In 2013, Representative Ehrlich and I have filed a simplified version of our non-competition reform bill. Click here for the story behind this legislation. Click here for fuller background.
The basic elements of the bill are:
- An employee non-competition agreement longer than six months is presumed unreasonable — under current judge-made law, agreements of a year or more are often found reasonable.
- An agreement that is unreasonable in duration may not be enforced — under current law, such an overly long agreement may be reformed and enforced for a shorter duration; the risk of unenforceability will give employers strong incentives to stay within the six months length.
- Courts may nonetheless reform and enforce agreements that are longer than six months if the employee has stolen assets or otherwise breached a duty to the employer and also in cases of employees making $250,000 or more — this gives employers protection in the cases that they most need it.
Please share your thoughts on the approach!
Here is the full text of the bill we filed — we’ll post a link to the official copy when it becomes available.
Whereas the Commonwealth of Massachusetts has a significant interest in its economic competitiveness and the protection of its employers, and a strong public policy favoring the mobility of its workforce; and
Whereas the Commonwealth of Massachusetts has determined that an employee noncompetition agreement restricting an employee’s mobility for longer than six months is a restraint on trade and harms the economy;
Therefore, be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:
SECTION 1. Chapter 149 of the General Laws, as appearing in the 2006 Official Edition is hereby amended by inserting after section 24K the following section:-
Section 24L. (a) An employee noncompetition agreement that restricts an employee’s mobility for no longer than six months shall be presumed reasonable in duration.
(b) An employee noncompetition agreement that restricts an employee’s mobility for longer than six months shall be presumed unreasonable in duration.
(c) An employee noncompetition agreement that is determined by a court to be unreasonable in duration shall be unenforceable, unless: (i) the employee has breached his or her fiduciary duty to the employer; (ii) the employee unlawfully taken, physically or electronically, property belonging to the employer; or (iii) the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.
(d) When any of the three exceptions in section (c) above are present, a court may enforce the employee noncompetition agreement for any duration determined by the court to be appropriate.
(e) Employee noncompetition agreements do not include (i) covenants not to solicit or hire employees of the employer; (ii) covenants not to solicit or transact business with customers of the employer; (iii) noncompetition agreements made in connection with the sale of a business or substantially all of the assets of a business, when the party restricted by the noncompetition agreement is an owner of at least a ten percent interest of the business who received significant consideration for the sale; (iv) noncompetition agreements outside of an employment relationship; (v) forfeiture agreements; or (vi) agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.
SECTION 2. This act may be referred to as the Noncompetition Agreement Duration Act and shall apply to employee noncompetition agreements entered into on or after January 1, 2014.
This is not an area where I have specific experience. That said, my inclination is to go back to where you began and to completely eliminate such non-compete agreements. The general advice on job-hunting is, that the best time to get a new job is when you already have one. Most businesses hiring want someone to start soon– a lot sooner than six months out. This means many people would have to quit their jobs and take a substantial financial hit before having any real hope of landing another. Fast-growing companies looking to expand cannot wait that long for qualified staff. It seems like a bad idea altogether.
Also, I certainly do not see why a noncompete of a longer period of time would supposedly appropriate for some of the circumstances you mention– e.g., if a person has stolen assets. If a person commits a crime, they would presumably be subject to the criminal justice system. Why is that insufficient?
Furthermore, under your proposed legislation, for a longer non-compete to be binding, would a person have to be convicted– or only accused–of having committed a crime? Any answer seems to me to be problematic: if a conviction is required, then having this exception seems irrelevant because who would hire someone who had committed a crime in their own industry anyway? If only suspected, then it opens the door for huge miscarriage of justice, banning people from work due to a company’s suspicion. I can even imagine a bad actor company claiming such a crime, while really having an ulterior motive of injuring a departing employee for whatever reason.
I am similarly uncomfortable with the exception of an employee who has “breached his or her fiduciary duty to the employer”. What exactly does that mean? Who has such a duty? What does a “breach” consist of? And what standard of proof must be met to show that a person has breached such a duty– is a company’s assertion to that effect sufficient? It’s not clear.
