The Price of a Job: Employee Noncompetition Agreements in Massachusetts

So you have found a job in your field, perhaps everything you expected and desired, or perhaps something simply acceptable under the circumstances.  You have considered the salary and benefits, the way in which this opportunity fits your short or long term career objectives, the cost of the commute, and a number of other variables capable of some degree of projection and evaluation.

Then you are handed a non compete agreement to sign.  How do you assess that? To be honest, many do not: jobs are not exactly growing on trees, and the prospect of someday leaving this new and exciting job may seem distant. Even if you do undertake to analyze what the non-compete might mean, however, except at the extremes on either end of the spectrum, you have little chance of coming to a reliable conclusion under existing Massachusetts law.

Consider the following scenarios:

·         A high level technical employee with access to critical information about product design, subject to a two year non compete agreement;
·         A hairdresser paid on a commission basis and making no more than $45,000 a year subject to a one year non compete agreement within a certain radius of her employer’s location;
·         A salesperson who has represented the company to customers for many years subject to a four year, nationwide non compete agreement;
·         A telephone salesperson whose job entails cold calling prospective leads subject to a one year non compete agreement;
·         A recent college graduate who worked in a sales capacity for less than a year subject to a one year non compete agreement.

Do these individuals stand on the same footing legally if their employer seeks to enforce the noncompetition agreement and will these agreements be enforced?  The answer under Massachusetts law, currently, is a resounding “maybe.”  

A non compete agreement (also known as a covenant not to compete or a restrictive covenant) signed in connection with employment is enforceable under Massachusetts law only if it is: (i) supported by consideration; (ii) reasonable in scope; and (iii) necessary to protect a legitimate interest of the employer. What that actually means is subject to considerable debate and can lead to different and inconsistent results.

A judge might or might not, for example, decide that the hairdresser cannot be held responsible for the employer’s goodwill if she goes into competition, that a four year restriction for the salesperson is unreasonable, or that the relative inexperience of the recent college graduate and the short duration of her employment would not place her in a position of damaging the employer’s goodwill by competing.   A judge might, or might not, decide that the technical employee carried with him or her valuable trade secret information that should not be allowed to benefit a competitor during the noncompetition period, or that the sales representatives were sufficiently connected with the employer’s goodwill that the restriction on competition is reasonable.

Employment lawyers are a creative lot, therefore a number of additional attacks on the enforceability of noncompetition agreements have evolved over the years under Massachusetts law, including arguments that: (i) material changes in job circumstances void the non compete agreement; (ii) an employer’s failure to pay compensation as agreed is a material breach of the employment agreement and excuses the employee’s performance under the non compete agreement; and (iii) non compete agreements signed after the beginning of the employment relationship are not supported by consideration and are therefore not enforceable. 

If you came to me tomorrow wanting help getting out from under a noncompetition agreement, some or all of the above theories could be available to you.  If, however, you came to me tomorrow and asked for advice about whether you should sign a noncompetition agreement, or whether an agreement you want your employees to sign is enforceable, the above analysis might be the best I could offer you. 

This is cold comfort if you are trying to truly understand the price of the job you are considering, or the extent to which you want to restrict your employees’ activities post-employment, particularly since the lack of clarity in the law virtually guarantees some non-trivial expenditure of legal fees on both sides should the agreement ever come into dispute.

There are two bills pending in the Massachusetts House of Representatives that could help bring better clarity to the law of non compete agreements in Massachusetts.  One, sponsored by  Representative Sheila Harrington, would declare noncompetition agreements unlawful except in connection with certain delineated circumstances, such as the sale of a business or dissolution of a partnership.  See House Bill 1729.  Another, sponsored by Representatives Lori Ehrlich  and William Brownsberger, would create a presumption that non compete agreements lasting six months or less were reasonable, and a presumption that longer non competes were unreasonable.  Under this bill, a court could only enforce a non compete agreement whose duration was found unreasonable if: (i) the employee breached a fiduciary duty to the employer; (ii) the employee has unlawfully taken property of the employer; or (iii) the employee has, at any time, earned an annualized salary of $250,000 or more.  See House Bill 1715. 

Though these are clearly drafted with the employees' interests in mind, there is something to be said for certainty and clarity for both employees and employers.  As employees would benefit from the ability to assess the potential impact of an agreement before signing one, employers would also benefit from having a clearly defined set of rules of the road when drafting their own non competes and making decisions about enforcing those agreements.

A concluding note of non-legal advice: both employers and employees could benefit from appreciating that there are many mutually beneficial things that can come out of a former employment relationship, virtually none of which are accomplished by non compete agreements or legal battles.  The guidelines in the proposed bills, or the much less clearly defined guidelines that can be found in existing caselaw, are perhaps a starting point for parties on both sides of the issue to chart a reasonable course that can avoid unnecessary conflict.