The state of Massachusetts has just passed a bill that would require companies to provide compensation to former employees if they decide to enforce noncompete agreements. The compensation -- either half the employee's salary or "mutually agreed-upon consideration" -- would be required for up to a year after the employee leaves the company.
This is referred to as "garden leave," after a British colloquialism for being paid to tend to one's garden.
In addition, the bill:
- Requires employers to give prospective employees time to review noncompetes before signing them
- Restricts the enforcement period to a single year
- Bans enforcement of noncompetes against certain employees, such as students, people have been laid off and any employee classified exempt under the Fair Labor Standards Act -- a very large category encompassing most workers who are entitled to overtime
The fair use of noncompete agreements has been up for debate nationally. Toward the end of his administration, President Barack Obama sought to limit or reform noncompetes, especially those involving low-wage or blue-collar workers. California prohibits noncompetes altogether, and some other states have been working to restrict their enforcement.
The Massachusetts bill was passed last week and is headed to the governor's desk. If it passes, Massachusetts would be the first state to statutorily authorize "garden leave" when noncompete agreements are enforced. According to the Washington Post, many companies voluntarily offer garden leave, especially to top executives. A few states require some compensation when companies enforce noncompetes that were signed well after initial employment.
Last year, New Jersey considered a bill with a "garden leave" provision, which would have required former employees to be paid their full salaries by companies enforcing noncompetes against them. It also offered some protections similar to the Massachusetts bill. That bill is still pending before the Senate Labor Committee.
Experts say the Massachusetts 'garden leave' provision has a loophole
Under the bill, when companies choose to enforce a noncompete agreement against a former employee, they would be required to provide either a guideline amount equaling 50 percent of that employee's salary or a "mutually agreed upon consideration."
Consider, however, when that mutual agreement would likely come about. Most noncompete agreements are signed when the employee first takes the job. Companies could easily slip in garden leave waiver at the same time. Most people would probably sign the waiver rather than risking the job offer. Of course, judges could strike down such waivers if they were thought to be an abuse of bargaining power.
If the Massachusetts bill is signed into law, New Jersey's bill could well move forward in one form or another. Do you think our state should reform noncompete agreements?