Patrick Administration Questions the Case for Changing Noncompetes; Community Reacts

7/29/09Follow @wroush

[Updated with extensive comments---see pages 2 and 3] In a message posted yesterday on his “Mass Innovation” blog, Massachusetts Secretary of Housing and Economic Development Gregory Bialecki says the case for outlawing noncompete clauses in employment contracts in the state is not yet “sufficiently proven” for Governor Deval Patrick’s administration to throw its weight behind proposals to ban or modify them.

It’s the first time a member of the Patrick Administration has come down on either side of the noncompete debate, which has been heating up in business, investment, and legislative circles over the past year.

In past comments, Governor Patrick himself has said that his administration has no particular stake in preserving existing Massachusetts law, which allows employers to make new workers promise they won’t switch to competing companies or start their own competing businesses for a year or more after they depart. Critics of the practice argue that it retards innovation, and that states where courts don’t enforce such clauses, such as California, have an economic advantage over Massachusetts.

In his post, Bialecki says the Administration is “aware of the arguments in favor of changing our current situation,” including the California example, academic studies showing that noncompete clauses slow entrepreneurial activity, and arguments lodged by local business and investment leaders such as Tim Rowe of the Cambridge Innovation Center and Bijan Sabet of Spark Capital. (Rowe, Sabet, and State Representative Will Brownsberger have all shared their reactions to Bialecki’s post with Xconomy; see below.) Bialecki calls a change in the law around noncompetes a “potentially intriguing” way to support innovation in the state.

However, the post also lists seven reasons for leaving the current law around noncompetes intact. To boil them down: change would be disruptive; many technology industry insiders are against it; even some small startup executives and venture capital partners favor the clauses; employees harmed by noncompete agreements are often the victims of “unreasonable or overzealous abuses”; it would be better to wait for economic recovery to make such a change; and the market might correct the problem on its own, “if companies that don’t require non-competes make a big deal of this issue and thereby recruit talent more successfully than those that do.”

Bialeck concludes: “On balance, we don’t yet see the case to have been sufficiently proven that a change in our existing laws will be a significant improvement to our innovation ecosystem. But we will continue to keep on top of the debate.”

In remarks yesterday at Microsoft’s New England Research and Development Center, Massachusetts Attorney General Martha Coakley (an elected official who is not appointed by the governor) appeared to take a somewhat more favorable stance toward … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • Pearl Freier

    If there isn’t a bigger lobby in the MA tech community against non-competes, status quo will remain. It sounds like the Patrick administration is hearing only from a small number of people on why non-competes are hurting innovation in Massachusetts. There’s plenty of evidence to support why change is needed- but not enough people are coming forward.

    Look at what happened when word got out that the Zoo may have to close- when Patrick administration announced budget cuts. The public response forced the change in plans.

    Or perhaps a fair compromise would be to have a bill that limits non-competes to 3 to 6 months.

    Otherwise the curse of Rte 128 is going to continue to haunt us, and we can continue to follow Michigan’s example of how well non-competes work for innovation and growth. And not learn from this.

    Status quo if we’re lucky. That’s the best case scenario probably.

    Just my two cents.