To protect their business interests, many employers include noncompetition clauses in their employment agreements, which place prohibitions on employees working for competitors or within the same industry after parting with their current employer. However, in October 2018 Massachusetts passed G.L. c. 149, § 24L, which governs noncompetition agreements. The failure to meet the requirements of the law will render a noncompetition agreement unenforceable.
To the extent the Courts have analyzed this statute, strict compliance has been required with each of the eight requirements. Judge Hillman from the United States District Court, District of Massachusetts, recently issued one of the few decisions on the statute on July 15, 2021 and dismissed a breach of contract claim against employee Philip Ossowski based upon a noncompetition agreement contained in an employment contract that did not meet two of the eight requirements. (KPM Analytics North America Corp. v. Blue Sun Scientific, LLC).
If the employer is requesting a noncompetition agreement at the time an employee is hired, any such clause must be provided to the employee 10 days before commencement of employment or when the formal offer of employment is made and it must be in writing, signed by both parties, and expressly state that the employee has the right to consult an attorney prior to execution. G.L. c. 149, § 24L (b)(i). Judge Hillman focused on the fact that the contract did not contain a specific and express reference to the employee’s right to consult with counsel prior to execution, and therefore found the noncompetition clause invalid.
The statute also requires the inclusion of a “garden leave clause” or other mutually-agreed upon consideration between the employer and the employee, provided that such consideration is specified in the noncompetition agreement.” G.L. c. 149, § 24L(b)(vii). A garden leave clause is defined by the statue as “a provision within a noncompetition agreement by which an employer agrees to pay the employee during the restricted period, provided that such provision shall become effective upon termination of employment unless the restriction upon post-employment activities are waived by the employer….” The statue requires payments to be at least 50% of the employee’s highest annualized base salary within the final two years of employment. The statute does not define what constitutes “other mutually agreed upon consideration” to stand in place of a garden leave clause. In the KPM Analytics case, Ossowski’s employment agreement stated “In consideration of your employment…” but did not include a garden leave clause or other consideration. Hillman held that the failure to include a garden leave clause or other consideration invalidated the noncompetition agreement. The decision by Judge Hillman indicates that employment itself is not considered “mutually agreed upon consideration” sufficient to stand in place of a garden leave clause under G.L. c. 149, § 24L(b)(vii); some other form of consideration must be provided for a noncompetition agreement to withstand judicial scrutiny.
It is important to draft your employment contracts, and any post-employment restrictions, in full compliance with the applicable law, otherwise an employer may be left with no protection once the employment relationship terminates.
