Legislators Hear Testimony on Non-Compete Restrictions

10/8/09

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non-compete that I have with my previous employer. Therefore, I am collecting unemployment. Non-competes are not fair,” and “Full pay and health insurance coverage should be guaranteed during the period of the non-compete,” said other supporters of change.

One opponent of the reforms, who highlighted the fact that forty-nine states honor some form of non-compete agreements, said, “California is the only state that has outlawed non-competes entirely; I do not want Massachusetts to be the only other state.” A small business owner against the changes said, “A single bill cannot cover all industries and people. In my business, individuals making much less than that threshold ($75,000 per year) have access to critical information and should be covered by a non-compete clause.” Another small business owner said, “Small companies employ more people in the state and the proposed changes will be devastating. These companies form the backbone of our economy.”

Matt Marx, an assistant professor at MIT’s Sloan School of Management, said his research on non-competes showed a significant number of employees were asked to sign non-compete agreements that lasted over three years! Almost one-third of employees do not receive their non-compete agreements till their first day at work, and are pressured to sign them.

To me, it is clear that a significant number of skilled employees in the state are suffering under the current law, and Massachusetts has to use every available means to retain talent and help grow the economy. This is a challenging issue and the committee got to hear a broad spectrum of views. With the public hearings now completed, the bill will be taken up by the committee, and hopefully brought to the floor during the current session.

Amrith Kumar is a technologist and entrepreneur who has helped design, architect and create enterprise class software and hardware products. He is the co-founder of the Boston Big Data Summit and writes a blog, Hype Cycles, which discusses a variety of technology related subjects. Follow @

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  • http://www.boston.com/innovation Scott Kirsner

    Small businesses are truly the backbone of our economy in Massachusetts. If you have ever visited California, a state that bars non-competes, you will notice they have *no small businesses.* No liquor stores, no hair salons, no restaurants, no independent bookstores or mom-and-pop manufacturing firms. The lack of non-competes simply make it impossible for those businesses to operate in California. Quite sad, really…

  • Roger Choy

    I was at the hearing yesterday and was too late to register to testify. But, I was happy to hear that small business concerns were reflected.

    And Scott Kirsner, I lived in California for 14 years and I ran a small business there and still run one here in Belmont, MA. Maybe the only small businesses that you big city boys know look at are liquor stores and hair salons and restaurants and independent book stores but I run a mechanical engineering firm. Maybe it is beneath you big city boys to visit us but it was those kinds of companies that were at the hearing yesterday and complaining about the impact that this bill would have on their businesses, and frankly, my business.

    I spend a lot of money training employees and my margins and profits are small. I will never make it to Wall Street and your VC buddies will never care to invest in me. We can’t give you freebies and golf outings. But, we (not just you supplier of booze) represent small business in America. And we are the ones that bear the brunt of this bills. Not you, not your VC buddy who was there and not the other high paid MIT engineers who want “freedom”.

    But you don’t care. So long as you get your Scotch and have your hair done by a hairdresser (I go to a barber) and your restaurant has fine wine and food (I cannnot afford it), you are fine with wiping the rest of us out.

    That is what is really sad.

    Roger Choy.

  • http://www.boston.com/innovation Scott Kirsner

    Roger-

    I’m a supporter of mechanical engineers, of course. I would be eager to read your testimony. I have simply seen no data that shows that getting rid of non-competes would damage a single business in Massachusetts, and you don’t present any in your post. (By the way, I do drink, but don’t play golf. Why waste time that could be spent drinking?)

    Here is what I believe: in the 21st century, all of us ought to be free individuals. We ought to be free to learn what we want, develop the skills we want, and practice our trade where we want.

    I simply do not believe that when you hire a mechanical engineer to work for you (even right out of college) and that person chooses to work for you for six months, or a year, or ten years, that you should be able to prevent them from going to practice their trade at another business in Massachusetts. And I also don’t believe that your firm would be damaged if and when that person does leave.
    (However, I do believe you’d do more to try to retain them…)

  • http://hypecycles.wordpress.com/ Amrith Kumar

    I received a note from Dr. Matt Marx to highlight an error in my reporting.

