Friday, July 17, 2009

Latest on the Non-Compete Bill in Massachusetts

I don't intend to turn this into the "all non-compete, all-the-time" blog -- but there's a lot of action on that front right now...

Next week is the Symposium on Bills Affecting Employee Non-Compete Agreements at the Boston Bar Association. (I'll be there.) State Rep. Will Brownsberger will be talking about the latest version of the bill on non-competes -- essentially, his proposal to eliminate non-competes entirely has been combined with another State Rep's proposal to simply limit the way they are used.

Here's his summary of what's in the new, combined bill (you can find the complete language of the bill here.):

    Overview of current working draft of non-compete legislation
    (combining House 1794 and House 1799, bills filed by Rep's. Brownsberger and Ehrlich)


    To protect employees from unfair non-competition agreements while preserving protections for legitimate risks to business assets.

    Basic Approach:

    Prohibit non-compete agreements for lower level employees; for others, allow non-compete agreements but clarify guidelines and give employers strong incentives to require only moderate and reasonable agreements.

    Key Elements:

    - Create procedural protections for all employees
      - Agreements must be in writing
      - Employers making job offers must give early notice that a non-competition agreement will be required, in time for a prospective employee to assess his or her options and decline the job offer before resigning their present job.

    - Clarify common law rules that, to be enforceable, non-competition agreements must be necessary to protect trade secrets, confidential information or good will and must be consonant with public policy and reasonable in duration, geographic scope and proscription of activities

    - Limit term of agreements to one year (unless garden leave payments of at least 50% of total compensation are made, in which case agreements may last two years).

    - Make non-compete agreements unenforceable against employees making under $50,000 and enforceable only to protect trade secrets or confidential information (but not for goodwill) for employees between $50,000 and $100,000.

    - Create safe harbors for very moderate agreements -- giving employers incentives to choose agreements meeting those terms:
      - Six month agreements prohibiting activities of the type the employee was actually engaged in within the geographic area that they were working in.
      - Garden leave agreements supported by adequate compensation (greater of $50,000 or 50% of total compensation).

    - Punish overreaching by employers by awarding attorneys fees to the employee whenever an agreement is reformed or found unenforceable and was not within one of the safe harbors.

    - Otherwise preserving existing law
      - Preserve existing common law defenses for employees facing enforcement actions
      - Not applying new rules to business purchases, covenants not to solicit employers' customers, etc.

    - Effective as to agreements entered on or after January 1, 2010

Welcoming your thoughts...

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Blogger Tim Rowe said...

Reading through this, my concern is that it seems to contain a lot of subjective conditions that could be litigated.

If there is still the specter of a lawsuit if you hire someone, because a non-compete agreement *might* be enforceable, most small companies will shy away. A legal battle can kill a small company.

As a businessperson, I would prefer the law to be clearer, simpler, and more definitive.

July 20, 2009 7:29 AM  
Anonymous John Stack said...

Just some out of the box thinking here: If the employee was termed, the "local market" clause should be forfeit. Also, the role of the employee should be taken into account. This could be damaging for folks who aren't really deemed critical to a company's competitive position. Would the safe harbor protect them?

July 20, 2009 7:37 AM  
Blogger Scott Kirsner said...

Tim -

I agree. Disappointing that the idea of simply getting rid of non-competes entirely seems to have vanished from the bill-drafting process.

July 20, 2009 10:27 AM  
Anonymous Anonymous said...

I have a job now and my ideas have resulted in huge financial benefits. I do not have a non-compete. I might sign a non-compete if I was desperate for a job but the employer better forget about getting any of my best ideas.

November 10, 2009 10:58 AM  

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