Consideration Under Massachusetts’ Noncompetition Agreement Act

Issue March/April 2021 April 2021 By Russell Beck and Hannah T. Joseph
Labor & Employment Law Section Review
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From left: Russell Beck and Hannah T. Joseph

It has been over two years since the Massachusetts Noncompetition Agreement Act (MNAA) took effect, and we still have little clarity about some key elements of the statute. In particular, both the Legislature and courts have been largely silent on what consideration is required to support a noncompete under the MNAA. But, a close reading of the statute, an understanding of its legislative history, and dicta from one federal case holding may provide some much-needed guidance on the topic.

We begin with the statute. With respect to noncompetes that are entered into at the outset of employment, a noncompete must (among other things) “be supported by a garden leave clause or other mutually-agreed upon consideration between the employer and employee, provided that such consideration is specified in the noncompetition agreement.” G.L. c. 149, § 24L(b)(vii) (emphasis added). Noncompetes entered into after the commencement of employment (sometimes pejoratively called “afterthought agreements”) must be supported by consideration that is also “fair and reasonable.” But what is “mutually-agreed upon consideration” if not garden leave? And what constitutes “fair and reasonable” consideration, and does it require something more than “mutually-agreed upon consideration”? The law is silent on these issues.

At first glance, the issue of consideration required for new employees appears to be guided by the provision’s reference to garden leave, which the statute defines as “at least 50 percent of the employee’s highest annualized base salary paid by the employer within the two years preceding the employee’s termination . . . .” G.L. c. 149, § 24L(b)(vii). Further complicating the issue is the fact that the MNAA expressly excludes garden leave clauses from its definition of “noncompetition agreement” and, thereby, the statute’s purview altogether. G.L. c. 149, § 24L(a). Reading these provisions together, some practitioners have criticized the statute as embracing circular logic. Think of a scenario in which an employer and employee enter into an agreement with a garden leave clause. If the agreement is, as the definitions section suggests, wholly exempt from the MNAA’s purview, it would not need to comport with the other requirements and limitations set forth in the statute (including, for example, the MNAA’s notice requirements and one-year cap on noncompetes). If the agreement is not exempt from the MNAA’s purview, as some would argue, it must nevertheless satisfy the MNAA’s other requirements, which renders the definitional language expressly excluding garden leave agreements from the statute’s purview entirely meaningless.

Nevertheless, some practitioners variously have pointed to subsection (b)(vii) as either requiring garden leave or raising the floor concerning what types of consideration will be deemed sufficient to support a noncompete for new hires. After all, why include a reference to garden leave in the context of consideration if it has no bearing on the kind of consideration that will be deemed acceptable?

Well, one answer may be simply that the MNAA is a product of political compromise. Indeed, during the legislative process, which spanned nearly a decade, the House pushed a bill (H.4434) that provided the following language:

The noncompetition agreement shall be supported by 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.

Meanwhile, the competing Senate bill (S.2418) provided:

The noncompetition agreement shall be supported by a garden leave clause or other mutually-agreed upon consideration between the employer and the employee which shall be equal to or greater than the value of the garden leave clause and is negotiated during the 30-day period immediately following the termination of employment.

(Emphasis added.) It took until mid-2018 for the Legislature to reach an agreement on this issue. Specifically, lawmakers agreed on the language from the House bill (which was, itself, a compromise), expressing no parameters for “other mutually-agreed upon consideration” other than that it be specified in the noncompete.

Accordingly, the MNAA, both on its face and when read in the context of its legislative history, appears not to require garden leave (or anything like it) to support a noncompete for a new hire.

So, what is required?

To quote the Talking Heads, it may be the “same as it ever was.”

In Nuvasive, Inc. v. Day, the U.S. District Court for the District of Massachusetts concluded that the following statement of consideration would be sufficient under the MNAA:

In consideration of my engagement by the Company, the compensation I . . . receive from the Company (including for example monetary compensation, Company goodwill, confidential information, restricted stock units and/or specialized training) . . . .

2019 WL2287709, at *4 (D. Mass. May 29, 2019) (Casper, J.). Thus, a new job and associated compensation and rights may be — as they have always been — sufficient consideration under the MNAA.

But what is required for continuing employees? What will the courts consider to be “fair and reasonable” consideration? Although there is zero guidance on the issue, we can assume based on statutory interpretation and policy considerations (concerning, in particular, the relative imbalance of bargaining power between an employer and an existing employee) that the MNAA requires more than continued employment and will likely involve a fact-intense analysis on a case-by-case basis.

Stay tuned for developing case law. 

Russell Beck is a founding partner of Beck Reed Riden LLP. He litigates and counsels clients on trade secrets and restrictive covenant law, employee mobility and unfair competition; drafted much of the language in the Massachusetts noncompete law; and wrote the book, Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants.

Hannah T. Joseph is senior counsel at Beck Reed Riden LLP, where she litigates and counsels clients in the growing areas of trade secrets and restrictive covenants law, employee mobility and unfair competition. Joseph regularly publishes and speaks on the topics of trade secrets and restrictive covenants law, including through the American Intellectual Property Law Association, Boston Bar Association and Practising Law Institute.