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...

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.

Gov. Patrick on Non-Compete Agreements in Massachusetts

I had the chance to chat with Governor Deval Patrick for a few minutes today at Microsoft's NERD Center, toward the end of the Innovate MassTech meeting (aka the IT Collaborative Study Group Meeting.) So I asked him about non-competes.

Paul Sagan, the CEO of Akamai, had just said on stage that he is in favor of keeping non-compete agreements legal and enforceable in Massachusetts, and that he'd seen no data that says that non-competes have any effect on making us less competitive. (The best data I've seen comes from this excellent paper written by three folks at Harvard Business School.) Another CEO told me he liked the fact that employees were more loyal (or less mobile) than in California, so you didn't have to worry about constant turnover here.

Yet at the event, I also spoke with a number of people who'd either been prevented from hiring someone they wanted to hire because of Massachusetts' stance on non-competes, or who knew first-hand of someone who'd been prevented from moving from one company to another.

I asked Gov. Patrick whether the non-compete issue had shown up on his radar screen, and he said it had -- he'd heard about it here in Massachusetts and on a recent trip to California. "I don't have a stake in the status quo," he said. He'd heard arguments from individuals who have been prevented from taking jobs because of non-competes, and also from executives who feel that keeping employees from jumping to other firms in their industry helps them stay competitive. "There's not a consensus view" of whether they're a positive or negative thing in Massachusetts, he said. I suggested that larger companies would love for non-competes continue to continue to be enforceable, while many small start-ups would like to get rid of them -- and that the bigger companies have more political throw weight. The governor didn't agree that things break down so neatly between big and small.

He seemed like he's still in listening mode, willing to be persuaded: "If there's consensus in the industry [as to whether they're a good or bad thing], I'm happy to support that."

And then he went off to be pounced upon by the rest of the media mob... (see pic above)

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.

CleanTech Field Trip

The New England Clean Energy Council is organizing its first major jaunt down to D.C., on April 1st and 2nd. Expected to attend, according to president Nick d'Arbeloff, are about thirty local CEOS.

d'Arbeloff says that Sen. John Kerry and Rep. Ed Markey will likely carve out time to meet with the execs, and that Carol Browner, Assistant to the President for Energy and Climate Change, will join the group for a cocktail party. They're also hoping to connect with Energy Secretary Steven Chu and the new head for the Department of Energy's Energy Efficiency and Renewable Energy department while they're in our nation's capital.

How Many Bostonians Were at the White House Last Friday? Raise Your Hands, Please

I haven't seen the complete list of people invited to the White House last Friday for a summit of young business leaders, but the group included Twitter founder Evan Williams, Donald Trump scion Ivanka Trump, ex-Google exec Chris Sacca (who was a big Obama fundraiser), and Zappos CEO Tony Hsieh. There were 25 entrepreneurs invited, all under the age of 35.

The only Bostonian I know who was there was Greg Selkoe, founder of Karmaloop, an ultrahip online apparel retailer. (The Obama t-shirt in the image is just one item you can buy from the site.)

Others on the invite list: Michael Chasen, CEO of Blackboard.com; James Gutierrez, CEO of Progresso Financiero; Catherine Levine, COO of Daily Candy; marketer Josh Spear; Jake Nickell of Threadless; Blake Mycoskie, Founder of Tom's Shoes.

Selkoe's PR rep e-mails to add that the young leaders met with officials from the Office of Public Liaison, Intergovernmental Relations, National Economic Council, Office of Energy and Climate Change, Domestic Policy Council, and New Media. "They were briefed by each of these government agencies on the Obama administration's new policies, plans for progress, and steps being taken toward economic recovery," she writes. "The White House expressed to them their desire to enlist the help of the young and the next generation of business leaders in helping contribute ideas and support for economic recovery and to help spread the word about their administration's desire to be open to new ideas, accessible, and transparent."

Interestingly, Selkoe was quoted in the NY Times this morning, defending artist Shepard Fairey (the guy behind the Obama "Hope" poster), who is facing several vandalism charges for allegedly plastering his artwork all over town.

Karmaloop is the official online outlet for Fairey merch... and yes, that Obama shirt in the picture is one of his creations...

Healthcare in the Age of Obama

Steve Wardell is putting on an event in Boston next month called the "Transforming Healthcare Summit." It'll feature a keynote from Tufts Health Plan CEO Jim Roosevelt, and a panel with Harvard Pilgrim CEO Charlie Baker, Athenahealth CEO Jonathan Bush, and John Glaser, CIO at Partners Healthcare. (I'll be moderating.)

