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.
In my opinion, non-competes are used to intimidate employees and reduce the chance that they will leave their employer. As stated, companies have other means available to protect their intellectual property without resorting to this tactic. The extension of this approach to hourly employees, which includes skilled workers hired on a temporary basis, is especially disturbing.
May I say, as a Senate colleague, that you were brilliant in forging this amendment, Will. I suspect that you would favor cutting back non-competes even further, as would I. But in the atmosphere of the State Senate last night, with senior Democrats exerting quiet pressure on you to do nothing, you were endlessly patient in seeking common ground, and quietly courageous. Most legislators, Senators and Representatives both, did not expect anyone to bring this to a successful roll call in 2014, but you found a way to get the issue to a vote. The result, a clear mandate to curb non-competes, was much more lopsided than anyone other than you would have dreamed. Because you had done your home work. You consulted with each of us individually. You listened, took note, and acted. Bravo.
Mike, your strong advocacy on the issue made a big contribution to the outcome! Thank you so much.
Thank you for your work on this. A classmate of mine is graduating from BU and received an offer of employment from a PR firm. She had to decline the job because the company had a one year, nation – wide ban on any work in the field she got tens of thousands of dollars in debt to persue. This ban was for her working part time. If a company’s that afraid of someone leaving after getting trained, maybe they should have a better workplace. It’s just a cheap tactic to exert as much control over their employees as they can. Non competes are ineffective, manipulative, and are a completely one – sided contract.
Thanks for working on this — it’s not full California, but it’s much better than what we had. Massachusetts businesses are being provincial and myopic in their opposition to non-compete reform/elimination.
They are a problem. When I was laidoff 4 years ago with my severence pay was a note that my no-compete clause was still in force (for 1 year). This diminished my marketability to other potential employers significantly.
While I was able to pick up occasional short term temp jobs not directly related to my line of work, I am still in the job search mode. Will don’t be too soft on big business like your colleagues. Ban the practice entirely as suggested by the governor.
Thanks, Edward, for the encouragement. I think the vote last night sent a strong message of sympathy though for people in your shoes. Hopefully we can make real change happen.
Senator Brownsberger in the news on July 2 on non-competes:
Compromise hinted over noncompete agreements
Pols, tech leaders remain at odds over ban on noncompetes
Dear Will, Your clear, carefully reasoned bulletins are a refreshing alternative to the constant flow of discouraging often wildly biased news we get. To stay with an issue for six years and drill into the many details is wonderful.
Again, thanks. John M.
Thanks so much, John. I deeply appreciate your support.
Cole points out the economic pressure potential employees are being manipulated into signing, even something as ridiculous as his friend was asked to sign. That employer should be ashamed (and outed).
Thanks Will. I hope you keep pushing forward on this issue.
California has a big edge is getting creative types, and this issue one that makes Massachusetts noncompetitive.
Thanks for this. I’d like to know more about the actual details but it sounds encouraging. I do have two specific questions on the bill.
– What if the employee is laid off. Is any applicable non-compete agreement still enforceable?
– What if the employee works in an office in MA but the employer is based in another state and the non-compete is drawn under that state (like say Delaware)?
Also, WBUR had a report on this subject today: http://www.wbur.org/2014/07/07/noncompete-agreements-massachusetts?utm_source=cc&utm_medium=email&utm_campaign=nwsltr-14-07-07
For more details, see this breakdown.
But to answer your specific questions:
(1) No particular provisions as to laid off employees. Courts would be very unlikely to enforce a non-compete against a laid off employee, but it’s hard to write a statute that covers all the possible flavors of terminations in a clear way — what if the employee was fired for sharing trade secrets with competitors? We don’t want every non-compete lawsuit to turn into a complex lawsuit about the circumstances of the termination with employer and employee both throwing allegations around about the reason for the termination. For that reason, I’ve been reluctant to write that issue into the legal framework, although I fully understand the concern.
(2) While choice of law is complicated, the amendment includes language asserting its applicability to any employee who was working or living in the state at least 30 days before the termination.
You’ve clearly pushed the line forward a bit. Non-competes are bad for employees and bad for business. Thanks for fighting to eliminate them.
Keep fighting to eliminate this ridiculous waste of time and energy. For a state that prides itself on technology, our policy towards non-competes is positively medieval
Thank you, Rich! We will keep pushing.
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