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Important Reminder: Changes to MA Non-Competition Laws Starting October 1

September 25, 2018 Leave a comment

2015-01-05_8-57-41By: Susan Stambach Sampson

By now, many employers are aware that Massachusetts law governing non-competition agreements is changing at the end of this month. A non-competition covenant or agreement is a provision in either an employment agreement, offer letter or separate agreement where an employer provides to an employee or independent contractor payment or some other consideration (for example a stock option or bonus). The employee or independent contractor in turn agrees not to compete for a period of time, customarily one year, after leaving the employment relationship. To date, whether a non-competition agreement is enforceable has been largely a matter of judicial discretion and we invariably looked to case law for guidance.

Now, after a decade plus of the Legislature considering the topic, we have a new Massachusetts law effective October 1, 2018, Mass. Gen. L. c. 149, §24L, setting forth a number of rules governing non-competition covenants. Read about the Act and what your company needs to do now in our Employment Law Alert.

The New Mass Noncompetition Legislation: Old Wine in New Bottles? An Employer’s Perspective

September 6, 2018 Leave a comment

JMH Headshot Photo 2015 (M0846571xB1386)By: John Hession

Our Republican governor, Charlie Baker, recently signed into law a boon and a blessing for the average hourly worker, the minimum wage Walmart employee, or the lower level service industry employee. But for venture capitalists, angel investors, entrepreneurs, senior executives and key employees, nothing much may have changed in the landscape of noncompetition covenants. After years of deliberation and failed or stalled legislation, the new Massachusetts legislation regarding noncompetition covenants remains generally intact for the technology and life science industries – unlike California, where noncompetition covenants are unenforceable as a matter of law in the context of employment. While the law’s changes may seem an alteration of the landscape, many contours remain unchanged. First, noncompetition covenants entered into prior to October 2018 remain in effect and continue to be enforceable. Investors can continue to take comfort that existing noncompetition agreements cannot be frustrated or circumvented by the new law. Even noncompetition covenants that might have been longer than one year, if signed prior to October 1, 2018, will continue to be honored, but subject to the customary attacks of unreasonable scope and duration.

Second, after October 1, 2018, a venture-backed company can continue to require noncompetition covenants as part of initial or continuing employment. These covenants can last one year in duration, as long as the employer offers a payment of 50% of the annual base salary or other “mutually agreed upon consideration”. The principle of “mutually agreed upon consideration” will invariably become the topic of much debate and contention under the new law, resulting in extensive negotiation (and certainly renegotiation) of new and previous noncompetition covenants, with either existing employees or new hires.

One aspect of the revised law that is a dramatic change in the noncompetition landscape is that, when an employee is fired without cause, even a valid noncompetition covenant will be void or voidable. Of course, the legislature did not define “without cause”.  Hence, the parties will need to negotiate the definition of “cause”.  Caution is suggested whether it may be in a party’s best interest to employ the standard “cause” definitions contained in employment agreements with senior executives.

The new law offers opportunities for “creative combinations” of consideration. For example, as it has been an immutable principle of the past, the grant of a stock option or restricted stock award can certainly constitute adequate consideration to support the enforceability of a noncompetition covenant, if extracted contemporaneously with the equity award. As a result of the new law, employers would be prudent to ensure that any new option grants for current employees (or for that matter, consultants) are tied and tailored to the creation of an enforceable noncompetition covenant. Indeed, one could even consider installing the noncompetition covenant inside the option agreement, so the grant and the covenant are inextricably linked.

However, a critical procedural rule applies under the new law, requiring employers to be careful on installing noncompetition covenants as part of the hiring process. Under the new law, employers must provide to new employees the form of noncompetition agreement prior to the earlier of ten business days before the commencement of employment or before the delivery of a formal offer of employment. To avoid the headache of inadvertently violating this procedural rule, the process rules will require some thoughtful planning with your labor lawyer. You can guarantee that there will be plenty of unintended headaches and heartaches in this area – and the risk that a failure to comply with this procedural rule can result in many an employee’s noncompetition agreement rendered unenforceable – and sadly, after the fact. Consider the impact of such a failure when the reality of adherence to this procedural rule of timing is revealed – usually years later during the diligence process by a buyer in an acquisition. You can bet that acquirers will extract a pound of flesh — and price concessions – for prior inadvertent timing mistakes. Hence, careful planning and logistical practices in this area are very crucial.

