ViewPoint: Employers should still be cautious with noncompetes
This article was originally published in the Boston Business Journal on August 8, 2014. To view that article on the BBJ website, please click here.
To view the longer version on Bowditch and Dewey's website, please click here.
The Massachusetts Legislature recently considered legislation which, if passed, would have significantly changed the scope and enforceability of noncompetition agreements. The proposed legislation represented a compromise between Gov.Deval Patrick’s proposed outright ban on noncompetes and the current legal framework in which noncompetes are generally enforceable as long as they protect legitimate business interests.
In the end, the Legislature adjourned without passing noncompete reform. But proponent Sen. William Brownsberger of Belmont states that the bill he pushed has laid the groundwork for future reform, and groups in favor of the restrictions have vowed to continue the fight for a ban of noncompetes in Massachusetts.
Employers should take the time now to familiarize themselves with the potential new restrictions and be prepared to adapt to the changing legal landscape.
The most dramatic change to existing law under one proposed version was a ban of noncompetes for all employees deemed nonexempt under the Fair Labor Standards Act. That proposal also set forth certain presumptions regarding the reasonableness of the duration (six months), geographic reach, and scope of proscribed activities in noncompete agreements.
While this particular proposal failed to pass this session, the legal landscape is shifting in Massachusetts: Courts are already taking a hard look at noncompetes before enforcing them and this trend will only continue. As such, companies should take the following steps now to protect their intellectual capital:
• Consider enhancing your nonsolicitation agreements and nondisclosure agreements, since they will continue to be enforceable. Also consider making these agreements separate from your noncompete agreements.
• Consider modifying or narrowing existing noncompetes so they are more in line with the proposed legislation.
• Consider alternate means of protecting your business interests and information with respect to nonexempt employees, and limit access to confidential information only to those with a “need to know.”
• Ensure that your prospective employees are provided advanced notice of a proposed noncompete, either when employment is offered or at least five days before start of employment, and ensure that they are afforded an opportunity to consult with legal counsel. Do not spring a noncompete on a newly hired employee.
• Review and modify, if necessary, noncompetes when an employee’s job duties change, and regardless of whether the agreement needs modification, be sure that the employee ‘re-ups’ the agreement whenever there is a change in the employee’s employment status.
• For senior executives, consider adding severance as part of the noncompete agreement, a payment that would be forfeited upon a failure to comply.
Timothy P. Van Dyck is a labor and employment partner in the Boston office of Bowditch & Dewey. Timothy H. Powell is an associate in the law firm’s Worcester office.