Corporate & Business Law

A Major Change To Non-Compete Agreements in Massachusetts - Effective October 1, 2018

Massachusetts' legislature has passed a significant revision to the non-compete laws, bringing the laws in line with how the courts have been resolving non-compete disputes over the last ten years.  Effective October 1, 2018, non-exempt (hourly employees), independent contractors, undergrads and grads not working full-time, anyone under eighteen (18) years of age and employees terminated without cause cannot be bound by a non-compete agreement. Exempt employees (salaried) can be subject to a non-compete agreement, as long as it has a garden leave provision (pays the employee while not competing) and is for a twelve (12) month period of time and is limited to protecting the company's legitimate business  interests.  Non-competes are also permissible if they relate to the sale of a business or concern a key employee or owner of a business that is being sold.

The new law does not preclude the continued use of non-solicitation of customers or non-raiding of employees provisions.  The trial courts have traditionally been enforcing such provisions while declining to enforce non-competes in general.

The law provides that non-competes in effect prior to October 1, 2018 are not affected by the change in law.  Thus, going forward, all non-compete agreements and provisions must be reformed to comply with these and other changes in law.

CW’s attorney Tim Cutler is available for any questions.

Equity Crowdfunding Is Here

Start-ups have an exciting brand new option to raise money!  Regulation Crowdfunding (Reg CF), which went into effect on May 16, 2016, presents to start-ups an unprecedented equity financing opportunity.  For the first time ever, companies can raise capital by selling unregistered securities online to the general public.  Those start-ups that have so far not been able to secure angel investors or venture capital will find Reg CF a more accessible avenue to raise critical start-up capital.  Advantages of raising capital using the Reg CF exemption compared to venture capital financing or an IPO are:

Benefits

  • Start-ups can raise up to $1M using Reg CF in a 12-month period;

  • Reg CF can be used in combination with other types of financing like private placements;

  • Investors can include the general public and are not restricted to accredited investors;

  • Founders typically give up less equity percentage compared to angel and VC funding;

  • Limited initial and ongoing disclosure required compared to a public offering; and

  • Transaction fees are much lower than those of registered offering and the terms are better than VC financing.

Crowdfunding Portal

Start-ups raising money using Reg CF must do so through a FINRA-licensed crowdfunding portal or broker-dealer.  Through a fundraising portal with a broader investor based, start-ups will be able to reach investors beyond their own networks.

Online Marketing

Fundraising success is closely tied to a strategic marketing plan that uses digital experience and big data tools that drives the momentum of the crowdfunding offering. 

CW attorney Connie Dai is available for any questions.

When A Limited Liability Company or Corporation Will Not Protect Owners From Personal Liability

If an owner of a corporation or a limited liability company enters into a contract and fails to make it known that he or she was acting on behalf of the entity, that person could be personally bound to the terms of the contract, including all the liabilities thereunder. When entering a contract or an agreement on behalf of an entity, it must be clear to all parties that the entity is the party to the contract, not the person signing the contract or agreement on behalf of the entity. Otherwise, the individual signing the contract will be deemed the party to the contract, not the entity. When entering a contract, the parties should be clear that the entity is named in the contract and the person signing the contracting is doing so on behalf of the entity, in his or her official capacity.

CUTLER & WILENSKY LLP’s Boston lawyers are available for any questions.

Trends With Non-Compete Agreements

The courts in Massachusetts are becoming more restrictive in the enforcement of non-compete agreements. With regards to employees involved in sales, the courts tend to direct the sales person not to pursue past clients of the employer, but will permit the employee to work for a competitor. The Federal District Court recently ruled that it would not enforce a non-compete because the past employer could not show that the new employer was a direct competitor, despite the fact that the products sold were similar. Thus, the Court looked close at what services and goods were provided by each company and whether those products and services were directly competitive in determining whether or not to grant a preliminary injunction.

Enforcement of Non-Compete Agreements Continue to Become More Complicated

The Massachusetts trial court recently denied an employer’s application for injunctive relief to enforce a non-compete agreement on the grounds that non-compete agreement may not be enforceable because of a material change in conditions of employment.  The employee had a non-compete with Company A. After entering the non-compete agreement, Company A was purchased by Company B.  After purchasing Company B sought to significantly restructure the employee’s compensation. The employee terminated his employment and took a position with Company B’s competitor. read more >>

Limited Liability Companies May Not Be Covered Under the Wage Act

A Massachusetts Superior Court (trial court) recently found that due to the wording of the Wage Act, corporations are covered by the Act but limited liability companies, along with their officers, directors and managers, are not covered.  According to the court, because the legislature used the word “corporation” and not entity, only corporations are covered because corporations are specifically defined by statute. read more >>

Aiding and Abetting the Misclassification of Employee as an Independent Contractor

WARNING!  A third-party, such as an accountant, advisor or HR Services Company, can be held potentially liable for the damages and liabilities arising and flowing from an employer’s misclassification of an employee as independent contractor.  A third-party who advises or even provides the independent contractor paperwork can be held liable for the misclassification, even when the claimant was not their employee.

Shareholders Have a Right to Review Corporate Records - Including Financials

It is not unusual for majority shareholders to be reluctant to permit the inspection of corporate records, particularly financial records, by minority shareholders. In 2004, the Massachusetts legislature enacted a new set of laws making it easier for shareholders to review and copy corporate records, including financials. Upon five business days, of written notice, a corporation must make the requested records available to a shareholder, unless the corporation determines in good faith that the disclosure of the records sought would adversely affect the corporation in its conduct of its business or, in the case of a public corporation, constitute material non-public information. read more >>