The 2017-2018 MA legislative session officially wrapped up on July 31st.
This was a uniquely challenging session, which saw one Senate President resign, an interim Senate President appointed and in office until the end of the budget process, and then finally a Senate President elected after a contentious internal battle. The result was historic tension in and amongst the two branches, which led to a delayed budget, and a failure to pass major priority legislation such as an omnibus health care bill and a school funding bill. Despite these difficulties, MAIA was able to advance important pieces of its agenda, while laying a strong foundation for the 2019-2020 session. Provided below is a recap of many of the legislative issues that MAIA engaged on during the session.
- Non-compete/Anti-piracy Agreements: Since the issue of restricting non-competition agreements first appeared on the radar screen in Massachusetts, MAIA has fought to protect the ability of our agents to enter into other kinds of employer-employee agreements that are so important to the stability and success of insurance agencies. We are pleased to report that the final version passed by House and Senate and signed by the Governor restricts the ability of employers to enter into non-competes only, and does not touch other kinds of agreements, such as non-solicitation, non-disclosure, or anti-piracy agreements. Generally speaking, a non-compete is an agreement where an employee agrees to refrain from entering into competition with the employer during or after employment. It might restrict the employee from entering into certain industries, going to work for competitors, or starting a competing business. Under the new statute, employees and employers can still enter into non-competition agreements, but within limits.
- Formal requirements: the statute requires that an employer provide a written agreement to the employee before a formal offer of employment is made, and at least 10 days before employment begins. The non-compete must also be signed by both the employer and employee and state that the employee has the right to counsel.
- Limitations on scope: the statute prohibits non-competes from imposing restrictions on the employee for longer than one year or outside of a reasonable geographic reach.
- Applicability to employees: the statute prohibits enforcement of noncompetes against certain categories of workers, including:
- employees laid off or terminated without cause
- non-exempt hourly employees
- “Garden Leave”: The garden leave provisions in the statute require the employer to continue paying the employee during the restricted period at no less than 50% of the employee’s salary, OR to agree on some other kind of consideration. The provision providing for this payment must be included in the non-compete agreement.
- Agreements not regulated or restricted by the statute:
- Anti-piracy agreements (sometimes also referred to as non-solicitation agreements), in which the employee agrees not to solicit or transact business with customers of the employer.
- Noncompetes between the buyer and seller of a business.
- Non-solicitation/no-hire agreements, in which an employee agrees not to solicit or hire employees of the employer
- Nondisclosure or confidentiality agreements.
Please note that the law is not retroactive – any noncompete entered into before October 1, 2018 is unaffected. We would strongly advise that you review any standard forms you are using with legal counsel before October 1, so that you can ensure that your agreements are in compliance.
- "Fair Share Tax" (Millionaire’s Tax): The “Millionaire’s Tax” ballot question was set to appear on the November ballot. The proposal would have instituted a 4% surtax on any income above $1 million. The proposal had the potential to negatively impact closely held small businesses that are organized as S-corps (as many insurance agencies are), and polling suggested that the question would succeed if brought to the ballot. MAIA stood strongly opposed to this proposal. Like-minded opponents brought suit against the proposal’s advocates, arguing that the question as written was an example of “logrolling” – that is, placing two independent objectives in a single constitutional amendment. In June, the Supreme Judicial Court agreed, finding that the two parts of the question (raising the tax and then stipulating what it could be spent on) were not mutually dependent as required by law, and thus the question could not be certified for the ballot.
- Short-term Rentals (Airbnb): The House and Senate engaged in protracted negotiations to produce a bill to regulate and tax short-term rentals. MAIA followed this process closely for any bill provisions that would impact insurance requirements in this area. Shortly before the deadline, the Legislature passed a compromise bill. It would require that each short-term rental unit be covered by a $1 million liability insurance policy, and requires the hosting platform to provide notice to the operator that standard homeowners or renters insurance may not cover damage or injury to a third party.
Governor Baker, however, did not sign the bill. Instead, he returned it to the Legislature with recommendations for amendment (the recommendations are unrelated to the insurance requirement). The Legislature is returning to deliberations on the bill, even though they are done with formal sessions for the year. Changes to the bill will have to be dealt with in informal session, which requires unanimous consent for action. This could prove to further delay or even kill the bill.
- H.3682, “An Act relative to fair and accurate motor vehicle insurance quotes”: After the start of the 2017-2018 legislative session, MAIA began to hear concerning stories from its membership about consumer experiences with online underwriters. These underwriters were issuing quotes without verifying the consumer’s driving history, and only later notifying customers of higher premium payments. In response, MAIA worked with Rep. Michael Finn to develop a late-file bill to prevent this practice.
In a short window of time, MAIA was able to collect and share consumer testimony; put on a full panel of speakers to testify at the bill’s hearing; hold numerous meetings with both the Financial Services Committee as well as legislative leadership; and build alliances with other organizations who shared our concerns. In March 2018, the bill received a favorable report from the Joint Committee on Financial Services. It was then favorably reported out from the House Committee on Steering, Policy, and Scheduling, and referred to the House Committee on Bills in the Third Reading.
This is substantial progress for a late-file bill on a novel issue. We were successful in raising awareness of these practices as a consumer protection issue and have seen some online companies curbing their most egregious examples. We found in meeting with legislators, that many required considerable education to appreciate the problem that the bill was built to address. Nevertheless, by the end of the session, we had built a real “buzz” on the issue at the State House. With this work completed, we now have a strong base of support to springboard off of in the next session as we refile this bill.
- Federal Tax Reform: Draft Regulations on New 20% Deduction for Pass-Through Businesses: In August, the IRS issued proposed regulations governing Section 199A of the tax code. This section provides a 20% tax deduction to an owner of a pass-through entity where the owner’s taxable income does not exceed certain income thresholds. The proposed regulations would phase out the deduction for owners of a “specified service trade or business”. On an initial review of these regulations, it appears that the IRS does not consider insurance agents and brokers to fall under the category of a “specified service trade or business”, meaning that agencies organized as pass-throughs can receive the benefit of the 20% deduction.
The Big “I” is continuing to review the draft and plans to provide comments to the IRS, and guidance to members going forward.
- Other MAIA bills: Listed below are the other MAIA-backed bills that were filed this session along with their legislative histories. Some gained traction during the session:
- 2159, “An Act relating to modernizing business to business commercial insurance transactions” was favorably reported out from the Joint Committee on Financial Services and referred to House Ways & Means.
- 2187, “An Act relative to the supplemental application requirement for dwelling fire insurance policies” was favorably reported out from the Joint Committee on Financial Services and referred to House Ways & Means.
Others did not receive a favorable committee report and were sent to a study, a pattern that some have repeated for multiple sessions.
MAIA continues to advocate on behalf of our members and looks forward to the 2019-2020 legislative session. For questions pertaining to any of the legislative matters discussed here, please contact Nick Fyntrilakis at email@example.com or 508-634-7352.