Exploring the Massachusetts Noncompetition Agreement Act: Protecting Employees Who are Terminated Without Cause or Laid Off
The Massachusetts Noncompetition Agreement Act, Massachusetts General Laws, Chapter 149, § 24L (the “Noncompete Act”), which applies only to employee noncompetition agreements entered into on or after October 1, 2018, contains multiple ambiguities, in part because key terms and phrases used in the statute are not defined. In a series of posts focusing on the Noncompete Act, I will attempt to explicate, or at least explore, some of those ambiguities. Here, I examine two ambiguities in the Noncompete Act that may prove to be significant in light of the unprecedented number of Massachusetts employees whose employment has been terminated due to the economic impact of the Covid-19 pandemic.
Section (c)(iii) of the Noncompete Act provides that: “A noncompetition agreement shall not be enforceable against . . . (iii) employees that have been terminated without cause or laid off.” By contrast, under Massachusetts common law, an employee noncompetition agreement entered into before the effective date of the Noncompete Act may be enforceable even though the employer terminates the employee without cause or lays off the employee for business reasons.
Neither “cause” nor “without cause” is defined in the Noncompete Act. “Words that are not defined in a statute should be given their usual and accepted meanings,” derived “from sources presumably known to the statute’s enactors, such as their use in other legal contexts and dictionary definitions.” MacLaurin v. City of Holyoke, 475 Mass. 231, 239 (2016), quoting Seidman v. Newton, 452 Mass. 472, 477-478 (2008).
Massachusetts courts have set forth relatively objective criteria for interpreting “cause” language appearing in other statutes. Most notably, in G&M Employment Service, Inc. v. Commonwealth, 358 Mass. 430 (1970), the Supreme Judicial Court construed the phrase “just cause,” which appears in Massachusetts General Laws Chapter 140, § 46O(a), a statute governing employment agencies: “If an applicant furnished employment is discharged within one month after the time of entering upon such employment and such discharge is not for just cause, the employment agency shall on demand refund to the applicant that portion of the fee paid in excess of ten per cent of the gross wages paid to the applicant.” The Supreme Judicial Court set forth the following understanding of the phrase “just cause” as it appears in that statute:
“The standard of ‘just cause,’ however, in the context of a statute regulating employment agencies, would require determination (among other matters) whether there existed (1) a reasonable basis for employer dissatisfaction with a new employee, entertained in good faith, for reasons such as lack of capacity or diligence, failure to conform to usual standards of conduct, or other culpable or inappropriate behavior, or (2) grounds for discharge reasonably related, in the employer's honest judgment, to the needs of his business. Discharge for a ‘just cause’ is to be contrasted with discharge on unreasonable grounds or arbitrarily, capriciously, or in bad faith.”
G&M Employment Service, Inc. v. Commonwealth, 358 Mass. at 436. This definition has been widely cited by Massachusetts courts when determining whether an employee was terminated with or without just cause. See, e.g., Klein v. President and Fellows of Harvard College, 25 Mass. App. Ct. 204, 208 (1987); Sovie v. Town of North Andover, 742 F. Supp. 2d 167, 172 (D. Mass. 2010) (“[I]t is clear that the standard set out in Klein . . . is the applicable and controlling standard for ‘just cause’ under Massachusetts law.”).
Relying on these cases, courts should construe the phrase “terminated without cause” in subsection (c)(iii) of the Noncompete Act as meaning termination without a reasonable basis for dissatisfaction with the employee, entertained in good faith. Thus, where the employer cannot demonstrate the terminated employee’s lack of capacity or diligence, failure to conform to usual standards of conduct, or other culpable or inappropriate behavior, the judge should find that the employee was “terminated without cause” and hold that the employee’s noncompetition agreement is unenforceable.
The Noncompete Act also does not define “laid off,” though it plainly provides that the noncompetition agreement of an employee who is laid off is unenforceable. Here again, to construe “laid off,” courts should look to ordinary usage of the term and the interpretation of the term as used in other statutes. Black’s Law Dictionary (11th ed. 2019) defines “layoff” as “[t]he termination of employment at the employer's instigation, usu[ally] through no fault of the employee; especially], the termination — either temporary or permanent — of many employees in a short time for financial reasons.” Merriam-Webster defines “lay off” as “to cease to employ (a worker) often temporarily.” The Massachusetts Civil Service statute, M.G.L. c. 31, § 1, defines “lay off” as “a temporary discontinuance of employment for lack of work or lack of money.” Accordingly, relying on both ordinary usage and other statutes, courts should construe the term “laid off,” as used in the Noncompete Act meaning the temporary or permanent termination of employment for business or economic reasons, including a reduction in workforce or elimination of a position. Thus, under the Noncompete Act, courts should find that the noncompetition agreement of an employee whom an employer has temporarily or permanently terminated for financial reasons is unenforceable.
Consequently, an employee whose noncompetition agreement is governed by the Noncompete Act and who has been laid off is now free of the restriction on competition. Even if the employer rehires the employee, the original noncompetition agreement is no longer enforceable. Of course, the employer and employee may enter into a new noncompetition agreement, but the original noncompetition agreement is not enforceable. By contrast, an employee with a noncompetition agreement not governed by the Noncompete Act who is laid off may still be bound by the noncompetition agreement. However, the period during which the employee may not compete, typically one year, begins immediately upon the employee’s layoff. Accordingly, even if the employer rehires the employee, the clock will continue to run and the noncompetition restriction will expire one year from the date the employee was laid off. Of course, the employer and employee may enter into a new noncompetition agreement. However, to be enforceable, the new agreement must comply with the strict requirements of the Noncompete Act.
If you need advice or representation concerning a noncompetition agreement, please contact me to see how I can help. Lawson & Weitzen, LLP is a full-service law firm that regularly is involved in employment law matters.