For all these reasons, right now, I would be inclined to only allow noncompetes for a limited period of time– say, six months as suggested– and only for those employees who have been quite highly compensated.
Thank you for taking this complex issue on and doing so thoughtfully.
I’ve experienced this issue from a few sides — (a) as an employee signing those stacks of agreements fearful of what I might be signing away, (b) a manager hiring colleagues from competing firms, (c) a prospective entrepreneur leaving a corporation, and now (d) as a tech entrepreneur hiring key employees.
In all of these case, I concur that I would much prefer CA-style approach to non-competes, so these complexities simply would not arise, as complexity inhibits business.
My one big fear with the proposed language is that defining any agreement with a six month limitation as by default reasonable will allow firms to define otherwise egregious noncompete agreements with six month exclusions — not limited by role, clients, industry, geography. Very few people can wait six months, and thus this might have worse unintended consequences, with employers making terribly broad 6-month exclusions.
Thus my recommendation is that a noncompete is reasonable only if it is bounded (a) by time but also (b) by role and scope.
I believe noncompete clauses have been struck down almost entirely in California
It certainly hasn’t hurt the tech economy there ….
I am so glad to see you going after this issue.
I’m not sure there’s a way to make all sides happy in though. I believe it’s high time that we went the way of California on non-competes. Some of these agreements lock people out of working for competing firms (the term is often loosely defined) even when they get laid off. It strikes me as grossly unfair.
There has been business/tech news for weeks now about a law suit alleging a big conspiracy among Google, Apple, Intel and others, an unwritten agreement not to hire employees from each other’s companies, esp. if they are involved in critical products or technologies. The claims against the companies are completely plausible even if not proven true or serious enough. The alleged acts are typical means employed by corporate monsters to avoid labor laws: cheat, lie and threaten. We need something *more* effective and secure than the Calf. laws. It is simply evil that merely the remote possibility of a prospective employer becoming embroiled in an IP legal fiasco is enough to cause them not to hire you from the competitor. Six months limits are too long: why should any professional be obliged to sit on his hands for 6 months, draining his savings, risking his credibility and losing his skills? It is simply corporate bullying and effectively chains us to our jobs, denying us a right to earn a living freely in the market.
Seeing the number “$250,000” hard-coded into the proposed legislation gives me pause. Who knows what inflation will be in the future — it could be the case a burger flipper makes $250,000 in 2033.
Will, I think we should settle for nothing less than California’s rules. As others have noted, their tech industry is plenty healthy, and there’s other rules governing theft of intellectual property that still apply, that are well understood, and that work.
I find it extremely hard to respect the opinion of anyone who supports these generally applied non-compete clauses; it’s a very big deal to hinder someone’s ability to change jobs, and comparison with California suggests that we derive ZERO public benefit from them. It’s possible that it’s worse than that — that these laws actually hurt our economy by preventing the free movement of skills and labor to where they can be used most effectively.
And the Massachusetts employers who offer non-competes — I have signed them in the past when I felt I had little choice, but whenever I have a choice, I don’t. That means that California companies (who do not use these) go to the head of the line in every job search.
Thanks, Alex. I appreciate your support for change!
Just, FYI, most of the “theft” employers are talking about is not criminal or, would not be handled criminally — in practice, this is all about civil litigation. Similarly “breach of duty” is a civil litigation term for double dealing. The idea of the legislation is that in order to enforce a non-compete for longer than six months, the employer would have to make a showing in civil court that that there had been clear misconduct by the employee.
It’s a compromise position and one that we can keep working with — I hear which direction you are leaning.
Well taken. Our language is consistent with what you are advocating — if an agreement is under six months, it is “presumed reasonable in duration” but it still must be reasonable as to role and geographic scope in order to be enforced — that is already the law.
Right! We are trying to move a few steps in that direction!
Thank you, Patty! I appreciate your support on this!
Ian, I appreciate your support for change. Hopefully, we can move the law in the right direction — 1 year is typically upheld here in MA.
Well taken — we’ll look for a better index quantity.
Dave, got it. I appreciate your support for change!
This just need a proper implementation, and there should be no limitation on all its coverage function.
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