Q: What is your advice regarding non-compete contracts in the technology industry? Are they commonly enforced?
A: Your question couldn’t be more timely. Historically, non-compete agreements in the technology world have been enforceable in Massachusetts; the enforceability of these agreements has been based on fact-specific circumstances relating to the trade secrets/confidential information that the company sought to protect. Most courts would have upheld a non-compete agreement if it was deemed reasonable in scope, time and geography.
I consulted M. Amy Carlin, Esq. of the Boston office of Morgan, Brown and Joy, LLP. Massachusetts legislators have been working on a non-compete bill for the past several months. Attorney Carlin shared an update. “On August 10, 2018, Governor Charlie Baker signed a piece of legislation called the Noncompetition Agreement and Trade Secret Reform Act, which regulates both the use and the enforcement of noncompetition agreements. This new Act will be effective October 1, 2018. As of October 1, 2018, there are a few significant changes that impact these agreements in Massachusetts: 1) non-compete agreements cannot be enforced against nonexempt employees, or employees who have been terminated without cause or laid off; 2) generally, the term of a valid non-compete agreement cannot be more than 12 months; 3) an employer will be required to pay compensation at a rate of 50% of the employee’s base salary (termed a “garden leave”) to the employee during the effective time frame of the non-compete (or other “mutually agreed upon consideration”); 4) an employer seeking to have an employee sign a non-compete agreement at the start of employment will need to provide ten business days’ notice of the agreement and advise the employee of the right to seek advice of legal counsel.”
The Act applies to employees and independent contractors. Many believe that this Act increases the level of protection for trade secrets in Massachusetts. Carlin explained that the law contains other significant changes regarding the enforceability of non-compete agreements. Many of us will be will be watching and learning more about this Act in the late summer and throughout the fall.