New Legislation in Connecticut and Massachusetts Serves to Limit Non-Compete Enforcement

For non-competes, courts and legislatures often have taken incremental steps to chip away at the default reasonableness test. These steps usually are in response to some larger public-policy issue. Two more states are moving to reform the law of non-competes, and both are attempting to curtail their use.

Connecticut is the first, and it has enacted legislation (Public Act No. 16-95) that limits the enforceability of physician non-competes. For any non-compete "entered into, amended, extended or renewed on or after July 1, 2016," the new Connecticut law establishes bright-line enforceability rules. In particular, a non-compete may not exceed one year in duration (presumably post-employment, though the law oddly does not say this) and may not extend beyond a 15-mile radius from where the physician primarily practices (I am simplifying here a bit). Further, an employer may not enforce a non-compete if the physician is terminated without cause.

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Massachusetts law has not been changed, at least as of yet. But the long-in-the-works legislative changes appear to be gaining steam. Last week, the Massachusetts House of Representatives unanimously passed a bill to impose stringent limits on non-compete agreements and to adopt (at long last) the Uniform Trade Secrets Act. House Bill 4434 accomplishes several things:

(1) The UTSA piece is unremarkable, but it does require the identification of the subject trade secret "with sufficient particularly under the circumstances of the case" before beginning discovery. This is a legislative endorsement of what many courts already require, but it contains needed flexibility that enables a court to establish discovery parameters.

(2) The bill also would establish the Massachusetts Noncompetition Agreement Act, which would require:

• At least 10 days' advance notice of the non-compete;
• For existing employees, independent "fair and reasonable" consideration independent from the continuation of employment (along with 10 days' advance notice);
• A maximum 1-year duration (except in cases of breach of fiduciary duty or theft, in which case the maximum may be 2 years);
• A reasonable geographic reach, which is presumptively established if the restricted area is consonant with the employee's sphere of influence within the last 2 years of employment;
• Garden-leave payment of at least 50 percent of the employee's highest base salary within the 2 years preceding termination or other "mutually-agreed upon consideration" (which is undefined.

Finally the proposed Act would bar enforcement if an employee is terminated without cause and would ban non-competes for non-exempt workers under the Fair Labor Standards Act.

There are some definite quirks in the proposed Massachusetts law, which is to be expected after the long slog this bill has been through. The next step would appear to be a vote in the state senate.

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UPDATE (at July 12, 2016):

Apparently, my post was timely. The Massachusetts Senate has acted. I defer to Russell Beck's excellent summary. The Boston Globe article can be found here.