Massachusetts Employers Take Heed: New Non-Compete Law Adds Important New Requirements and Prohibitions

Q: My company is headquartered in Massachusetts. Does the new Massachusetts law on non-competes change how I structure non-compete agreements with employees?

A: Massachusetts recently enacted a new law outlining the requirements for valid employee non-competition agreements.  The law will go into effect for non-competition agreements entered into on October 1, 2018 and later.  Agreements signed prior to the new law will remain valid.

Significantly, the law limits the non-compete period to 12 months in most circumstances, and requires that employers offer the employee paid “garden leave” for the length of the restricted period of at least 50% of the employee’s highest base salary during the prior two years (or some “other mutually-agreed upon consideration,” which the agreement must specify). Moreover, the law prohibits agreements with non-exempt employees and provides that agreements with employees who have been terminated without cause or laid off are not enforceable unless they are included as part of a separation agreement.

If you are an employer in Massachusetts and you enter into a non-compete agreement with an employee (or independent contractor), the following provisions also must be included in order for the agreement to be valid:

  1. The agreement must be in writing and signed by both the employer and employee and expressly state that the employee has the right to consult with counsel prior to signing.
  2. The agreement must be provided to the employee by the earlier of a formal offer of employment or at least 10 business days before the commencement of the employee’s employment.
  3. The agreement cannot be broader than necessary to protect one or more of the following legitimate business interests of the employer: (i) the employer’s trade secrets, (as specifically defined in the statute); (ii) the employer’s confidential information that otherwise would not qualify as a trade secret; or (iii) the employer’s goodwill.
  4. The restricted period of the agreement cannot exceed 12 months from the cessation of employment UNLESS the employee has breached his or her fiduciary duty to the employer or the employee has unlawfully taken, physically or electronically, property belonging to the employer, in which case the duration may not exceed two years from the date of cessation of employment.
  5. The agreement must be reasonable in geographic reach in relation to the interests protected. The statute provides that a geographic reach that is limited to only the geographic areas in which the employee, during any time within the last two years of employment, provided services or had a material presence or influence is presumptively reasonable.
  6. When a non-compete agreement is entered into AFTER employment begins, Massachusetts employers must provide additional consideration to the employee, other than continued employment. The consideration must be fair and reasonable. The employee must receive notice of at least ten business days before the agreement is to be effective.
  7. The noncompetition agreement must include a garden leave clause or other mutually-agreed upon consideration between the employer and the employee, provided that such consideration is specified in the noncompetition agreement. As explained above, to constitute a garden leave clause, the agreement must: (i) provide payments for the length of the restricted period of at least 50% of the employee’s highest base salary during the prior two years and (ii) not permit an employer to unilaterally discontinue or otherwise fail or refuse to make the payments (unless there is a breach by the employee. In addition, if the restricted period has been increased beyond 12 months as a result of the employee’s breach of a fiduciary duty to the employer or the employee has unlawfully taken, physically or electronically, property belonging to the employer, the employer is not required to provide payments to the employee during the extension of the restricted period).

Exclusions from the New Law

The following agreements, among others, fall outside of the definition of “non-compete agreement,” and therefore are not required to meet the requirements of the new law:

  • Non-compete agreements made in connection with the sale of a business, or as part of a separation agreement (provided the employee is given seven business days to rescind acceptance);
  • Non-solicitation agreements;
  • Non-disclosure of confidential information agreements;
  • Invention assignment agreements;
  • Garden leave clauses unrelated to a non-compete agreement; and
  • Agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.

What Massachusetts Employers Must Do Now

Employers seeking to bind Massachusetts employees to a non-compete should analyze their overall non-compete strategy to make sure that it aligns with the new law. For example, given the financial impact of the required garden leave clause, employers will need to consider whether to require non-competes for a more narrow group of employees. Employers also will need to modify their non-compete templates for employees who sign such agreements after October 1st to comply with statutory requirements. Likewise, employers should make sure that their human resources staff are cognizant of the timing requirements to ensure that employment is considered to be sufficient consideration for the agreement to be enforceable.

–Kali T. Wellington-James and Tracey E. Diamond

Employer May Not Have Affirmative Defense to Harassment Claim even if Employee Fails to Report Harassment

Q:  Does my company have an affirmative defense to a sexual harassment claim if the company has a policy for reporting sexual harassment and an employee never makes a report of sexual harassment under that policy?

