Noncompete Agreements

The Massachusetts Noncompetition Agreement Act - Eight Years and Trying

Laws are like sausages, it is better not to see them being made.  Otto von Bismarck

[Update: attempts to reform noncompete law in Massachusetts failed again in 2016, for the eighth consecutive year. Although bills passed both the House and Senate, an attempt at compromise legislation failed and the legislature adjourned on July 31, 2016 without passing a bill.]

You could go to sleep for years, Rip van Winkle-like, and not miss much when it comes to keeping up with Massachusetts noncompetition legislation. Bills have been filed every year since 2009 and failed to be enacted into law. These bills have displayed all kinds of restrictions on non-competes, ranging from an outright ban (California-style), to a minimum salary requirement.

However, it’s worth taking an occasional peak at what the drafters of this legislation are up to, and the proposed 2016 law is worth waking up for, particularly since it passed the Massachusetts House and is headed for the Senate and possible delivery to Governor Baker for signature by the end of July.… Read the full article

Early this month the White House issued a report titled, Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses. The conclusion of this 16 page report is as follows:

In some cases, non-compete agreements can play an important role in protecting businesses and promoting innovation. They can also encourage employers to invest in training for their employees. However, as detailed in this report, non-competes can impose substantial costs on workers, consumers, and the economy more generally. This report informs future discussions and potential recommendations for reform by providing an overview of the research on the prevalence of noncompetes, evidence of their effects, and examples of actions states are taking to limit the use and enforcement of unnecessary non-competes. There is more work to be done. The Administration will identify key areas where implementation and enforcement of non-competes may present issues, examine promising practices in states, and identify the best approaches for policy reform.

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I’ve often written about how easy it can be for an employer to lose the ability to enforce an employee noncompete provision.  In recent years the courts have come down hard on employers who materially change an employee’s job responsibilities but fail to require the employee to enter into a new contract, holding in many cases that a noncompete provision in the old contract does not survive the job change.  (For example, see Rent-A-PC Fails to Enforce Restrictive Covenants Against Former Employees).

However, there is an even more fundamental mistake employers can make, as illustrated in the decision in Meschino v. Frazier Industrial Co. (D. Mass. November 18, 2015). In this case the employee entered into an agreement in 2005 which contained a covenant not to compete and a confidentiality provision.  The employee then signed a new employment agreement in 2012, but the 2012 agreement did not include these terms or refer back to the 2005 agreement.… Read the full article