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Changes to noncompete agreement laws take effect Monday

September 25, 2018

State House News Service: 

New restrictions on non-competition agreements between employers and workers will take effect Monday, and the Greater Boston Chamber of Commerce is reminding businesses of the new requirements.

The Massachusetts Noncompetition Agreement Act was included in a $1 billion economic development package Gov. Charlie Baker signed on Aug. 10, and its provisions apply to noncompetes entered into on or after Oct. 1.

The Boston Chamber issued a policy brief on the new law, which it said limits non-competes to one year, requires that an employee have at least 10 days to review the agreement, and exempts lower-paid employees.

"It also institutes garden leave, which requires an employer to pay an employee during the time their employment is restricted by a non-compete," the brief said. "Importantly, in lieu of garden leave it allows for 'mutually agreed upon consideration' to give employers flexibility in determining what constitutes compensation related to the restricted period."

The law's garden leave provision calls for an employee to be paid half their highest annual pay during the past two years while they are prohibited working elsewhere. The "mutually agreed upon consideration" that can serve as a substitute for garden leave can take the form of a signing bonus or other compensation, according to the chamber.

Non-competes cannot be enforced against employees 18 years old or younger, those who have been terminated without cause or laid off, student interns, and employees classified as nonexempt under the Fair Labor Standards Act, including those who earn $23,600 per year or less, the chamber said.

Non-compete agreements are aimed at preventing workers from taking jobs with a business's competition. Critics have said the pacts can be abused and can stifle innovation or block employees from finding work after being laid off, while some businesses defend them as safeguards against the theft of proprietary information and protection of their investments in worker training.

When the law was signed, Sen. Eric Lesser, who co-chairs the Legislature's Economic Development Committee, described achieving non-compete reform as a "decade-long effort." The new measures "rebalanced the scales to benefit employees in an economy where companies compete for the best talent," he said at the time.

Lawmakers came close to passing new non-compete restrictions in 2016, but negotiations to reconcile competing House and Senate bills fell apart in the final hours of formal sessions that year.