Massachusetts lawmakers consider non-compete ban

Massachusetts legislators are considering a proposal that will ban non-competition agreements for all employers – a measure that has legal experts cautioning employers to prepare.

Massachusetts House Bill 4045, filed by Governor Deval Patrick in April as “an act to promote growth and opportunity” by fostering education, innovation and infrastructure, also suggests that any current non-compete agreements are worth as much as the paper they are printed on.

According to Patrick’s administration, the state needs do everything it can to attract and retain talent, and removing non-competes may help.

“Non-competes stifle movement and inhibit competition,” the administration stated in its testimony to lawmakers. “Individual career growth is good for our workers, and it is good for the Commonwealth as a whole.”

Andrew C. Liazos, a partner in the McDermott Will & Emery’s Boston office, explains that consensus on the bill is still split from an employer perspective.

“I think it’s not unfair to say that when you are looking to do something like this, you want to have some uniformity inside the employer community, and what you can absolutely say there is not uniformity from employers on this,” Liazos tells EBN.

The Associated Industries of Massachusetts, representing more than 4,500 employers, has voiced concerns. It said in a statement last week that its membership has opposed the elimination of non-compete contracts since the proposal was first raised in 2007.

Meanwhile, the New England Venture Capital Association supports the effort. The group told legislators that non-competes should be banned to encourage “labor mobility that supports success in the 21sts century.”

According to Michael Rosen, a partner in Foley Hoag LLP’s Boston office, the bill applies to all employers, but there is a specific focus on technology and life sciences. He says the impetus behind the bill is to follow what officials in California have done.

“Look at California, they have an incredibly vibrant tech economy, with a great deal of movement between companies contributing to economic growth and they’ve managed to get by without non-competes,” Rosen tells EBN.

Other regions – such as New York City, northern Virginia, North Carolina – still enforce non-competes.

Also See: Pennsylvania court refuses to enforce non-competition agreement

“It’s interesting there’s been this effort that has been bouncing around the [Massachusetts] legislature for the last several years,” Rosen says. “The debate has been growing and there have been previous efforts in previous legislative sessions during Gov. Patrick’s tenure to reform the non-compete law.”

With educational institutions such as the Massachusetts Institute of Technology, Harvard University and Boston University, many would assume that employers would be provided with a ready supply of new tech talent. The reality is that this new workforce may be opting to start their careers in a more job-friendly state.   

“There are a lot of concern about growth in the Commonwealth and being hospitable to the high tech community,” says Liazos, who heads McDermott Will & Emery’s executive compensation group and the Boston employee benefits practice.

Moreover, the bill might be running out of time as Massachusetts’ formal legislative session ends July 31; it now sits in a joint House committee on economic development and emerging technologies. However, Liazos contends that it will not be a surprise for this to carry over into the next session should it fail in this one, which is reason enough for employers to prepare. He explains that employers can still use forfeiture provisions so that if an employee leaves for a competitor they will have to forfeit a compensation award to do so.

Meanwhile, confidentiality provisions will also remain intact even with the bill’s passage, according to Rosen. This can remain as a last ditch effort for employers to protect their trade secrets and non-public information.

“One thing we see in California – where non-competes are not enforceable – there’s a higher number of cases brought there where an employer is [able to] assert that their information has been stolen, [there’s been] trade secret theft [or] misappropriation of information, because that’s the only way you can pursue a claim that your former employee has shared information at the competitor,” Rosen explains.  

Rosen highlights that this “is a very expensive, time consuming kind of litigation” that Massachusetts-based employers, or businesses that operate in the state, will have to consider.

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