Update, July 30, 2014: Apparently, none of the senate language described below was included in the conference report on the economic development bill — it seems unlikely now that any actual motion on this issue will occur in this session, but there remains a slight possibility that a separate bill could move.
Last night, that State Senate voted 32-7 in favor of compromise language limiting the use of agreements not to compete in Massachusetts. The vote sends a clear message that the time is now to end the abuse of non-competition agreements.
The bill bars the use of non-competition agreements for hourly workers, requires employers to give employees a full opportunity to review proposed non-competition agreements and creates incentives for employers to write shorter, more reasonable agreements.
Over the past decade or two, Massachusetts employers have fallen into a routine practice of requiring new employees to promise that if they ever leave the company, they will not go to work for a competitive company for a period of time. These agreements are often shuffled in among other pre-employment paperwork and employees often don’t fully understand their implications.
The agreements are a dead-weight drag on our struggling economy. For non-specialists, the agreements limit employment options. For a specialist, a non-compete may bar gainful employment in the specialist’s field. The overuse of the agreements in Massachusetts prevents employees in innovation industries from moving around and forming new ventures, particularly dulling the creative vibrancy of our information technology sector.
I’ve been working on this issue for six years since a constituent of mine told me her story — her career as a speech recognition technologist had been derailed entirely by a non-competition agreement she had signed with an employer. After she had invested a decade and paid the high costs of her own schooling, she joined a company in her chosen specialty. When she left the company a couple of years later, she found herself trapped by an agreement that left her essentially unemployable in her field.
On the floor last night, the argument was heard that employers might invest in training their employees and so should have the right to keep them from working for others. This argument misses the basic point that even for high school graduates, the public and personal investment in every worker’s education dwarfs the contribution that even a generous employer might make.
And, of course, if an employer wants to pay an employee’s way through college there are many other ways to guaranty their investment — for example, requiring that the employee to take out student loans and paying them on behalf of the employee only if the employee remains employed with them. Similarly, there are other legal devices to protect the business interests that non-competition agreements might be used to protect — trade secrets, confidential information and customer lists.
There is a strong argument for banning non-competition agreements outright. But what most offends one’s sense of basic fairness is the extension of their use to lower wage employees in which employers make only limited investments — camp counselors, hair dressers, junior sales people. Also offensive is the foisting of non-competes on unsophisticated younger employees. The language adopted last night responds strongly to both of these concerns.
Additionally, the language makes a effort to rein in the use of non-competes more broadly. For salaried or commissioned workers, the agreements will remain legal if fairly entered. However, the language adopted last night would make Massachusetts a “red pencil” state — a state in which a court must decline to enforce unreasonable non-competition agreements. Currently, Massachusetts is a “reform” state, in which a court, presented with an unreasonably broad non-competition agreement may reform it to be more reasonable and then enforce it. In red pencil states, employers draft their agreements more carefully so as to avoid their being found unenforceable.
The language gives employer a safe harbor — if the agreements are less than six months in length and apply only to the kinds of activities that the employee was engaged in and the territory in which they worked, then the agreements will be enforceable. While our approach is flexible and does not actually prohibit longer agreements, we hope and expect that the safe harbor language will encourage employers to adopt shorter agreements.
The language was adopted as part of the Economic Development bill, which includes a host of other measures. The Senate version of the bill now proceeds to a conference committee for reconciliation with the House version of the bill. The House version does not address non-competes, so the fate of our language in the conference process is uncertain.
The only thing certain this morning is that 32 out of 40 Massachusetts Senators were prepared to vote for change last night and that, in itself, is very good news.
- More explanation of what the non-compete amendment does
- The Senate roll call on the non-compete amendment..
- Raw full ext of the non-compete amendment.
- Senate version of the Economic Development Bill.
- Senate press release on the Economic Development Bill
- More discussion of non-competition agreements.