Non-compete agreements, also known as restrictive covenant agreements, are contracts that protect companies from losing valuable employees to competitors and from confidential information ending up in the wrong hands. In August 2018, Massachusetts governor Charlie Baker signed into law the Massachusetts Noncompetition Agreement Act, which regulates non-compete clauses by limiting their enforceability and codifying express requirements they must meet (New Massachusetts Law Limits Non-Competes). The law went into effect October 1.
In an effort to protect employees, the new law generally bans employment-related non-compete agreements unless they meet certain requirements. (Non-disclosure and non-solicitation agreements are not impacted by this new legislation.) Let’s take a look at what this new law means for employers.
The 2018 legislation outlines includes the following:
Invoking the non-compete clause will likely be costly to your organization as companies need to provide “consideration” for signing the agreement. The “garden leave” provision requires employers to pay the employee at least 50% of the employee’s annual base salary at the highest level during the past two years for the restricted period or “other mutually agreed upon consideration”. Leadership and management ought to consider utilizing non-solicitation or non-disclosure agreements instead of non-competes to protect business information and relationships.
All Massachusetts employers who use non-compete agreements should review their existing documents to ensure they comply with the new law. It is a best practice to include information on non-compete agreements in your employee handbook.
Non-compete agreements are often used in sales environments. Outside sales positions are typically exempt positions and fair game for non-competition agreements if they meet all of the other requirements of the new law; however, inside sales positions may be a concern. Many companies improperly classify their inside sales employees as exempt. The FLSA clearly defines inside sales positions as ineligible for exemption from overtime. Therefore, under this new law, inside sales positions should not be required to sign non-compete agreements. Perhaps this group of employees would be better served with non-solicitation and/or non-disclosure agreements instead.
If all this talk about non-compete clauses is causing you stress, talk to us. At Genesis, we’re in the business of helping small to midsize companies handle their HR, benefits, and payroll needs—and providing guidance on issues like non-compete agreements. To find out how we can help your organization tackle your HR headaches, get in touch. You’ll be glad you did!