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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Update on Proposed Massachusetts Non-Compete and Trade Secret “Reform” Legislation

Posted in Legislation, Non-Compete Enforceability, Restrictive Covenants, Trade Secrets

By Ryan Malloy and Erik Weibust

The status of law reform in Massachusetts with respect to employee non-compete agreements remains in flux. Pending Massachusetts House Bill 2293, “An Act Relative to Noncompetition Agreements,” aims to codify Massachusetts common law with respect to non-compete agreements while affording greater procedural protections to those subject to contractual restrictions on employment mobility. Since its inception, House Bill 2293 has undergone significant review, comment, and revision. We have previously blogged on the proposed legislation.

The basic requirements of House Bill 2293 remain the same as common law. Under the proposed legislation, non-compete agreements must be necessary to protect one or more of the following legitimate business interests of the employer: i) trade secrets to which the employee had access while employed; ii) confidential information that would otherwise not qualify as a trade secret; or iii) goodwill and/or customer relationships. The restrictions imposed by the non-compete agreement must be reasonable in duration, geographic reach, and scope of proscribed activities. Furthermore, the agreement must be consonant with public policy.

Notably, the bill applies only to non-compete agreements; it does not concern non-solicitation, anti-raid, confidentiality, or assignment of invention agreements. The most recent draft of the bill would statutorily cap the duration of non-compete agreements to 6 months (compared to a one-year cap under the current pending bill), with a cap of 2 years for separation agreements. The modified draft also omits the current pending bill’s provision that would require an employer to pay the subject employee’s attorney’s fees if the employer acts in bad faith or is unsuccessful in enforcing the non-compete agreement because either the court does not enforce it or the court substantially reforms a material restriction in it.

Constituents have voiced both support and concern for the bill. While many object to the 6-month duration cap as insufficient to protect employer interests, others oppose the bill in its entirety, viewing any restrictive covenant legislation as a potential impetus for costly litigation and citing to economic hardship in California as a symptom of failed attempts to regulate non-compete agreements. Additional concerns include an unclear definition of “fair and reasonable consideration” and the court’s ability to deny enforcement of otherwise valid contractual obligations under the bill. Still, those in support insist that the bill is necessary to achieve consistent judicial results that would protect valuable employer proprietary and confidential information.

According to Massachusetts State Representative Lori Ehrlich, co-sponsor of House Bill 2293, it is not likely that the controversial bill will be taken up again before the end of 2012. In fact, House Bill 2293 may be combined with proposed legislation that would largely adopt the Uniform Trade Secrets Act (UTSA) in Massachusetts, thereby rendering the final version of the bill unrecognizable.

Please see the instagraphic below summarizing the evolution of the proposed law reform and status of key provisions.

For more information regarding the proposed legislation, please listen to our recorded webinar concerning the latest in trade secret and non-compete legislative developments.