Massachusetts Federal Court Holds That New Non-Compete Law Does Not Require Garden Leave Pay

The Massachusetts legislature passed sweeping non-compete reform, effective October 1, 2018, designed to make non-competes more difficult and costly for employers to enforce. This law contained many new requirements regarding procedure and substance that significantly altered the landscape regarding the enforceability of non-compete agreements. You can read all about that new law here. This post will focus on the ‘garden leave’ requirement.

What is Garden Leave Pay and is it Required?

The most noteworthy part of this new law was that section (b)(vii) which provides that “a noncompetition agreement shall not be valid or enforceable unless . . . the agreement includes a garden leave clause or other mutually-agreed upon consideration between the employer and the employee; provided, however, that such consideration shall be specified in the agreement.” The law goes on to define ‘garden leave’ as a requirement that employers compensate employees “on a pro-rata basis during the entirety of the restricted period of at least 50 per cent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination.”

Many practitioners and news outlets reported that this ‘garden leave’ requirement meant that employers could not enter into or enforce non-compete agreements unless they agreed to pay employees for the time they are not allowed to compete. This interpretation, however, overlooked the bolded language above, which suggests that employers could enforce non-competes under this new law, without agreeing to garden leave pay, if they agreed to provide something else. That ‘something else,’ unfortunately, is not defined in the law.

Enter the case of NuVasive, Inc. v. Day, a case in which NuVasive, a manufacturer of products used to treat spinal disease, sought to enforce a non-compete against two of its sales representatives and to prevent them from working at a rival competitor. The employee argued that the non-compete was not enforceable because it did not comply with the new non-compete law. The court entertained that argument, even though the non-competes at issue were entered into prior to the new law’s effective date. In doing so, the court disagreed that these non-competes did not comply with the new law and, critically, stated “As to the apparent absence of a “garden leave” clause as required in the Massachusetts Non-Compete Act (“MNCA”), even the MNCA allows for the alternative of “mutually-agreed upon consideration” cited in the agreement, as it was here, D. 1-1 at 2.” That’s right. The agreement was consistent with Massachusetts law even though it didn’t require the employer to provide garden pay.

So what was the ‘other consideration’ the court found to be sufficient under the new non-compete law? Turns out it was the same sort of boilerplate that’s existed in these agreements for years:

“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), and the Proprietary Information that will be entrusted to me in my capacity as an employee or agent of the Company.”

Does the New Law Require My Employer to Provide Garden Leave Pay for the Duration of my Non-Compete?

If the non-compete agreement actually contains a ‘garden leave’ provision: yes. But, if it doesn’t: no. And, according to NuVasive, the agreement does not need to have a ‘garden leave’ provision in order to be enforceable. Practically speaking, if this case is right, I’d expect few, if any, employers to actually provide for ‘garden leave’ pay in their non-compete agreements.

Personally, I feel this outcome isn’t true to the law’s intent. The purpose of ‘garden leave’ pay was to provide a monetary benefit to an employee who is prevented from working in a certain field for the duration of their non-compete and to deter employers from enforcing non-competes. The fact that the employee may have had access to certain information while employed by the party enforcing the non-compete, doesn’t seem to satisfy either of those purposes. Allowing employers to rely on boilerplate consideration to satisfy the law’s requirements seems to gut the law in it its most important respect. My sense is another court will see this differently and an appellate court will have to resolve the confusion. That, or the legislature will have to clarify that non-competes must be supported by garden pay or by mutually-agreed upon consideration similar to garden pay.

If you are an employee or employer in New Bedford, Worcester, Lowell, Springfield, Pittsfield, or Hyannis and have questions about the enforceability of non-compete agreements contact us today.