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Litigation & Employment

Should Massachusetts Companies Use Non-Competition Agreements?

The Short Answer is Yes

The 2018 change in Massachusetts’ non-competition laws leveled the playing field for employees, but employers should not abandon this important tool for protecting trade secrets and proprietary information when appropriate.

Changes to the Non-Compete Law

For years, Massachusetts companies enjoyed few restrictions on their ability to restrain employees from later working for a competitor. Noncompetition agreements became a standard part of boilerplate onboarding documents. While there was a myth that only CEOs had non-competes, state and federal courts were enforcing the agreements against all levels of employee, including even a “low-level janitorial supervisor” making just $18 an hour. “Noncomps” were easy, effective, and ubiquitous.

Everything changed in 2018 when Massachusetts passed the Noncompetition Agreement Act. The new law

  • restricts noncompetition agreements to so-called white-collar workers only;
  • limits the post-termination non-competition time period to one year;
  • requires written notice in advance of the onboarding stage;
  • includes a mostly mandatory and hefty payment obligation after employment ends; and
  • makes non-compete provisions unenforceable when an employee is terminated without cause.

In response, many employers simply deleted their noncompetition agreements, feeling that the new law was too cumbersome and costly to be worthwhile.

NonComps Remain Valuable

Noncompetition agreements are more costly and more cumbersome since 2018, but they remain a valuable and important tool in protecting a company’s competitive advantage. To understand their value, it is important to understand their purpose. The purpose of a non-competition agreement is not to bolster employee retention by restricting mobility, and it is not meant as a source of revenue from competitors that hire your ex-employees. Employers who envisioned noncompetes as a tool for retention and revenue miss the bigger picture.

The purpose of a non-competition agreement is to prevent your competitors from accessing your trade secrets that exist within the minds of your ex-employees. This is the same fundamental purpose behind contractual NDAs, the Massachusetts Uniform Trade Secrets Act, and the Defend Trade Secrets Act. If those trade secret protections were 100% effective, there would not be a need for noncompetition agreements—but realistically NDAs and trade secret laws do not guarantee that your secrets are safe. Senior ex-employees were privy to your marketing plans, your current and pipeline customers, prospective product and service improvements, ongoing research and development projects, and much more. Often, they helped build successful programs for you, and they will carry that vision with them to a competitor. An innocent and law-abiding employee may want to implement the same strategies for their new company that worked so well for yours, but your company may legally own that strategy and may suffer a competitive loss if the employee brings that knowledge to a competitor.

According to 2009 and 2013 studies of recently separated employees, 59% of the self-reporting population admitted to stealing confidential company information upon their exit. Other studies suggest that the majority of all trade secret disclosure cases involve ex-employees. Trade secret theft is estimated to cost US companies over $500 billion per year. One way to prevent a competitor from accessing your trade secrets is to restrict an ex-employee’s ability to serve as an intentional—or just as often accidental—vehicle for transmission.

Balancing Competing Interests

The 2018 modifications to Massachusetts’ noncompetition laws were designed to balance competing interests. The changes were the culmination of years of negotiations from competing interests, and employers should not abandon non-competition provisions simply because there are more strings attached. Both sides can benefit—the employer’s trade secrets will be better protected than through simple NDAs, and the employee will now be compensated for the restriction on mobility. Given the changes to the law, however, noncompetition provisions may not be worthwhile or permitted if the employee is not sufficiently high ranking within your organization. Gesmer’s lawyers are available to help employees and employers maximize their leverage and obtain the best, legally compliant deal possible for your unique situation.

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