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)

Motivation:

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...

July 22nd Event on Non-Competes... New Blog... And Some Advice

- Attorney Stephen Chow has put together what looks to be a really solid evening about the pending Massachusetts legislation that could change the status quo here with regard to non-compete agreements. It's free, it takes place on July 22nd in Boston, and I'm attending in the hopes that at least some of it will be comprehensible to non-lawyers. Perhaps you will, too?

Find out more or register for the event here.

Speakers will include:

• State Rep. William N. Brownsberger, Esq., Sponsor of H. 1794 (bill to eliminate non-competes)
  
• Russell Beck, Esq., Foley & Lardner, LLP, Drafter of H. 1799 (bill to restrict non-competes)
  
• Stephen Y. Chow, Esq., Burns & Levinson LLP, Massachusetts Uniform Law Commission, Drafter of H. 87, Symposium organizer
  
• Michael L. Rosen, Esq., Foley Hoag LLP, Author of the Massachusetts Noncompete Law Blog, Speaking for the status quo
  
• Hon. Gordon L. Doerfer (Ret.), JAMS, Moderator
  
• Dr. Matthew Marx, MIT Sloan School, Investigator on longitudinal study of electrical engineer parties to non-compete agreements
  

- Foley & Lardner's Russell Beck, one of the speakers at the July 22nd event, has just launched a new blog dedicated to trade secret and non-compete issues.

- I was talking to an attorney last week who offered some good advice. Non-competes, unfortunately, are enforceable even if you are part of a lay-off at your company. This attorney said he has been involved in negotiating severance deals with several employees to make sure they're not targeted by their former employer if they want to go and work or start a company in the same field. In these negotiations, he has found that employees can often get released from their non-competes by giving up about 25 percent of their severance payment. Interesting...

Should We Make Non-Compete Agreements Illegal in Masssachusetts?

I say yes, in Sunday's Globe column, though as always, I'm curious to hear what you think.

If you want to change the status quo, here are a couple sites to know about:

- Prohibit Restrictive Employee Covenants
- Rep. Will Brownsberger's site. Brownsberger is the state rep who has introduced a bill to make non-competes illegal in Massachusetts
- Alliance for Open Competition
- Massachusetts Non-Compete Law blog

There were so many great comments that couldn't fit in the story, but just one for the blog from Jeff Anderson, CEO of Quick Hit (and former CEO of Turbine, another local games company mentioned in the column).

"The biggest problem we have as a start-up is attracting and retaining talent. If someone wants to relocate to Massachusetts, they need to feel like if this job doesn't work out, they can find another job. But if non-competes are de rigeur, if not only reduces the number of companies that you have in any given space, like games, but it forces those people to leave." Anderson adds that he has received two or three dozen job applications from talented people working for other games companies in Massachusetts, but says that it would be problematic to hire them because of their non-competes.

"When you think about all the other problems that start-ups have to deal with, from capital and vision to competition, and all the pieces that have to be properly aligned, non-competes just add to that."

Of course, like most companies in Massachusetts, even though Anderson is philosophically against non-competes, he asks employees to sign one, even though he says it is as narrowly-defined as possible.

The Impact of Non-Competes: Event Next Tuesday at Harvard

The Kennedy School's David Luberoff e-mailed today to let me know about an event coming up on Tuesday, April 21st, on "Using Non-Compete Laws to Spur Economic Development in Massachusetts." Judging from the description, the focus actually seems to be about "getting rid of non-compete laws as a way of spurring economic development."

State Rep. Will Brownsberger, who has introduced legislation to nix non-competes in Massachusetts, will be there, as will Lee Fleming and Matt Marx of the Harvard Business School, Bijan Sabet of Spark Capital, and Robert Fisher from Foley Hoag.

Here's the descrip:

Massachusetts, like many states, allows firms in knowledge-intensive fields to limit their employees' ability to take jobs with other firms. These "non-compete" restrictions help firms because they limit the disclosure of trade secrets, honor customer confidentiality, and prevent competitors from appropriating employees' specialized skills and knowledge. But new analyses based on a "natural experiment" in Michigan suggest that the restrictions should be reconsidered because they can stymie individual innovation, which in turn may hamper regional economic development.

Details here.

Gaining Steam: The Campaign to Ban Non-Competes in Massachusetts

A bill was introduced on Beacon Hill this week to make non-competes illegal and unenforceable in Massachusetts.

Richard Tibbetts of StreamBase offers some advice about how you can get your Massachusetts representative and state senator behind the bill.

Will Brownsberger is the state rep from Belmont/Cambridge who introduced the bill.

Here's the key legalese:

Any written or oral contract or agreement arising out of an employment relationship that prohibits, impairs, restrains, restricts, or places any condition on, a person’s ability to seek, engage in or accept any type of employment or independent contractor work, for any period of time after an employment relationship has ended, shall be void and unenforceable with respect to that restriction.

Just today, Play Hard Sports CEO Jeffrey Anderson was telling me how non-competes make it really challenging to get the best people aboard a new company... not a problem they have out in California.

Worth reading is Angelo Santelli's blog post on the bill:

One argument that has been made in favor of non-competes is to prevent a cadre of engineers from leaving a company en masse to start another potentially competing company. I actually witnessed this first hand while at Shiva and I still don’t like non-competes. It was a mistake to lose these great engineers in the first place. The second mistake was not investing in their business and getting a seat at the table in the event that they were successful, which they eventually were.

I commend Rep. Brownsberger for filing this bill and hope it passes. All in favor say, “Aye”.

...To which I offer a hearty "Aye."