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How the Use of Non-competes is Becoming Ever-more Restricted

Sep 30, 2022

By Alexander Marsh and Jeremy Saint Laurent, Esq.

Historically, non-competition agreements have been a useful tool for employers to protect their businesses, financials, and proprietary information when a departing employee leaves the company to work for a competitor. Over the past decade, the ways in which non-competition agreements can be used has been restricted.


Indeed, Massachusetts has significantly limited the functionality of non-competes, and California has barred them altogether. Recently, the federal government, vis-a-vis the Federal Trade Commission, has limited their use in corporate mergers and acquisitions.


Just four years ago, in October 2018, Massachusetts practically banned non-competes through the creation of very specific and strict requirements. As a threshold matter, non-competes in Massachusetts cannot be freely used and, rather, must protect a legitimate business interest. The definition of legitimate business interest is limited to trade secrets, confidential information of the employer that otherwise does not qualify as a trade secret, or the employer’s good will.


Other alternative restrictive covenant, such as non-solicitation, non-disclosure, and/or confidentiality agreements, must be explored prior to resorting to a non-compete.


Massachusetts further tightened up the ability to implement non-competes by creating a litany of other requirements. The non-compete must:

  • Be in writing;
  • Be signed by both the employer and the employee and state that the employee has a right to consult a lawyer before signing the agreement;
  • Provide notice of the agreement to the employee (the notice requirements change depending on when the employee is asked to sign the agreement); and
  • Occur at the beginning of employment or provide notice of the agreement no less than 10 business days before the agreement would become effective and provide additional compensation.


The conduct the agreement seeks to prevent must not violate the public interest. Generally, public policy favors an employee’s ability to move from one job to another without restriction. Only a narrowly tailored agreement to protect a legitimate business interest will fit within public policy.

It is against public policy in Massachusetts to allow for non-compete agreements in certain professions. Non-competes signed by nurses, physicians, psychologists, social workers, and certain employees of broadcasting companies are considered void in Massachusetts. This is to protect public health and the free flow of information and ideas. A non-compete agreement in any of these areas is unenforceable as a matter of law.


Additionally, a non-compete agreement is not valid against a low-wage employee. The law states that employees who are classified as ‘non-exempt’ (typically, employees eligible for overtime pay and hourly wages) under the federal Fair Labor Standards Act may not be required to sign a non-compete agreement.


Non-competes are also prohibited or unenforceable when an employee is terminated without cause or laid off. These workers are not bound by the terms of any non-compete agreement that they have already signed with their employer.


Now, on the federal side, non-competition agreements are coming under scrutiny through corporate mergers and acquisitions. The primary rationale for restricting them is public-policy concerns.

Traditionally, non-compete agreements as part of a corporate merger or acquisition were quite broad in scope and geography. The reason for their broad coverage makes sense: the sale of a business is primarily based upon good will. Buyers understandably would require broad non-competition coverage so, post-sale, they are not competing against a seller who may start or work for a competitor company. In other words, in a business sale, to protect its interest in the business, the buyer would want to restrict the seller’s ability to compete against it.


However, the Federal Trade Commission recently restricted the ability of a buyer to require broad, sweeping language in non-competes. Rather, they must be limited to what is specifically needed to protect portions of the business.


What does all of this mean for companies? Knowing how to properly craft a valid, legally enforceable non-competition agreement is paramount. As with other restrictive covenants, non-competition agreements should be used sparingly and tailored as narrowly as possible to adequately protect your client’s legitimate business interests without being overly restrictive to the employee.


Generally, a one-year duration is considered to be reasonable. Depending on the circumstances, it may be possible to protect your client with a non-compete that has a shorter enforcement period. Again, as a rule of thumb, the shorter the length of restriction, the more likely the non-compete will be enforceable. It may also make sense to explicitly prohibit competition during employment.


This article was published in BusinessWest.


