Hearings on Non-Compete Restrictions Set for Next Week

9/30/09Follow @wroush

A bill proposing restrictions on non-compete agreements in employment contracts in Massachusetts will have its first hearing on Beacon Hill next week, after nine months of discussion, revision, and compromise.

The state legislature’s Joint Committee on Labor and Workforce Development will hear comments on the bill, introduced by State Representatives Lori Ehrlich and Will Brownsberger, on October 7. Called the Noncompetition Agreement Act, the bill would make non-compete agreements unenforceable for employees of Massachusetts companies who earn less than $75,000 per year. The agreements—which are often used by employers to prevent former employees from going to work for competitors or from starting competing firms during the first year or so after they leave—would still be enforceable for employees who make more than $75,000, but only when employers can show the agreements are needed to protect trade secrets, confidentiality, or goodwill.

It’s the third such bill to circulate on Beacon Hill this year. Two related bills, one from Ehrlich that would have prohibited non-compete agreements for employees making less than $100,000 a year and one from Brownsberger that would have banned the agreements altogether, will technically be up for discussion at the hearing. But Ehrlich and Brownsberger are focusing their reform effort on the new, joint bill, a revised version of which was released this week.

The bill itself hasn’t changed much since the previous revision, which we wrote about in July; the big news then was that Brownsberger, in an effort to round up more support for non-compete reform and head off objections from the business community, had joined with Ehrlich in calling for restrictions—rather than an outright ban—on non-compete agreements. Russell Beck, an attorney with Boston-based Foley & Lardner who has been helping Ehrlich and Brownsberger with the bill’s language, said his Trade Secret/Noncompete Blog Monday that the latest version has been revised to reflect feedback collected about the July draft and to “achieve an appropriate balance of protections and incentives to both employers and employees, and make it easier for both sides to predict the outcome of any potential dispute, thereby reducing the need to resort to the courts for resolution of such disputes.”

The hearing is sure to attract attention among local entrepreneurs and investors. There is a widespread—though by no means universal—perception in the Boston-area technology community that non-compete agreements make it harder for Massachusetts entrepreneurs to find the best positions or start new businesses, thereby slowing innovation. As Spark Capital partner Bijan Sabet blogged in July, “We are limiting our potential by restricting the labor market.”

Sabet and other members of the Alliance for Open Competition, a group started by Spark Capital, continue to push for a ban on non-compete agreements, which, it’s argued, would put Massachusetts on an equal footing with states like California where courts don’t generally enforce the agreements. They’ve criticized the Ehrlich-Brownsberger drafts as an insufficient step in that direction.

But Brownsberger, in comments to Xconomy in July, said a compromise was necessary to win over business interests who feel that non-compete agreements are a vital protection against the loss of trade secrets and other inside information. “We listened carefully to those concerns and attempted to craft a bill that would improve the venture climate, provide employees with some real relief from overreaching non-compete agreements, yet at the same time allow businesses—particularly small businesses—to protect what they feel is vital to their survival,” Brownsberger said then.

The hearing on the bill is scheduled for 10:30 a.m. to 1:30 p.m. in room A-2 at the Massachusetts State House and is open to the public.

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

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  • JR

    Non-competes are a real problem for employees below the executive level. Companies can put some pretty ridiculous verbiage in front of new hires that would prohibit them from working at any competitor, customer or a very broadly defined industry. California, on the other hand, totally bans them. Yet they continually excell in the high tech industry over MA. These documents should be banned outright unless you are a member of the executive staff.

    To think that there is a correlation between income and proprietary knowledge is also absurd. A simple sales guy will blow the income levels away. Yet, he needs to sign a non-compete. Why? Because the company fears he’ll steal their customers. But, they can tap him on the shoulder after a bad quarter or year and send him packing with handcuffs that limit his ability to find a new position. Makes no sense.