Ban on Non-Compete Legislation Fails in Massachusetts

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Employers in the Commonwealth of Massachusetts dodged a bullet recently when the legislature failed to act on a bill which would have banned non-competition agreements between employers and employees. The language regarding non-competes, offered in numerous forms since 2009, was dropped from the Senate economic development bill before it was voted on, despite Massachusetts Governor Deval Patrick throwing his support behind efforts to outlaw the agreements.

The House version made no changes to the current laws regarding non-competes. The Governor’s effort, which included a provision to adopt the federal Uniform Trade Secrets Act (UTSA), would also have placed it among the majority of states which have adopted the UTSA, had the bill passed in its originally proposed form. The Massachusetts legislative session concluded on July 31, 2014.

However, just because legislation regarding an outright ban on non-competes was not passed in Massachusetts does not mean that the agreements may run rampant there, or in any other state with the sole exception of California.

Non-competes (NCC) or covenants not to compete (CNC), is a term used in contract law in which one party (generally speaking, the employee) agrees not to enter into or start a similar profession in competition against another party (generally, the employer.) The use of the clause is based upon the possibility that the departing employee will take trade secrets and other proprietary information with him and use that information to the detriment of the former employer.

While some NCCs are upheld in the states, these are only enforced to the extent necessary to protect the employer. Most NCCs are overly broad and are struck down as they prevent the employee from working elsewhere at all. Where they are generally found to be legally binding is when they contain provisions that have reasonable limitations as to geographical area and time period within which the employee may not compete with his former employer.

Some notable jurisdictions in which the courts have weighed in on NCCs include Virginia, Florida, Washington, and Texas. In all, and it varies widely depending on the state, only reasonable restrictions are upheld and those beyond that line in the sand are struck down as being against public policy. Generally speaking, the NCCs that are upheld are cases involving high-tech information.

ACCA employers should not feel free to insert non-compete clauses in any of their agreements with employees without consulting legal counsel first and verifying that the limitations set forth in the contract are recognized and reasonable legitimate business interests in the protection of trade secrets and confidential information, and have in place limitations as to time, geographical area and scope of activity to be restrained.

The Massachusetts legislature will no doubt resume its interest in NCCs and trade secret law reform efforts at the start of its next session, but for now employers in the Commonwealth can breathe a collective sigh of relief.

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Posted In: Legal