Reform noncompete contracts (Resources)

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News

A noncompete reform bill for the 2011-2012 legislative session has been filed by Rep.s Ehrlich, Brownsberger, Peisch, and others as House Bill 2293 (http://www.malegislature.gov/Bills/187/House/H02293).

The legislators welcome comments on the bill, as it can be revised before filing (and at several points after filing).  If you have any questions, comments, or feedback, please contact Rep. Will Brownsberger (willbrownsberger@gmail.com), or Rep. Lori Ehrlich (Rep.LoriEhrlich@Hou.State.MA.US). Rep. Brownsberger also encourages public discussion of the noncompete issue on his blog willbrownsberger.com.

For more information on the Ehrlich, Brownsberger, and Peisch’s bill, see http://willbrownsberger.com/index.php/category/economic-development/non-competition-agreements.  Also see Russell Beck’s (Beck Reed Riden LLP) blog  http://faircompetitionlaw.com/category/massachusetts-noncompete-bill/.

In addition, two bills to ban noncompetes have been filed: H2296 ( http://www.malegislature.gov/Bills/187/House/H02296), by Rep. Sheila Harrington and Rep. Denise Provost,  and S932 (http://www.malegislature.gov/Bills/187/Senate/S00932), by Sen. Pat Jehlen and Rep. Denise Provost.

For a description of the how a bill becomes law in MA, see http://www.malegislature.gov/engage/howideabecomeslaw.

Background

A bill entitled “An Act to Prohibit Restrictive Employment Covenants,” House Bill 1794, was filed on January 12, 2009 (186th General Court of the Commonwealth of Massachusetts) to prohibit noncompete contracts between employers and employees. The lead sponsors were Representative William N. Brownsberger and Senator Patricia D. Jehlen.

Rep. Lori A. Ehrlich filed a bill entitled “An Act Relative to Non-Compete Agreements,” House Bill 1799 in January 2009, which would have restricted but not prohibited noncompetes. After receiving feedback from many perspectives, Rep. Brownsberger and Rep. Ehrlich drafted a compromise together to strike a balance among the interests of the stakeholders. The draft, dated September 28, 2009, can be found on Rep. Brownsberger’s blog http://willbrownsberger.com/index.php/archives/2630.

The hearing, formally under the original bill numbers HB 1794 and HB 1799, took place on October 7, 2009, before the Joint Committee on Labor and Workforce Development. The compromise bill was reported favorably out of the Joint Committee on Labor and Workforce Development the week of March 15, 2009. It is now formally known as House Bill 4607, sponsored by Rep. Cheryl Coakley-Rivera.

For an account of the hearing, please see the following:

House Bill 4607 was referred to the House Committee on Steering, Policy, and Scheduling on April 12, 2010 and to the Joint Committee on the Judiciary on May 24, 2010. It did not proceed further in the 2009-2010 legislative session.

 

The following is a compilation of links to information on various aspects of employee noncompete contracts in Massachusetts.

Table of Contents

I. Related Massachusetts legislation in 2009

II. Background information on noncompete contracts

III. Noncompetes can be enforced even if an employee is laid off

IV. Nondisclosure agreements — different and separate from noncompete contracts

V. Massachusetts prohibits noncompetes for certain professions

VI. Noncompetes in other U.S. states

VII. Noncompetes and the Massachusetts economy

VIII. Recent media coverage of the noncompete issue in Massachusetts

IX. Contact information for legislators

 

I. Related Massachusetts legislation in 2009

  • “An Act Making Uniform the Law Regarding Trade Secrets,” House Bill 329, sponsored by Representative Daniel E. Bosley and Senator John A. Hart, Jr.

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II. Background information on noncompete contracts (also known as a covenants not to compete or non-competition contracts)

Under a noncompete contract, an employee agrees not to compete with the employer for a period of time after leaving the employer.  Examples of competing include working for a competing company or starting a competing company.  Typically, the time period is one or two years. The present bill affects only noncompetes between an employer and employee. It does not affect noncompetes in the context of sales of businesses.