A:  Earlier this summer, in a case called Minarsky v. Susquehanna County, the United States Court of Appeals for the Third Circuit (governing employers in Pennsylvania, New Jersey, Delaware, and the Virgin Islands) ruled that “a mere failure to report one’s harassment is not per se unreasonable,” even though the Third Circuit had previously “often found that a plaintiff’s outright failure to report persistent sexual harassment is unreasonable as a matter of law.”

In Minarsky, Thomas Yadlosky was the former Director of the Susquehanna County Department of Veterans Affairs. Over the course of many years, he made unwanted sexual advances toward his part-time secretary, Sheri Minarsky.  Minarsky never reported the conduct, but the County was aware of Yadlosky’s inappropriate behavior regarding two other County employees and had warned him on at least two occasions to stop.  On a nearly weekly basis, Yadlosky engaged in conduct that was clearly inappropriate, including: attempting to kiss Minarsky on the lips, attempting to embrace Minarsky from behind, massaging Minarsky’s shoulders, calling Minarsky at home to ask personal questions; and sending sexually explicit messages from his work email account to Minarsky’s work email account. To make matters worse for Minarsky, she and Yadlosky worked in a building separate from many other County employees. Minarsky testified that she feared speaking up to Yadlosky or protesting the harassment because Yadlosky would become “nasty,” and had warned that Minarsky should not trust county administrators.

Nearly four years into her employment with the County, Minarsky (with the encouragement of her physician) eventually drafted an e-mail to Yadlosky demanding that he stop his conduct. She also confided in a co-worker regarding Yadlosky’s conduct.  The co-worker mentioned the conduct to another employee, a supervisor overheard this conversation, and the supervisor reported the conduct to the Chief County Clerk. The Chief Clerk then interviewed both Minarsky and Yadlosky, and Yadlosky admitted to the allegations. Yadlosky was immediately placed on paid administrative leave, and then terminated.  Minarsky alleged that she continued to feel uncomfortable in her role despite Yadlosky’s termination, however, because her workload increased and her new supervisor asked about what happened with Yadlosky and “who else she had caused to be fired.”

Under pertinent United States Supreme Court case law, an employer has an affirmative defense to a claim of harassment if the employee has not been subject to any adverse employment action (e.g. termination, demotion, etc.) and the employer can show that (a) it exercised reasonable care to avoid harassment and to eliminate it when it might occur, such as with a written harassment policy, employee training, by conducting a prompt and thorough investigation of any complaints, and promptly taking “remedial measures” reasonably calculated to address any inappropriate behavior, and (b) the employee failed to act with reasonable care to take advantage of the employer’s safeguards and otherwise prevent harm that could have been avoided.

In Minarksy, the trial court granted summary judgment in favor of the County, concluding that the employer proved the affirmative defense as a matter of law because the County maintained an anti-harassment policy and Minarsky had not complained about Yadlosky’s behavior.  On appeal, however, the Third Circuit disagreed and reversed the trial court.

The Third Circuit acknowledged that the County maintained a written anti-harassment policy of which Minarsky was aware. The Court disagreed, however, with the trial court’s conclusion that this fact, standing alone, satisfied the first prong of the affirmative defense. The Third Circuit held that there were factual questions about whether the County acted reasonably to prevent Yadlosky’s behavior and to take prompt remedial measures when it learned of his prior conduct toward other women.   According to the Court, the County had evidence that “Yadlosky’s conduct toward Minarsky was not unique,” and had “seemingly turned a blind eye toward Yadlosky’s harassment.” The Court concluded that a jury should determine whether the County had acted reasonably.

Even more disturbing for employers, the Third Circuit also concluded that there was a factual issue for the jury to decide on the second prong of the affirmative defense, even though it was undisputed that Minarsky failed to report Yadlosky or otherwise utilize the County’s reporting process. In an apparent nod to the #MeToo movement, the Court recognized the current climate of “national news regarding a veritable firestorm of allegations of rampant sexual misconduct that has been closeted for years, not reported by the victims.” The Court noted that, in many of these instances, “the harasser wielded control over the harassed individual’s employment or work environment,” and “the victims asserted a plausible fear of serious adverse consequences had they spoken up at the time that the conduct occurred.” Given this climate, and the facts of the case, the Court wrote that “a jury could conclude that [an] employee’s non-reporting was understandable, perhaps even reasonable.”

