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So You Thought Non-Compete Agreements Were Safe? Think again.

Guest post by: Marijo McCarthy

Article Overview: Have you ever had a departing employee set up shop next door (literally or figuratively) and compete with you? It's a frustrating experience, and one which leads many small business owners to overreact by imposing non-compete agreements on all employees from that day forward. If this is you, take heed. If the Massachusetts Legislature has its way, that option won't be open to you for much longer.

So You Thought Non-Compete Agreements Were Safe? Think again.

Have you ever had a departing employee set up shop next door (literally or figuratively) and compete with you? It's a frustrating experience, and one which leads many small business owners to overreact by imposing non-compete agreements on all employees from that day forward.

If this is you, take heed. If the Massachusetts Legislature has its way, that option won't be open to you for much longer.

Non-compete agreements, of course, serve a purpose when carefully implemented with high-level, key employees who, by reason of their job responsibilities and access to company information, are in a position to negatively impact your business if they immediately begin to compete with you when they leave your employ. If a small business owner has "protectable interests" — trade secrets, confidential information or good will — that employer should be allowed to fairly and reasonably protect those interests.

When they are impulsively or irrationally imposed on employees, however, non-competes do not serve a purpose and often won't be enforced or enforceable.

How would the pending legislation change the rules for non-competes if voted into law?

• First, the legislation would actually provide some certainty to the rules governing non-competes, rules which are now primarily defined by the courts on a case-by-case basis.

• Second, the legislation would impose salary requirements. Non-competes would only be enforceable for employees earning a minimum of $75,000.00, with the possibility of small, annual increases going forward.

• Third, the legislation would limit to 6 months the period deemed "presumptively reasonable" for the term of a non-compete and, even more restrictive, would limit to one year the total non-compete period.

• Fourth, and as an administrative challenge for fast-moving small business owners, the legislation would require that the written non-compete agreement be provided to a prospective employee two weeks in advance of actual employment.

• Fifth, the employer might be required to pay the employee's legal fees if the non-compete was found to be unenforceable in a legal proceeding.

The only truly good news in this proposed legislation is that in its current form, it does not impose restrictions on "non-solicitation" agreements, where an employee has agreed not to solicit other employees or clients of the former employer.

While this is only proposed legislation, subject to agreement of and passage by both House and Senate on Beacon Hill, it is a wake-up call for employers who find non-compete agreements necessary to protect their businesses. And, while it may not apply to non-compete agreements already in existence, it does provide some guidance on the Legislature's current thinking about these agreements going forward.

Employers would do well to take a deep breath and examine their policies and practices regarding these agreements before the Legislature does it for them.

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Article Tags: massachusetts legislature, noncompete agreements, small business owners



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