and scope;
Upholding the non-compete is consonant with public policy; and
Harm to the employer if the non-compete is not upheld outweighs harm to employee.
Most states allow some form of non-competition agreement; however, if the Governor’s proposal is passed, Massachusetts will join California as a state that bans these agreements in the context of an employment relationship. The Governor relies on the loss of technology jobs to California as a reason for proposing the Act. He states that companies in the thriving life sciences industry would be among the many beneficiaries of the Act. However, many Massachusetts business owners are concerned that passage of the Act will hinder their ability to protect their trade secrets and corporate goodwill.
According to the Governor, the simultaneous adoption of the Uniform Trade Secrets Act will soften any negative consequences of eliminating non-competition agreements, and will allow companies to protect their trade secrets from misappropriation. The version of the Uniform Trade Secrets Act, however, arguably contains more stringent provisions for protecting trade secrets than model uniform acts adopted by other states.
The Governor’s legislation was only recently introduced and the state legislature will have an opportunity to consider the proposal over the coming weeks and months. However, unless and until this or something similar is enacted, non-competes will still be the law in Massachusetts.