Reminder: Review Equity Award Forms for Massachusetts Employees

Skadden, Arps, Slate, Meagher & Flom LLP

Regina Olshan Joseph M. Penko Erica Schohn David E. Schwartz Joseph M. Yaffe Timothy F. Nelson Young M. Park

Many employers make annual employee equity grants in late February and March. This year, companies should review their form equity award agreements to determine whether a different form is needed for participants who live or work in Massachusetts in order to comply with the requirements under the new Massachusetts Noncompetition Agreement Act (which became effective October 1, 2018). If the grant, vesting, payment or retention of the award is conditioned on the participant’s compliance with a noncompete covenant, a special Massachusetts form will likely be needed.

For example, under the new rules:

  • Employers must pay or provide for “garden leave” or “other mutually-agreed upon consideration” if a post-employment noncompete covenant is included;
  • The duration, geographic reach and scope of the noncompete must fit within specified parameters; and
  • A post-employment noncompete restriction is enforceable only in limited circumstances: following an employee’s termination of employment for cause or an employee’s resignation from the company (not following an involuntary termination).

Next Steps

Companies should determine whether a special Massachusetts form is needed prior to the grant of their annual equity awards. More generally, companies should examine their noncompete agreements with Massachusetts employees, whether stand-alone or embedded in another employee agreement, to determine whether any changes are needed in response to the new law.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.