On October 1, 2018, Massachusetts law governing non-compete agreements and the protection of trade secrets changed. While much remains unclear on how these new laws will be interpreted by the courts, here is what we do know:
The new noncompete law applies to all employees (and independent contractors) who are employed in or a resident of Massachusetts. Under the new law, noncompete provisions in employment agreements:
- Are not enforceable against (i) hourly employees, (ii) undergraduate or graduate students employed as interns, or (iii) minors;
- Are not enforceable if an employee is terminated without cause;
- Must be in writing, be provided to potential new employees at least 10 days prior to the start of a job or before offering the job, and must expressly state that the employee has the right to consult with a lawyer prior to signing;
- Must include additional consideration for the noncompete obligation other than “continuation of employment” for existing employees, and must provide those employees with the same 10 days’ notice and right to consult with a lawyer prior to signing;
- With limited exceptions, must be no longer than one year;
- Must be reasonable in geographic scope and reasonable in the scope of the prohibited activities, i.e. related to the geographic area in which the employee provided services or had influence, and the types of services provided by the employee during the last two years of employment; and
- Must include “garden leave” payments equal to at least 50% of the employee’s highest annualized base salary within the preceding two years, or “other mutually-agreed upon consideration” for the period of the noncompete (with some limited exceptions).
Types of Agreements Excluded
The new non-compete law does not apply to all agreements that may contain noncompete provisions. For example, the new law does not apply to non-compete provisions that would apply in connection with the sale of a business, in separation agreements (provided certain conditions are met), or in other agreements unrelated to an employment relationship.
In addition, and significantly, the new law does not apply to provisions specifically targeted at protecting the confidential information of a business (like nondisclosure agreements), nor does it apply to provisions prohibiting the solicitation of employees or customers. As a result, organizations wanting to avoid the “garden leave” and other requirements under the new noncompete law may elect to rely instead on robust non-solicitation and confidentiality provisions in order to secure much of the same protection.
Expansion of Trade Secret Protection
The new trade secrets law is helpful to businesses wanting to protect their confidential information in a number of ways. Specifically, the new law:
- Codifies a broad definition of trade secret as including “a formula, pattern, compilation, program, device, method, technique, process, business strategy, customer list, invention or scientific, technical, financial or customer data,” so long as it is “specified or specifiable information”;
- Includes information that has not only actual but “potential” economic advantage because it is secret;
- No longer requires that a trade secret be in continuous use in order to qualify for trade secret protection;
- Permits a court to issue an injunction to prevent actual or threatened misappropriation;
This strengthening of trade secrets law in Massachusetts is helpful to businesses that want to protect their company’s secrets and goodwill through a combination of nondisclosure and non-solicitation provisions in their employment agreements. Such an approach may be more palatable to prospective employees than more traditional non-compete provisions and may accomplish for employers many of the same goals.
To discuss how these new laws may apply to your business or organization, please contact Lucy Prashker, Chair of the firm’s Intellectual Property and Technology Department, or Diane DeGiacomo, Chair of the Employment Law Department.