Jeremy Saint Laurent, Esq. is a litigation attorney who specializes in labor and employment law matters at the Royal Law Firm LLP, a woman-owned, women-managed corporate law firm that is certified as a women’s business enterprise with the Massachusetts Supplier Diversity Office, the National Assoc. of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council; (413) 586-2288. Alexander Marsh is a legal assistant at the Royal Law Firm LLP.

Non-Compete Agreements Are in Jeopardy

26 Apr, 2024
On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule banning non-competition agreements for all employees except for very narrow exceptions. The FTC’s Final Rule banning all non-competition agreements is effective 120 days after its publication in the Federal Register, which is expected in the next few days.  As of the effective date, all non-competition agreements are banned, except for franchisor/franchisee relationships and for sales of a business between buyer and seller. The FTC’s Rule is retroactive, prohibiting certain non-competition agreements before the effective date of the Rule as well. Existing non-competition agreements can remain in effect as to senior executives, which are defined in the Rule as employees in “policy-making positions” making at least $151,164 annually. The FTC’s Final Rule is already being challenged through the court system and a challenge from the Chamber of Commerce will most likely follow suit. Therefore, if an employer has existing non-competition agreements, the employer may not need to rescind them just yet. Stay tuned for updates as these challenges take their due course.

ALERT: US Department of Labor Increases Salary Threshold for White Collar Overtime and Minimum Wage Exemptions

26 Apr, 2024
By: Trevor Brice, Esq. On April 23, 2024, the U.S. Department of Labor (“DOL”) announced a Final Rule updating regulations governing Executive, Administrative and Professional exemptions (“EAP exemptions”) from the minimum wage and overtime rules. This Final Rule significantly increases the salary threshold for workers to qualify for EAP exemptions. In general, to qualify for EAP exemptions, an employee must 1) be paid on a salary basis, 2) at a threshold level, and 3) primarily perform EAP duties as defined by the DOL. The Final Rule does not impose any changes on the salary basis or job duties relevant in determining EAP exemptions. After issuance of a proposed rule that received approximately 33,000 comments, the DOL in the Final Rule is increasing the salary thresholds in waves. As of July 1, 2024, the salary threshold for EAP exemptions applies to employees making $844 per week ($43,888 annually) on a salary basis. As of January 1, 2025, the threshold increases to $1,128 per week ($58,656 annually). This means that employees making under these amounts on a salary basis as of these dates are no longer exempt from overtime, as long as the other criteria for determining EAP exemptions by the DOL are met. Additionally, the rule increases the salary threshold for the “highly compensated” employee exemption. This exemption applies when an employee meets the greater salary threshold, their primary duty includes performing office or non-manual work and the employee customarily and regularly performs at least one of the duties or responsibilities defined in the EAP exemptions. The DOL also issued the increased salary threshold for the highly compensated exemption in waves. As of July 1, 2024, the salary threshold for the highly compensated employee exemption applies to employees making $132,964 annually, including at least $844 per week paid on a salary or fee basis. As of January 1, 2025, the salary threshold for the highly compensated employee exemption raises to $151, 164 annually, including at least $1,128 per week on a salary or fee basis. The DOL estimates that under the Final Rule, there will be four million workers newly entitled to overtime protection as of 2025. As with the FTC’s Final Rule passed on the same day, the DOL’s Final Rule will most likely be subject to challenge through the court system. However, for employers concerned with this new rule, it would be prudent to identify those positions below or close to the new salary thresholds, consider whether to change salaries given the new thresholds and conduct training as to who will now be exempt under the DOL’s final rule. If there is any gray area as to the DOL’s final rule, reach out to the local employment and labor counsel to determine if there is potential liability. Trevor Brice is an attorney who specializes in labor and employment-law matters at the Royal Law Firm LLP, a woman-owned, women-managed corporate law firm that is certified as a women’s business enterprise with the Massachusetts Supplier Diversity Office, the National Assoc. of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council.
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