Discussion is heating up in the State House about legislation to ban agreements not to compete. I filed with Senator Pat Jehlen a complete ban on these agreements and Rep. Lori Ehrlich has filed a bill that would limit them.
The issue is getting increasing coverage:
- lead editorial in this Sunday’s Boston Globe
- recent column by Steve Kisner
- planned symposium at the Boston Bar Association
- website tracking this legislation (created by my advisor and constituent, Caroline Huang)
Many workers are victimized by these agreements, which they often sign without advance opportunity to explore their implications. The agreements prohibit employees from working for other employers and sometimes even apply when the employees have been layed off. Some employees have been unable to work in their field of expertise for months or years, experiencing significant hardship. Some firms use the agreements even for very junior employees. The problem is not limited to high tech fields — the agreements have been used to limit the mobility of hair stylists and phone canvassers.
Venture capitalists feel that the agreements limit the ability of employees to strike out and form new companies. California bans the agreements and some feel that the ban is an important contributor to California’s high rate of new company formation.
Some businesses do have legitimate interests to protect through the use of non-compete agreements — trade secrets, confidential information, clients. Although other legal rules provide some protection, limited non-compete agreements may, in some situations, be the only way to achieve adequate security for costly business assets.
I’m working with Representative Ehrlich to shape a joint draft that will reflect the fair concerns of businesses and employees. We have been in contact with business groups and with attorneys that specialize in representing employees. A new draft should be available soon.
Banning agreements not to compete makes sense to but I want to really understand the impact it could have on companies either in or setting up in Massachusetts. From one perspective it is attractive to me. I once worked for a French software company at Logan Airport. Because of a non-compete agreement I could not accept a job I would like to have at Massport and went to the Port of Oakland instead. Right now I’m concerned about the economy of Massachusetts and I don’t want to see companies hesitate to do business here. As long as the legislation address both sides apppropriately I’ll support it.
Non Competes are NOT mandatory in Massachusetts. Employers choose to ask employees to sign them and employees choose whether or not to sign them. If the issue is lack of information about non-competes, that can be addressed by requiring employers to disclose that as part of an offer or for employees to ask about it when considering an offer.
An employee who has signed a non-compete or who cares about it owes it to themselves to ask about it while reviewing a later job offer.
The fact that some companies (not all) chooses to ask employees to sign non-competes and the fact that people (not all) still sign them is an example of free market working. Employers (large and small) can choose not to do this if they so desire and by the same token, these employers can use this to their advantage during the hiring process. In the same way, prospective employees can use this information in evaluating offers.
Reasons not to outlaw non-competes and (hopefully) a step towards meaningful non-competes are at http://hypecycles.wordpress.com/2009/07/12/why-retain-noncompetes/
Several argue that eliminating non-compete laws will make Massachusetts an even worse place to do business (refer http://www.belloblack.com/downloads/MALawyersWeekly_090126.pdf)
It has been argued that different industries require different protections based, for example, on the kinds of intellectual property generated and the gestation periods. Recent cases in the state include non-compete restrictions relating to hair dressers and tech workers. It should be fairly obvious that the same set of statutes should not be applied to both; maybe it is meaningful to eliminate non-competes for hairdressers and the state already has a set of professions where non-competes do not work.
I urge you to consider the impact on all areas of technology before arriving at your conclusion to ban non-compete agreements.
I work in the mobile phone space and employees flow freely between the companies doing business in Massachusetts. We do not ask our employees to sign agreements and neither do the other companies, and we find that we have a rich and experienced talent pool that we all benefit from.
My spouse, however, had to sign a non-compete after accepting an offer at a video game company. It is not a role that translates well to other types of organizations. The result is that if things don’t work out, we will likely consider looking for roles outside of the state of Masschusetts that offer relocation.
If others are of like mind, the state could lose valuable talent because certain companies choose to require non-competes.
Thanks to all for the comments here. Please see the more recent post on this site with the actual draft language. Specific feedback on that proposal much appreciated!