Two Massachusetts rules cost employers more money than everything else in this area combined: the noncompete statute and the independent contractor test. Both are stricter than what companies expanding from Texas, Idaho or the Carolinas expect, and both carry personal liability for officers. Michael Holmes is admitted in Massachusetts and advises on entity formation, governance, contracts and the restrictive covenants that Massachusetts treats differently from almost anywhere else.
Forming a Massachusetts Entity
Massachusetts corporations are governed by the Massachusetts Business Corporation Act, G.L. c. 156D, a Model Act state statute that replaced the older c. 156B. Limited liability companies are governed by the Massachusetts LLC Act, G.L. c. 156C; an LLC is formed on the filing of a certificate of organization under section 12 and is a separate legal entity from that moment.
Massachusetts also retains a genuinely distinctive form, the Massachusetts business trust under G.L. c. 182 — an entity whose beneficial interest is divided into transferable certificates or shares. Section 2 requires the declaration of trust to be filed both with the Secretary of the Commonwealth and with the clerk of every city or town where the trust has a usual place of business, with amendments filed within 30 days. It is not the same thing as the nominee or realty trust that turns up constantly in Massachusetts conveyancing.
The LLC Fee Is the Highest You Will Meet
Budget for this before choosing a form. Massachusetts charges $500 to form an LLC and $500 every year for its annual report — both set by statute at G.L. c. 156C section 12(d). A corporation pays $275 to organize and $125 for its annual report, or $100 filed electronically. That is a four- to five-fold annual difference, and there is no reduced electronic rate for the LLC report.
- Corporate annual report deadline: within two and a half months after the end of the fiscal year (G.L. c. 156D section 16.22).
- LLC annual report deadline: on or before the anniversary of the original certificate of organization. The statute sets the fee but no date; the deadline comes from the Secretary of the Commonwealth.
- Resident agent: required for both. An LLC must continuously maintain a resident agent and a Massachusetts office where records are kept, and the agent written consent must accompany the certificate of organization. A corporation must maintain a registered office and agent under G.L. c. 156D section 5.01.
The Massachusetts Noncompetition Agreement Act
G.L. c. 149 section 24L, effective October 1, 2018, governs employee noncompetes entered into on or after that date. It is not retroactive, but it changed practice completely for anything signed since. A noncompete that would be routine in Texas is frequently void in Massachusetts.
What the statute requires for enforceability:
- At hire: in writing, signed by both parties, expressly stating the employee right to consult counsel, and delivered by the earlier of the formal offer or 10 business days before employment starts.
- Mid-employment: supported by fair and reasonable consideration independent of continued employment. Continued employment alone is no longer enough — this is the provision that voids the most existing agreements. Ten business days notice is also required.
- Duration: the restricted period may not exceed 12 months, extendable to two years only where the employee breached a fiduciary duty or took company property.
- Garden leave, or something agreed in its place: the agreement must be supported by a garden leave clause paying, pro rata across the restricted period, at least 50% of the employee highest annualized base salary over the preceding two years — or by other mutually agreed consideration specified in the agreement itself. What qualifies as that alternative consideration remains the central open question under the Act.
- Scope: no broader than necessary to protect trade secrets, confidential information or goodwill; geography and activities presumptively reasonable if tied to the last two years of the employee actual work.
Four categories of worker cannot be bound at all: employees classified as nonexempt under the Fair Labor Standards Act; undergraduate and graduate students in internships or short-term work; employees terminated without cause or laid off; and anyone 18 or younger.
Two more provisions that defeat the usual workarounds. A choice-of-law clause designed to avoid the statute is unenforceable against an employee who has been a Massachusetts resident or employed in Massachusetts for at least 30 days before separation. And venue is the county where the employee resides, or Suffolk County by mutual agreement, where the Business Litigation Session has exclusive jurisdiction. Courts retain discretion to reform an overbroad agreement rather than strike it.
Note what the Act does not cover: employee and customer non-solicitation clauses, noncompetes given in connection with the sale of a business, confidentiality and invention assignment agreements, and separation-agreement noncompetes where the employee is expressly given seven business days to rescind. Those remain governed by ordinary reasonableness principles, and for many employers they are the better tool.
Independent Contractors: the ABC Test
G.L. c. 149 section 148B presumes that anyone performing services is an employee unless the hiring party proves all three prongs:
- the individual is free from control and direction, both under the contract and in fact; and
- the service is performed outside the usual course of the business of the employer; and
- the individual is customarily engaged in an independently established business of the same nature as the service performed.
Prong B is what makes Massachusetts one of the strictest states in the country. Most ABC-test states allow an alternative — service performed outside all the places of business of the enterprise. Massachusetts eliminated that alternative. If the worker is doing the company core work, no amount of autonomy or paperwork saves the classification.
Section 148B(b) forecloses the usual defense: failure to withhold taxes or pay unemployment and workers compensation contributions shall not be considered in the analysis, so an employer cannot bootstrap contractor status from how it filed. And section 148B(d) reaches individuals — the president and treasurer of a corporation, and any officer or agent with management responsibility, are personally liable, with debarment available as a remedy. Misclassification that produces a wage violation runs into the Wage Act, where damages are trebled and attorney fees are mandatory.
What This Means in Practice
For a company expanding into Massachusetts, three things should happen before the first hire: restrictive covenant templates get rewritten for section 24L or replaced with non-solicits and confidentiality agreements; every contractor relationship gets tested against prong B specifically; and the entity choice gets priced with the $500 annual LLC fee in view rather than discovered later.
For a Massachusetts company, the most common finding on review is a drawer full of mid-employment noncompetes supported by nothing but continued employment — unenforceable since 2018, and giving the company a false sense of protection it has not actually bought.
Talk to a Massachusetts Business Attorney
See our Massachusetts overview or the general business law practice page, and contact the Massachusetts office to discuss entity formation, agreements, or a restrictive covenant review.