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

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

 

Got Employees in Massachusetts and New Jersey? What You Need to Know as MA and NJ Employers are Mandated to Break the Glass Ceiling

Q.  Are there any Equal Pay Acts that apply specifically to employers in Massachusetts and New Jersey?

A.  On July 1, 2018, an updated equal pay law becomes effective in Massachusetts, referred to as “MEPA” (Massachusetts Equal Pay Act). MEPA covers nearly all Massachusetts employers, irrespective of size, and most employees, including full-time, part-time, seasonal, per-diem, and temporary employees. Employees who telecommute to a primary place of work in Massachusetts also are covered.

The Massachusetts law provides that “[n]o employer shall discriminate in any way on the basis of gender in the payment of wages, or pay any person in its employ a salary or wage rate less than the rates paid to its employees of a different gender for comparable work.” “Comparable work” is not defined by an employee’s job title; rather, “comparable work” is work that requires substantially similar skill, effort, and responsibility, and is performed under similar working conditions. For multistate employers, employees in the same “geographic location” within Massachusetts are to be paid equally for comparable work.  The statute does not define the term “geographic location.”

Employers can rely on one of the six permissible variations in pay for comparable work: (1) a system that rewards seniority with the employer; (2) a merit system; (3) a system which measures earnings by quantity or quality of production, sales, or revenue; (4) the geographic location in which a job is performed; (5) education, training or experience to the extent such factors are reasonably related to the particular job in question; or (6) travel, if the travel is a regular and necessary condition of the particular job.

The State of New Jersey enacted legislation similar to the MEPA.  The Act, prohibits New Jersey employers from paying different salaries to employees based on any protected category, including sex, where the employees are engaged in “substantially similar” work.  Like Massachusetts, the effective date of the New Jersey statute also is July 1, 2018.

The phrase “substantially similar” work is not defined, other than a statement that it is to be viewed as a “composite of skill, effort and responsibility.” An employer in New Jersey may pay a different rate of compensation only if the employer demonstrates that the differential is made pursuant to a seniority system, a merit system, or the employer demonstrates that: (1) the differential is based on one or more legitimate factors other than sex (or any other protected category), such as training, education or experience, or the quantity or quality of production; (2) the factors are not based on, and do not perpetuate a sex-based or other protected-category based differential in compensation; (3) each of the factors is applied reasonably; (4) one or more of the factors account for the entire wage differential; and (5) the factors are job-related with respect to the position in question and based on a legitimate business necessity. A factor based on business necessity shall not apply if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.

Both statutes significantly expand the reach of the concept of equal pay, by broadening the net of jobs used for comparison purposes to “comparable” (MEPA) or “substantially similar” (NJ). Both standards are somewhat vague and will need to be interpreted by the courts.  Employers in Massachusetts and New Jersey will have to evaluate their pay  structures carefully to comply with the law and to assess risks of actions under these statutes.

When MEPA becomes effective, employers with employees in Massachusetts not only will be unable to justify pay differential based on salary history, but also will not be permitted to ask for an applicant’s salary history prior to an employment offer, or seek such information through a recruiter. By contrast, the New Jersey ban on salary history questions, which was put in place by Executive Order effective February 1, 2018, applies only to employer that are state agencies.

Employers who violate either the Massachusetts or New Jersey laws will be liable for back pay and liquidated damages.

Rebecca Alperin and Tracey E. Diamond