Non-Compete Agreements Survive Another Legislative Session

August 5, 2014

Massachusetts legislators have once again declined to amend Massachusetts law relative to non-competition agreements, which operate to ban employees who sign them from working for competitors after they leave a company. According to the Boston Herald, the final version of a proposed Massachusetts economic development bill will not include language placing limitations on non-compete clauses, as many of those opposed to non-competes had hoped.

The legislation has been hotly debated for years. Most of those in favor of keeping non-compete agreements valid and enforceable are employers and owners of large organizations intent on protecting their business information and intellectual property. Earlier this year, as part of a larger economic development bill, Massachusetts Governor Deval Patrick proposed an outright ban on non-compete agreements. As a compromise, Governor Patrick later suggested that Massachusetts adopt the Uniform Trade Secrets Act, a federal act currently in use by 46 states as well as Washington, DC. The Uniform Trade Secrets Act aims to protect employers' intellectual property rights without necessarily limiting employees' ability to change jobs.

As we have previously discussed, Massachusetts law views non-compete agreements as valid and enforceable, so long as they are reasonable in duration, geographic scope, and restricted activities. Many Massachusetts employers consider non-competition agreements to be essential in preventing employees from leaving the company and taking the employer's valuable business information and trade secrets with them.

Most advocacy against non-compete clauses focuses on innovation issues. Prior to this latest push for economic reform, Governor Patrick was heavily lobbied by the startup community, young entrepreneurs, and their backers. Tech startups and their backing venture capitalists argue that preventing employees from launching their own startups (or preventing startups from recruiting employees from their competitors) creates a barrier to innovation. Those opposed to the use of non-compete agreements point to the booming tech industry in California, one of the few states to ban non-compete agreements in employment contracts. According to a Boston Globe article, a 2010 study by professors at Yale University and Brock University in Ontario concluded, "the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth." The research suggests that states that bar non-compete agreements attract more venture capital and generate more startups and patents.

Even so, many Massachusetts business owners feel their business interests are well served by the longstanding case law allowing covenants not to compete. To them, the state's current law is an appropriate balance between protecting employers' interests and allowing employee mobility. Potential legislative change has surfaced multiple times over the past few years but has yet to garner enough support to pass. This year looks to be no different as the current legislative session has finally ended. The House's version of the economic development bill did not mention non-competes, although the Senate version included an amendment that would have limited the length of time during which the non-compete could be enforced, and banned non-competes for hourly wage earners. However, the amendment reportedly did not make the final version of the economic development bill.