So, despite the much-heralded proclamations that the landscape has been altered in the noncompetition arena, the more things change in Massachusetts noncompetition law, perhaps the more they remain the same for technology and life science companies, at least for the senior executives and key employees. After October 1, 2018, prudence – and sensible practice — demand that employers seeking to protect their goodwill, business operations and proprietary technology advantages continue to employ noncompetition covenants for senior executives, as long as adequate consideration supports the bargain of the noncompetition covenant, and the new rules on timing and notice are strictly and carefully adhered. While there may be old wine in the new bottles, however, it makes continued sense to have your “sommelier sniff the cork” before serving the libation – that is, consult with your local labor lawyer.

John Hession is a business and legal advisor to emerging life science, medical device, healthcare software and service companies, from cradle to culmination. John recommends that you chat with his labor “sommelier,” Susan Sampson, to learn more about the new Massachusetts legislation on noncompetition covenants.

Changes to Massachusetts Equal Pay Law Coming in July 2018

May 1, 2018 Leave a comment

SJC Headshot Photo 2015 (M0846523xB1386)Employment attorney Scott Connolly discusses the changes to the Massachusetts Equal Pay Act in his new article, Changes to the Massachusetts Equal Pay Law Coming in July 2018. In an effort to remedy perceived pay inequities based on gender, the Massachusetts legislature recently passed An Act to Establish Pay Equity, which amended the Massachusetts Equal Pay Act (“MEPA”). MEPA prohibits gender discrimination in the payment of “wages.” The changes to MEPA will take effect on July 1, 2018.

For more information, visit our Good Company blog, and read the full article on our website. Please contact Scott Connolly with questions regarding the changes to the MA Equal Pay Act.

Board Members and Investors Found Not Personally Liable Under Massachusetts Wage Act

January 22, 2018 Leave a comment

SJC Headshot Photo 2015 (M0846523xB1386)A unanimous Massachusetts Supreme Judicial Court recently ruled in favor of two former board member-investors of a biotechnology startup, finding the board member-investors not personally liable under the Massachusetts Wage Act for “wages” claimed by the company’s former CEO.

As employment attorney Scott Connolly discusses in his new article, Board Members and Investors Found Not Personally Liable Under Massachusetts Wage Act, at issue in Segal v. Genitrix, LLC, 478 Mass. 551 (2017) was whether the individual defendants, former board members of and investors in Genitrix, a Delaware LLC based in Boston, exercised sufficient management authority to impose personal liability on them under the Wage Act (M.G.L. c. 149 §148) for compensation due to the plaintiff.

Read the full article on our website. For more information, please contact Scott Connolly.

Scott Connolly Discusses Properly Classifying Workers in Accounting Today

August 3, 2017 Leave a comment

SJC Headshot Photo 2015 (M0846523xB1386)In Accounting Today’s article “Properly Classifying Workers Remains a Major Problem“, employment attorney Scott Connolly comments on how worker misclassification is a prevalent issues for both the Internal Revenue Service and state taxing officials. Companies that misclassify employees as independent contractors avoid paying minimum wage, payroll taxes, overtime, worker’s compensation, and other payments under the Federal Family and Medical Leave Act.  However, this mislabeling can lead to trouble with the IRS, including the company owing taxes it failed to withhold by classifying a worker as an independent contractor instead of as an employee.

Additionally, as Scott notes:

The employer should be concerned about misclassification claims from the workers themselves… Many service providers want to be classified as independent contractors, but companies run the risk because later there might be disharmony in the relationship.”

Read the full article for more information on the potential consequences of misclassifying workers, or contact Scott Connolly for more information.

Are You Ready to Reclassify? New Overtime Regulations Go Into Effect on December 1, 2016

October 5, 2016 Leave a comment

By: Sandra E. Kahn

2015-01-05_8-57-41On December 1, 2016, any employees who earn less than $47,476 annually will be entitled to overtime and must be treated as non-exempt, as per the U.S. Department of Labor’s final rule (“Final Rule”).
Don’t wait any longer to address this critical change in the law.
Find out how the Final Rule will affect your current employee classifications and pay practices, and the consequences of not complying with the law.

Read this month’s Employment Law Alert.

Massachusetts Pay Equity Law Imposes New Restrictions on Employer Pay and Hiring Practices

August 11, 2016 Leave a comment

By: Maura E. Malone

2015-01-05_8-57-41On August 1, 2016, Massachusetts Governor Charlie Baker signed “An Act to Establish Pay Equity (the Act)” into law.  The Act, which does not become effective until July 1, 2018, will require Massachusetts employers to pay men and women equally for comparable work.  It also forbids employers from asking prospective employees about salary history or restricting employee discussion of pay.  The Act imposes significant consequences for
violations of the law.

The Act will make it unlawful for employers to pay unequal wages to employees of different genders who perform comparable work. The Act broadly defines wages to include “all forms of remuneration for employment.”

Continue reading on the full alert.