Per the Court: “Workplace sexual harassment is highly circumstance-specific, and thus the reasonableness of a plaintiff’s actions is a paradigmatic question for the jury, in certain cases. If a plaintiff’s genuinely held, subjective belief of potential retaliation from reporting her harassment appears to be well-founded, and a jury could find that this belief is objectively reasonable, the trial court should not find that the defendant has proven the second [element of the affirmative defense] as a matter of law. Instead, the court should leave the issue for the jury to determine at trial.”

Some lessons for employers?

  1.  Do not count on the affirmative defense recognized by the U.S. Supreme Court. The only way to eliminate the risk of lawsuits from sexually harassed employees is to actually prevent sexual harassment, and failing that, to take strong action when it occurs. It is not nearly enough for employers to merely have an anti-harassment policy in place. An ineffective or unutilized policy is just as bad as having no policy at all.
  2. Train your employees and managers on company harassment and non-discrimination policies. Foster a work environment that encourages individuals to make reports of harassment or discrimination when they observe inappropriate behavior and then investigate all allegations of discrimination and harassment. Consider creative ways to encourage employees to come forward, such as a method for reporting misconduct anonymously, and a strong non-retaliation policy and environment.
  3. Do not wait for somebody to make a complaint. If managers or human resources personnel are aware that inappropriate conduct is taking place, the company should take affirmative steps to stop the harassment (even if the victim does not want the company to be involved or does not want to “get the harasser in trouble”).
  4. When an investigation concludes that an employee engaged in unlawful harassment, take strong action. Termination may not be the appropriate remedial action in every case.  Minarsky v. Susquehanna County shows, however, that any action short of termination will leave the company exposed – at least to a jury trial—for any unlawful harassment by that employee in the future.
  5. If you currently have an unaddressed serial harasser in the workplace, partner with legal counsel to determine appropriate next steps.

Lee E. Tankle


New Maryland Law Requires Employers to Gather Information on Settlement of Sex Harassment Claims

Q.  Are there any laws related to settlement of sex harassment claims in Maryland that I should be aware of?

A.  In response to the many high-profile scandals in the news, several jurisdictions have enacted anti-sexual harassment legislation. To date, Vermont, New York, and Washington passed anti-sexual harassment laws. Maine, North Carolina, Ohio, and New Jersey introduced similar statutes in state legislatures. The new legislation aims to reduce sexual harassment in the workplace by prohibiting waiver provisions in employment contracts, preventing non-disclosure and other provisions in sexual harassment settlement agreements, and providing new avenues for employee reporting and disclosure. Maryland is the latest state to say “#MeToo.”

On May 15, 2018, Maryland Governor Larry Hogan signed into the law the Disclosing Sexual Harassment in the Workplace Act of 2018 (the “Act”). Designed for transparency, the Act prohibits jury trial waivers and also imposes reporting requirements related to settlement of sexual harassment claims by Maryland employers.  Unlike many of the other laws, the Maryland law does not expressly prohibit nondisclosure provisions in settlement agreements.

The Act takes effect October 1, 2018.

Prohibition on Waivers

The Act prohibits Maryland employers, regardless of size, from requiring employees to arbitrate sexual harassment claims. The Act renders mandatory arbitration provisions as void against public policy. In addition, the Act prohibits an employer from taking any adverse action against an employee because the employee refuses to enter into any agreement containing an invalid waiver.

As we have written previously, mandatory arbitration provisions are favored under the Federal Arbitration Act, despite state law to the contrary. In fact, in a recent United States Supreme Court opinion, Epic Systems Corp. v. Lewis, the Court confirmed previous rulings in favor of mandatory arbitration of employment claims, upholding the validity of class action waivers in arbitration agreements signed by employees.  It is therefore likely that the prohibition on mandatory arbitration clauses will be attacked on the grounds that it is preempted by federal law. Similar state statutory provisions prohibiting mandatory arbitration have been found to be preempted.

Reporting Requirement

The Act also requires Maryland employers with 50 or more employees to submit a survey to the Maryland Commission on Civil Rights containing the following information:

  1. the number of settlements made by or on behalf of the employer after an allegation of sexual harassment by an employee;
  2. the number of times the employer has paid a settlement to resolve a sexual harassment allegation against the same employee over the past 10 years of employment;
  3. the number of settlements made after an allegation of sexual harassment that included a confidentiality provision; and
  4. information on whether the employer took any personnel action against the employee who was the subject of the settlement.

Employers must submit the first survey on or before July 1, 2020 and a second survey on or before July 1, 2022. The Commission will collect the employer-provided data and publish aggregate data on its publicly-accessible website, as well as provide, upon request, responses of individual employers to requirement number. 2.