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III. Noncompetes can be enforced even if an employee is laid off

  • Rosen, Michael. “Layoffs and Noncompetes” (blogpost), Massachusetts Noncompete Law (blog published by Foley Hoag LLP), November 24, 2008. <http://www.massachusettsnoncompetelaw.com/2007/08/articles/noncompetes/>. (This URL cannot be accessed directly; instead, go to the blog’s home page at <http://www.massachusettsnoncompetelaw.com>, look for “Topics” in the menu on the left, click on “Noncompetes,” and search for “layoffs” on the resulting page.)

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IV. Nondisclosure agreements (also known as confidentiality agreements) — different and separate from noncompete contracts

Employees are typically required to sign nondisclosure agreements, which bar them from divulging confidential information and trade secrets.  Nondisclosure agreements are separate and distinct from noncompete agreements and are enforced separately. The present bill does not affect nondisclosure agreements.

Nonsolicitation agreements, in which the employee agrees not to solicit customers of the former employer, and anti-piracy agreements, in which the employee agrees not to induce former co-workers to join his or her new company, are also not affected by the present bill.

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V. Massachusetts prohibits noncompetes for certain professions

Massachusetts General Laws prohibit noncompetes for employees in certain professions. In addition, lawyers are forbidden by their code of ethics (Rules of Professional Conduct) from requiring noncompetes in their own profession (except in the case of the sale of a practice).

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VI. Noncompetes in other U.S. states

States differ in their treatment of competition in an employer-employee relationship.  In California, noncompete contracts are illegal by statute, except in certain limited cases (those involving buying or selling businesses or dissolving partnerships).  Other states’ statutes vary, as well as the level of enforcement.  Massachusetts has no statute addressing noncompete contracts for all professions.  Rather, enforcement relies on case law, i.e., precedent in cases tried.

Recently, other states have passed laws intending to clarify and, in some aspects, restrict of the enforceability of noncompetes.

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VII. Noncompetes and the Massachusetts economy

The following sites and papers present information, research, and opinion on the effect of noncompetes on the Massachusetts economy.

  • Kirsner, Scott. “Sunday’s Globe column: How noncompetes make states less competitive” (blogpost), Innovation Economy (Scott Kirsner’s blog), December 31, 2007, <http://www.innoeco.com/labels/Matt%20Marx.html> (includes an interview with Matthew Marx, Harvard Business School Ph.D. candidate researching the effects of noncompetes on employee mobility and the economy).
  • Marx, Matthew, Deborah Strumsky, and Lee Fleming. “Noncompetes and Inventor Mobility: Specialists, Stars, and the Michigan Experiment” (working paper 07-042), Harvard Business School, <http://www.hbs.edu/research/pdf/07-042.pdf>. (A version of this paper will appear in Management Science.)
  • Garmaise, Mark J. “Ties that Truly Bind: Non-competition Agreements, ExecutiveCompensation and Firm Investment,” UCLA Anderson <http://personal.anderson.ucla.edu/mark.garmaise/noncomp7.pdf>.
  • “Employee Non-Compete Agreements: Protecting Innovation or Stifling It?” panel discussion at the Berkman Center for Internet and Society at Harvard University, June 19, 2008, description: <http://cyber.law.harvard.edu/node/4317>, video: <http://cyber.law.harvard.edu/node/4440>. (If the video URL is not directly accessible, go to the Berkman homepage and click on “Interactive” on the menu bar at the top; videos are ordered by date, most recent first.)
  • Blog by Bijan Sabet (General Partner, Spark Capital), Alliance for Open Competition <http://opencompetition.wordpress.com/>

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VIII. Recent media coverage of noncompetes and related issues in Massachusetts

Recent coverage in the media has discussed the impact of noncompetes on employees, businesses, and the Massachusetts economy.

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IX. Contact information for legislators

To voice an opinion on the noncompete issue, you may contact your state representative and state senator by letter, telephone, or email. The following website finds a list of legislators by a constituent’s address and presents links to the legislators’ contact information.

If you wish to copy Rep. Brownsberger on the correspondence, please send to Rep. Will Brownsberger, Room 276, State House, Boston; email: willbrownsberger@gmail.com.

For a description of the how a bill becomes law in MA, see http://www.malegislature.gov/engage/howideabecomeslaw.

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2 replies on “Reform noncompete contracts (Resources)”

  1. Pingback: Mass Lawyers Weekly Advisory Board Supports Noncompete Bill « Fair Competition Law
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