Private employers are watching closely as law makers debate legal limits on employment based non-compete agreements in response to a bill originally proposed by Governor Patrick. Non-Competition agreements have been a source of uncertainty for employers and employees in Massachusetts given the suspicion with which courts regard these agreements. While courts are generally willing to allow businesses to protect themselves from competition from the former owner of a business in the case of the sale of a business, when it comes to keeping employees form competing with their former employer, courts look at several factors in determining whether the agreement is enforceable.
Courts look at whether the employer has a legitimate business interest in keeping the former employee from competing, which may take into account the types of information the employee possessed, and the circumstances under which the employee left the business. Geographic scope and duration must also be reasonably tailored to support the employer’s legitimate interest. Finally the agreement cannot deprive the employee of the ability to make a living and it cannot violate the public interest.
The proposed legislation which has been passed by the Senate would apply only to employee non-compete agreements, and would ban such agreements for employees who are “non-exempt” under the Fair Labor Standards Act – usually hourly employees. The bill also proposes clearer guidelines in the form of presumptively reasonable terms for geographical scope (where the employee provided services) and duration (6 months) and other factors that courts have had to grapple with on a case by case basis up until now. Based on the current wording of the bill, current non-compete agreements will not be directly affected.
The bill will next be taken up in conference committee, although the House did not pass a competing version of the legislation.