Employer Action Items

With respect to the waiver prohibition aspect of the new Act, Maryland employers will have to decide whether to remove any provisions in employment agreements mandating arbitration of harassment claims, or take the position that the Maryland Act is preempted by federal law.

In addition, Maryland employers with 50 or more employees should prepare to comply with the survey requirements of the Act by coming up with a method to track and gather internal information on sexual harassment claims and settlements, as well as ensure that personnel files of the subjects of those sexual harassment claims are retained in order to complete the Commission survey.

Employers also should monitor for any future regulations or other guidance issued by the Commission that clarifies the Act’s employer reporting provision. For example, the Act does not address if the survey includes current and former employees and settlements outside of Maryland. Nor does the Act provide for any penalties or enforcement mechanisms if an employer fails to comply with the mandatory reporting requirements.

— Tracey E. Diamond and Sara Mohamed*, 2018 Summer Associate

* Ms. Mohamed was a 2018 Summer Associate, resident in the Philadelphia office. She is not admitted to practice law.


MASSACHUSETTS IS ON THE RISE! Increases in the Minimum Wage and Establishment of a Paid Family and Medical Leave Program Strengthen Massachusetts’ Competitive Economic Environment

Q.  Are there any new laws in Massachusetts that my company should be aware of?

A.  Massachusetts Governor Charlie Baker recently signed a bill that will serve as a turning point for working families. Referred to as the “Grand Bargain,” the bill represents a compromise among legislators, labor, community and business groups. The four main components of the bill will significantly impact all Massachusetts employers with at least one employee over the next five years.

Minimum Wage Increases

Currently, the Massachusetts minimum wage is $11 per hour. Under the new law, the minimum wage will increase incrementally to $15 per hour in 2023, tying New York, California and Washington, D.C. as having the highest statewide minimum wage in the country. Beginning January 1, 2019, the Massachusetts minimum wage will increase to $12 per hour, and will increase each year thereafter in $0.75 increments until 2023: $12.75 in 2020, $13.50 in 2021, $14.25 in 2022, and $15 in 2023. The Massachusetts current tipped minimum wage of $3.75 per hour will increase in $0.60 increments each year until it reaches $6.75 in 2023.

Premium Pay for Sunday Work and Work on Legal Holidays

Currently under Massachusetts law, employers must pay premium pay of 1.5 times the hourly rate for work performed on Sundays and Massachusetts’ legally-recognized holidays.  Under the new law, premium pay will be gradually phased out by 2023. Beginning January 1, 2019, workers will be paid 1.4 times their hourly rate as premium pay. The percentage will decrease annually by 10% until 2023, when workers will receive their regular hourly rate regardless of the day worked. Employers cannot require employees to work on Sundays or legally recognized holidays, nor can employees be punished for refusing to work on such days. Note: This decrease is for premium pay only, and is not to be confused with and does not relieve an employer of its obligation to pay one and one-half times an employee’s regular hourly rate for all hours worked in excess of 40 hours in a given work week.

Paid Family and Personal Medical Leave

Massachusetts will join New York, California, New Jersey, Rhode Island, Washington and Washington, D.C. in offering a paid family and medical leave program. Beginning in 2021, eligible employees will be permitted to take up to 12 weeks of job-protected paid leave to care for a sick family member or a newborn, up to 20 weeks of job-protected paid medical leave to attend to their own serious medical needs, and up to 26 weeks of job-protected paid family leave to care for a covered service member. However, an employee may only take a maximum of 26 weeks, in the aggregate, in a benefit year. Upon returning to work, employees must be restored to the same or equivalent positions held prior to taking leave. Employers will be required to post a notice regarding Paid Family and Personal Medical Leave, and newly hired employees must be provided with a notice of benefits within 30 days of their hire date. Note: Paid Family and Personal Medical Leave will run concurrently with leave taken under the Massachusetts Parental Leave Act and the federal Family and Medical Leave Act.

Additional Payroll Tax

The Massachusetts Paid Family and Personal Medical Leave Act will be financed through an additional 0.63% payroll tax, commencing July 1, 2019. Employers are required to deduct this additional tax from an employees’ wages and employers with more than 25 employees are responsible for contributing 60% of the contributions for personal medical leave. Note: Employers may elect to opt out of paying the employer portion of this payroll tax if they provide benefits that equal or exceed those provided by the Massachusetts Paid Family and Personal Medical Leave Program.

Rebecca Alperin