    In my article above, I quoted him as saying that a number of employees were asked to sign non-compete agreements that lasted over three years!

    Matt pointed out that 15% of non-competes exceeded two years, not three. A small percentage were longer than five years as well.

    -amrith

  • Sarah Doyle

    My husband was one who testified against non-competes at yesterdays hearing. He left his job in June and began working a week later at a competitor. This came after his former employer began essentially forcing their salaried employees to work 60-80 hour work weeks, threatening them with termination if they didn’t “make more of an effort”. Despite never having signed a non-compete, and the inability of the company to produce any documentation that would prove otherwise, my husband has been harassed by lawyers hired to represent this company for the past several months. They have gone as far as to say that my husband had opportunity to steal the document from his personnel files. This accusation follows a prior claim by the HR rep that non-competes were not kept in personnel files (she has since denied she made that statement).
    I can see how non-competes were originally intended to protect employers. But now employers are forcing salaried workers to put in longer hours, without providing a salary increase or other incentive, knowing that especially in the tough economy, the employee has no choice other than to work the extra hours, or be forced into unemployment, which many simply cannot afford. This is a case where the non-compete is being blatantly abused, and there are no laws to prevent such abuse. When the workplace become a hostile environment, the employee has no other recourse but to go on unemployment, and that is only an option if that individual is fired or laid off. Why is a non-compete even necessary when a non-disclosure agreement would protect the companies interests? Again, what protections are provided to the employee?
    My husband and I have endured tremendous stress since his departure from this company. It has affected our marriage and our health, over a non-compete that does not even exist. We still do not know if the company will sue; it is day to day right now. My husband made just under $75K a year, just enough to support our family of four. We have two small children; our oldest was born with several birth defects that kept him in the hospital for almost a year. I have been unable to work for over 2 years due to my son’s medical needs. We do not have the financial resources to fight such a claim, and have worried over the very real possibility of losing our home, losing our health coverage, and losing our inability to provide for our children.
    I know many want to think about the interests of their companies, and fight for non-competes. They don’t want to think about stories like ours. But we are one of many. Seriously, why isn’t a non-disclosure agreement enough protection? Who isn’t that enough?

  • http://hypecycles.wordpress.com/2009/10/08/non-compete/ Amrith Kumar

    Mr. Choy’s comments were too long to fit in this box so he mailed them to me. I have posted them on my blog.

    -amrith

  • Stephen Y. Chow

    What is overlooked in this debate is that under long-standing Anglo-American court-made “common law” favoring free enterprise and transferability of property, non-competes are UNenforceable EXCEPT to protect trade secrets and “good will.” In Massachusetts, in part because we do not have the Uniform Trade Secrets Act (UTSA) adopted in 45 other states, we have an unduly narrow (1939) definition of trade secrets, and the courts have extended enforceability beyond “trade secrets” to protect undefined “confidential information.” With many non-disclosure agreements saying everything at a business is confidential unless provable otherwise, there is the danger that a court looking at a technology enterprise will find that a non-compete agreement is enforceable to protect such unspecified “confidential information.” As an adviser to a potential spin-off or investor, I so caution strongly, thus chilling a new technology enterprise. I would be less cautionary if Massachusetts limited its enforceability exception to protect “confidential information” recognized under the UTSA as being of economic value by not being generally known or readily ascertainable and being the subject of reasonable efforts to keep confidential (including notice to the emloyee).

    If employee non-compete agreements are for protection of proprietary information as recognized under the common law, rather than just to keep salaries low by preventing employees from taking a higher-paying job with their skills and experience (always with some exposure to business-private information), the UTSA standards for protection of “confidential information” should be adopted. This would have substantial benefits for the employer who is now restricted by the antiquated, unduly narrow definition of trade secrets in Massachusetts. California has the UTSA to protect proprietary information. In this respect, Massachusetts is in the minority and is at a disadvantage relative to states that enforce non-compete agreements only if they are drafted reasonably to protect real proprietary information.

    For disclosure, I’m a Uniform Law Commissioner seeking to enact UTSA, a patent lawyer, and one who has litigated against new technology enterprises on behalf of established ones, in many cases now displaced by the ones they sued.

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