Spark Capital Backs Brownsberger’s Bill to Ban Non-Competes

4/8/09Follow @wroush

Boston’s Spark Capital came out publicly today in favor of Massachusetts House Bill 1794, which would outlaw non-compete agreements in employment contracts in the state. The venture firm has been vocal on the issue for some time—its partners helped found the Alliance for Open Competition and sent Governor Deval Patrick an open letter opposing non-compete clauses in 2007—so it’s no surprise to see Spark backing the new bill, filed by State Representative Will Brownsberger in January.

The bill, which we wrote about on December 16 and January 12, is co-sponsored by State Senator Patricia Jehlen. It would void any part of an employment contract that restricts an employee’s ability to seek work after they’ve left their employer. The bill’s backers—and now Spark—say that such clauses, which are extensively used in the technology industry to keep employees from setting up competing businesses or going to work for competitors, are bad for workers and bad for the state’s overall economy. They argue that in states such as California, where non-compete clauses are unenforceable, there’s more innovation because employees have more freedom to move between companies or start their own.

“As a Boston venture capital firm, we are always looking to propel innovation across the Commonwealth, and to strengthen Massachusetts’ global competitiveness,” Spark general partner Bijan Sabet said in a press announcement today. “Through several discussions and planning sessions with State Representative Brownsberger, it’s clear that employment non-competes are stifling the emergence of promising young companies in our state, forcing some of our most innovative entrepreneurs to leave in favor of more open corporate environments. The success of Silicon Valley, which does not legally enforce non-competes, is a prime example of how emerging startups are allowed to thrive.”

Most opponents of non-compete clauses say other mechanisms such as non-disclosure agreements and trade secrets protections are sufficient to keep employees from using a firm’s own intellectual property against it. The Brownsberger-Jehlen bill wouldn’t affect non-disclosure agreements, and Spark says it still supports them. But Spark stopped requiring its portfolio companies to impose non-compete agreements on their employees back in 2007.

Brownsberger’s bill was filed January 12. A hearing on the bill is expected to be scheduled this spring. A competing bill filed by State Representative Lori Ehrlich, House Bill 1799, would modify state law regarding non-compete clauses, but would not eliminate them; Ehrlich’s bill makes non-compete agreements unenforceable for employees whose yearly salary is below $100,000 and limits the term of the agreements for other employees to two years.

Wade Roush is Xconomy's chief correspondent and editor of Xconomy San Francisco. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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  • http://www.cictr.com Tim Rowe

    I use non-competes in my business, and most others I know do as well. Yet I think it would be better for our regional economy if they were banned.

    Non-competes do stifle innovation. Former employees, even after being laid off, are forced to switch to different fields, rather than leverage the know-how and experience they have to pursue new ideas in the fields in which they are experts.

    We have a real, live experiment that has run in California (where non-competes are unenforceable) and in Massachusetts (where they are), and we have not seen dire straits for California. To the contrary, businesses like California, and the innovation climate there is excellent. Lets adopt their good idea and ban non-competes.

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  • http://nabeel.typepad.com Nabeel Hyatt

    Non-compete’s are particularly harmful in narrow fields of specializing, such as being a very focused engineer on type of medical device or in gaming. In those situations if you want to switch jobs but remain in your field of study you only have one choice, move to California. Which is exactly what people do.

    This hurts the entire ecosystem, that company still loses their employee, the local economy loses a bright individual, and the employee has to uproot their life to continue their profession. Fear should never be the driver of public policy, competition should. I certainly agree with non-disclosure agreements for proprietary information gathered while working for a company, but non-compete’s do nothing but hurt everyone in the process.

  • http://www.broderick.org/ Shawn Broderick

    While I think I understand the theory behind Rep. Ehrlich’s competing bill, making a cut-off based purely on annual salary is too broad a solution. While a $105K salary in one industry might indicate a C-level or EVP/SVP-level employee, in the software business, many engineers earn six figures who aren’t part of management or the key strategy of the company — they’re just stupendous engineers and the market pays them accordingly.

    In Rep. Ehrlich’s model, making the distinction of who should and should not be impacted by non-competes would need to be done via a less blunt definition, such as ‘role’ or ‘impact’ model. Such a generalized definition which would be decidedly non-trivial (if not impossible) to codify into the state laws.

    California has done the beta testing for us :-) . Getting rid of Massachusetts non-competes is the easy and right answer. Let’s make it happen.

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