Here's the focus:

The American healthcare sector has never experienced such a time of crisis, uncertainty, and opportunity. As a result, the new Administration has made healthcare the centerpiece of its stimulus and reform plans. Billions of dollars are flowing into healthcare from Bush’s Troubled Asset Relief Program, and tens of billions more are expected from Obama’s new American Recovery and Reinvestment Plan, and from Daschle’s comprehensive reform plan. But how do you and your organization learn about the change and get ahead of it?

Date is Thursday, February 26th, from 5:45 to 9:30 PM.

If you're interested, you can use the code "innoeco1" when you register to get 10 percent off.

Internet Policy and the Next Presidential Administration

Google's Rich Miner pointed me to this event coming up on Thursday evening at the Berkman Center. The title is "The Uncertain Internet: Core Net Values for the [TBD] Administration."

Here's the descrip:

Now is a critical moment for defining and reinforcing the best features of our communications platforms. What do we value about the internet and what should be the focus of the next administration? This event will be a discussion exploring the Net’s benefits and its increasing vulnerabilities. How do we maintain the network we know, and anticipate the network it is becoming? What issues emerge in the era of "cloud computing" and the mobile internet? How do we ensure broadband for everyone? What can be done to promote open networks and open devices? Join us for a wide-ranging discussion with leaders from the legal, technical, and political fields.

The panel will include:

- Jonathan Zittrain (Professor, Harvard Law School)
- Susan Crawford (Professor, University of Michigan Law School)
- Rich Miner (Mobile Platforms, Google; co-Founder of Android)
- Alec Ross (Tech Policy Advisor to Barack Obama)

(Wonder why no McCain representation?)

It's free and open to the public.

Time to Get Serious About Reinvigorating the Mass. Tech Economy?

Mass Insight releases a report today, produced by McKinsey & Co., on how Massachusetts can remain a leader in the IT, communications, and defense industries.

(I wrote a short sidebar in the report, focusing on what we can do to build a bridge between college students and the innovation economy here.)

From the executive summary:

Despite the success of the technology sector, there are troubling trends that need to be addressed for Massachusetts to maintain and enhance its leadership position in high-tech and defense. First is growth, which fell to 4.3 percent annually between 2001 and 2006, only one-third the rate of the previous 5 years. Moreover, virtually all the growth over the last 10 years was productivity-driven: since 2001, information technology, communications and defense companies in Massachusetts shed a net 64,000 jobs, about a 3.5 percent drop in sector employment and nearly double the rate of job loss across the overall U.S. ITCD sector. The largest losses have been among high-value-added workers, including engineers and managers, suggesting an erosion of the Commonwealth’s tech leadership.

Indeed, more alarming than slowed growth is the state’s declining influence in the global high-tech sector. The time when Route 128 held an equivalent position to Silicon Valley in public perception is fading from memory. Through mergers, acquisitions and attrition, the roster of Fortune 1000 tech companies headquartered in Massachusetts has fallen from nine to six since 2002. In the same period, California saw a net gain of three, bringing its total to forty-two. Massachusetts has also fallen behind in the creation of new tech companies, with the relative number of company births declining from 11.4 percent of all ITCD establishments in 2002 to 9.9 percent in 2004. While California, New York and Washington have seen increases in high-tech venture investments since 2002, VC investment in Massachusetts has continued its drop from the dot-com bubble, particularly in early-stage companies.

The report has some suggestions for new strategies... some of which you may agree with (or not). Very much worth a read if you're interested in our state's continued competitiveness.

Patrick's Biotech Bill: The Decade of Truth

Todd Wallack has a great piece in this morning's Globe about the new $1 billion biotech stimulus initiative, which becomes law today.

Wallack writes:

The bill includes $250 million in tax incentives for companies, $250 million in grants, and $500 million for infrastructure, much of which is earmarked for the state university system. Several local biotech companies, including Shire PLC, Genzyme Corp., Wyeth, and Organogenesis Inc., stand to directly benefit from the legislation.

[Gov. Deval] Patrick said the legislation gives him a powerful platform to sell Massachusetts to biotech leaders - encouraging more companies to expand or set up shop here.

"We've got an awful lot to offer," Patrick said in an interview. "We are all about selling it."

Today, biotech is a pretty small (but influential) industry in Massachusetts -- about one percent of the state's workforce. Whether this billion bucks can be invested intelligently is the question that everyone in the industry was asking this past weekend at Convergence. Not everyone's optimistic. And we're not likely to know whether this money has really moved the needle for a decade.

