Whether or not they choose to spend their idle time in their yards, workers with noncompete contracts in Massachusetts will soon be the first in the U.S. to enjoy a “garden leave” provision allowing them to get paid even after leaving a job.
The rule taking effect Monday is part of a major revamp of state law covering noncompetition agreements and protection of trade secrets. Both are highly sensitive topics in Massachusetts, where the economy is largely driven by brainpower and technological innovation.
Millions of U.S. workers sign agreements that restrict them for a designated period of time after departing a job from working for competitors or launching potentially competing startups.
The merits and fairness of noncompetes are fiercely debated, and a handful of states — including California — prohibit them. The new Massachusetts law restricts the contracts to no longer than a year and exempts certain categories of employees, including most hourly wage workers, from ever having to sign one.
But no state, until now, has expressly written into law garden leave, a term first popularized by the British.
“It’s a very English concept that you would pay somebody to sit on the sidelines and tend to their gardens,” said Michael Elkon, a partner with Atlanta-based Fisher Phillips, a law firm that specializes in noncompete and trade secrets litigation.
The Massachusetts garden leave provision states that during the restricted period in which a former employee is barred from working for a competitor, the previous employer must continue paying at least 50 percent of the departed worker’s base salary.
There is a catch, however.
Compromise language added by lawmakers before passage in the final hours of the 2018 legislative session allows for “mutually-agreed upon consideration,” to be substituted for garden leave. What such consideration might entail is not defined.
“It’s potentially a big loophole,” Elkon said. “Theoretically an employer and employee could agree that $10 is sufficient compensation.”
The compromise apparently broke a stalemate that had stalled noncompete legislation in previous years. Critics who argue that the contracts stifle innovation and economic growth by restraining the free flow of talent and ideas clashed with business groups who defend the practice as necessary to safeguard trade secrets and ward off constant and costly talent raids from competitors.
“It’s absolutely a middle ground,” said Russell Beck, a partner with the Boston firm of Beck Reed Riden and an expert on intellectual property law.
Some Democratic legislators, Beck noted, wanted a more stringent garden leave clause that would pay workers their full previous salary during the restricted period, while others wanted an outright ban on noncompetes.
Most companies “will fall back on the mutually-agreed upon consideration,” rather than pay garden leave, he predicted.
Chris Geehern, a spokesman for Associated Industries of Massachusetts, said businesses seem prepared for the changes but added that he wouldn’t be surprised if some elements of the new law wound up in court. While the law is not retroactive to existing agreements, Geehern suggested some companies might conform current noncompetes to the new rules so their employees aren’t subject to different standards.
Laws surrounding noncompetes and trade are a state-by-state patchwork, according to a recent survey by Beck’s firm. In addition to California, North Dakota and Oklahoma do not recognize the agreements and other states use language requiring them to be “reasonable,” or serve a “legitimate business interest.” Changes have been weighed by legislatures in other states, but it’s too soon to know if any will follow Massachusetts’ lead and make garden leave part of their approach, Beck said.
A survey published by Michigan State Law Review estimated that 18 percent of U.S. employees are working under a noncompete agreement. The numbers were higher for engineers and senior executives, 43 percent and 70 percent, respectively.
Yet, it’s not unheard of for employees in lower-paid or less skilled positions to have noncompetes. Illinois’ attorney general sued Jimmy John’s sandwich store chain in 2016 to stop demanding that low-level workers sign agreements not to work for any nearby deli or sub shop. The company later changed its policy.
Issues surrounding noncompetes, which each year trigger hundreds of legal battles, have also drawn attention in Washington.
A White House report issued during the final year of Barack Obama’s presidency concluded that while noncompetes may sometimes play a legitimate role in protecting business interests, they’re also subject to abuse and are enforced in ways more favorable to corporations than individuals.
In April, Democratic Sens. Chris Murphy of Connecticut, Elizabeth Warren of Massachusetts and Ron Wyden of Oregon introduced a bill to outlaw noncompetes, which Murphy called a “rigged system,” and one that “does nothing but hurt workers and stifle growth.”