Does Your Business Use Non-Compete Agreements?

Posted by Kelly Pappas, JD, CPCU, AIC, Co-Chair EM NARI Membership Committee on 17 October 2018 | 0 Comments

A new law covering non-compete agreements went into effect in Massachusetts on October 1, 2018.  Ten years in the making, the law will undoubtedly have a significant impact on employment litigation, as the courts, business owners, and employees try to interpret the language.   As a business owner, here’s a synopsis of what you need to know to draft a valid and enforceable non-compete agreement:

  • This law applies to both Employees and Independent Contractors
  • The non-compete agreement is limited to a maximum of 12 months (with some exceptions)
  • If a business owner has an employee enter into a non-compete starting with the date of employment:
    1. The agreement must be signed by the employee and the employer; and
    2. The agreement must state that the employee has the right to consult counsel prior to signing; and
    3. The agreement must be given to the employee at the time of formal offer or ten (10) business days prior to starting employment, whichever is earlier
    4. If you don’t have a non-compete with a current employee, but want to put one into place, consult with an attorney first to ensure compliance with the required“fair and reasonable consideration”.
    5. “Garden Leave” (paying someone during the period that they are restricted by the non-compete) or “other mutually-agreed upon consideration” is required in an enforceable non-compete agreement.  It requires that the employer pay the employee during the restrictive period, at a rate of 50% of the employee’s highest base salary in the two preceding years.  In lieu of that, the employer and employee may agree to “Other mutually-agreed upon consideration”,   but it must be specified in the agreement.  Since this phrase is not defined in the law, there is no way to determine what a court deems as acceptable consideration. 
    6. Non-compete agreements are banned for the following groups:
      • Nonexempt employees under the FLSA
      • Undergrads and grad students who are not working full time
      • Employees who are terminated without cause or laid off
      • Anyone 18 or younger

As always, the best course of action when drafting or enforcing a non-compete is to consult with a trusted advisor who understands the law and the risks associated with non-compliance.

 Kelly Pappas, JD, CPCU, AIC, Co-Chair EM NARI Membership Committee

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