Some Notes on Boston's Future

I met with some folks this week at Boston's City Hall to riff on some of the themes I've been writing about (most notably, what Boston can do to keep young people here... starting companies and going to work for our most innovative businesses), and also hear what the Boston Redevelopment Authority is up to.

A few notes from that conversation...

1. Boston could do a better job at being a lighthouse... sending the message that this is where you come to learn and to start businesses in life sciences...cleantech...robotics...Web 2.0 services...or anything else that's innovative. We need to communicate what's here more clearly with the rest of the world.

2. We need to help students who come here to learn to get connected with the business community: successful entrepreneurs and investors who're open to backing young people. (Or do we want the Sergey Brins, Mark Zuckerbergs, and Bill Gateses of the present to start their companies elsewhere?) One idea would be two separate annual events that would be open and free for any undergrad or grad students: say, one in the fall where they could meet, hear from, and schmooze with entrepreneurs...and another in the spring where they could do the same with VCs. (I had a conversation on that topic later in the week with Don McLagan of Compete.com, who is exploring for the trade group MITX ways to build better bridges between students and tech companies.)

3. One resource that'd be helpful to young entrepreneurs (and everyone - let's be honest) would be a wiki that served as a sort of "Entrepreneurs Guide to Boston," offering info about VC firms, networking events, shared office spaces, etc.

4. The BRA folks mentioned that they have a gigantic old building in Charlestown that's in search of a new purpose: the Ropewalk. What if, we brainstormed, five or six universities got together to turn it into a collaborative space for start-up companies founded by students or profs? Wouldn't it be cool to collect start-ups from Babson, Bentley, BU, BC, etc. in one place, and see what happened?

Here's a video that shows what the Ropewalk was like in its heyday:

Spark Capital's Campaign to Rid Mass. of Non-Competes

I've been on a long West Coast trip (Las Vegas first, then San Francisco), so I'd missed Carolyn Johnson's excellent piece in the Globe on Friday, about Spark Capital's campaign to get rid of non-compete agreements in the Bay State.

Johnson writes:

Noncompete agreements typically bar employees from going to work for a rival firm for a set period of time. Under Massachusetts law, they are enforceable except for specific professions, such as doctors and broadcasters. Under California law, however, such agreements are generally not valid, meaning an ambitious entrepreneur can take a chance with a new venture that may challenge the former employer without a legal cloud hanging over the move.

While a slew of factors contribute to the very different tech scenes on the East and West coasts, management and policy specialists have examined how noncompete agreements may contribute to very different culture.

A working paper from the National Bureau of Economic Research published in 2005 found that employees working in the computer industry in Silicon Valley tended to job-hop more than their counterparts in other cities with technology clusters. The paper found evidence to support the idea that California's legal climate, in which noncompete agreements are not enforceable, may contribute to the unique tech cluster in Silicon Valley.

A Harvard Business School working paper published this year also found that a 1985 legislative shift in Michigan, which made noncompete agreements enforceable, meant that inventors switched jobs less frequently.

Spark sent a letter to Gov. Patrick last Thursday. Here's an excerpt from it:

As a venture capital firm based in Boston, we are in the business of fostering innovation and building valuable companies that employ highly skilled workers, pay significant taxes, and allow the Commonwealth to thrive in the increasingly competitive national and global economic environment. We have a unique vantage point into the factors enabling entrepreneurialism in Massachusetts.

From this view point we have seen that employment non-competes are increasingly stifling the emergence of start-up companies in our State, forcing some of Massachusetts’ most innovative entrepreneurs to take on tremendous risks, and hampering Massachusetts’ ability to meet its fullest economic potential as a Commonwealth.

We respectfully request that Massachusetts legislate the elimination of the general enforceability of these non-competes in order to restore balance to Massachusetts’ labor markets and to enable Massachusetts to compete better in the national and global marketplace.

Due to the enforceability of employment non-competes in the Commonwealth, entrepreneurs must be willing to take on tremendous legal and financial risks as employers building new ventures. As a point of comparison, the State of California has largely done away with non-competes and has reaped the benefits. Just look at the vibrancy and success of Silicon Valley, which is home to more new company formations than any other location in the country. Why shouldn’t Massachusetts’ entrepreneurs have the same rights and opportunity as their counterparts in Silicon Valley?

At the end of the two-page lettter, Spark's partners commit to work toward eliminating non-competes within their portfolio of companies.