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Massachusetts lawmakers take aim again at non-competes

Massachusetts lawmakers are currently debating a number of bills that could restrict non-compete agreements.

Non-compete agreements are an extremely controversial issue in both business and employment law. While venture capital firms and the tech industry tend to oppose non-compete agreements, many other businesses see them as vital for protecting their trade secrets and preventing quality employees from being poached by competitors. While Massachusetts, like most states, currently enforces non-compete agreements, state lawmakers are debating a number of bills that would either eliminate non-compete agreements or severely restrict when and how they can be used.

What is a non-compete?

A non-compete agreement is a clause in an employment contract that typically puts restrictions on where, when, and for whom an employee can work after they leave their current job. The purpose of such agreements is to prevent employees from taking a company’s trade secrets to the “highest bidder” and to prevent a company from wasting resources training an employee only to see that person quickly take their new skills to a competitor. Non-compete agreements essentially protect businesses from unfair competition.

Bills put forward

However, not everybody supports non-compete agreements, with critics saying they place too many restrictions on workers and also stymy innovation in the tech sector by making it hard for companies to attract the best talent. As the Worcester Telegram notes, in California, where non-compete agreements are effectively banned, venture capital investments have risen from 23 percent of the U.S. total to 50 percent in the last 20 years, whereas that share has remained flat in New England at 10 percent.

As the Worcester Business Journal reports, concerns about the state’s competitiveness are why lawmakers are currently looking at a number of bills that would restrict the use of non-compete agreements. Bill H2371 would limit non-compete agreements to one year and would limit their geographic scope to places where the employee had actually worked in the past year. A similar bill, H2366/S988, would also require employers to notify an employee who has been terminated whether or not the employer intends to enforce their non-compete agreement.

Finally, bill S1020 would ban non-compete agreements in all but a few cases, although it would still allow employers to insert clauses into employment contracts prohibiting customer poaching. It would also permit non-disclosure agreements and allow non-compete agreements with a person who is selling a large share of the company.

All of the bills are currently making their way through the legislature, so it is too early to say if or when any of them will ultimately become law.

Business law help

Massachusetts’ evolving business law environment should serve as a reminder to businesses throughout the state of the need for experienced legal counsel at all times. Whether it is for routine business transactions or when fighting litigation claims, a business law firm can help companies stay on the right side of the law while also protecting their best interests.