Massachusetts Continues To Move Towards California On Noncompetes

As part of our “State-by-State Smackdown” series on the evolution of state law with respect to the enforceability of covenants not to compete contained in employment agreements, we’ve flagged for you proposed legislation in Massachusetts, House Bill No. 1715, that would essentially prohibit the enforcement of covenants not to compete over six months in length (unless certain narrow statutory exceptions apply).  Last week, we learned that the bill was headed to a hearing before the state legislature’s Joint Committee on Labor and Workforce Development on September 10.

Now, thanks to Boston Globe columnist Scott Kirsner, we’ve learned a little more about what happened at that hearing.  And it’s big news.

Previously, we told you that Gov. Deval Patrick (D) essentially endorsed H.B. 1715, stating that there was a “pretty compelling case” that Massachusetts had been losing technology start-up jobs to California -- where, as regular Suits By Suits readers know, noncompete clauses are essentially prohibited by law.

Apparently, that case was made very compellingly to Gov. Patrick, because during the hearing on H.B. 1715, the Patrick administration – through testimony offered by Gregory Bialecki, Secretary of Housing and Economic Development to Gov. Deval Patrick (D) – let it be known that the governor now supports “outright elimination of enforceability” of covenants not to compete in Massachusetts.

In particular, Secretary Bialecki noted that Massachusetts does “an excellent job of educating talented people here in the Commonwealth.”  However, Bialecki argued, the statewide enforcement of covenants not to compete under existing Massachusetts law creates an environment that is hostile to entrepreneurship, driving those “talented people” educated in Massachusetts to start businesses in California.  Specifically, he argued:

If Massachusetts is not able to create an environment that gives entrepreneurial talent a chance to thrive, then the most effective job creating companies may be pushed to grow to scale in states like California. In fact, we have heard examples of entrepreneurs at MIT who were advised to start their businesses outside of Massachusetts as a result of non-compete agreements laws. Non-competes stifle movement and inhibit competition and we do not want that. The evidence is clear—we are not seeing the kind of spin-offs and starts up [sic] at the same rate that previously made Massachusetts an enviable model.

Moreover, the administration argued that enforcing covenants not to compete sends a “mixed message” to talented individuals and entrepreneurs the state needs to drive economic growth:

The current law makes it considerably harder for employees to leave their current employers, whether due to the actual enforcement of a non-competition agreement, or more frequently, just due to the threat of enforcement. The individual has no effective recourse. The only thing to do is to suspend relevant work until the term of the non-compete agreement expires. Most individuals are not in a financial position to afford not working for the term of the non-compete. Being out of the market for the term is a major liability to the individual’s career and future development. An individual who has 10 or 20 or 30 years of experience and expertise is forced to avoid using their expertise during the term of their non-compete agreement. We do not want this mixed message to continue.

Click here to view a PDF copy of Secretary Bialecki’s testimony in full.

We’re not sure what the impact of Gov. Patrick’s position will be; as we’ve explained, H.B. 1715 would not prohibit the enforcement of covenants not to compete, and no such outright ban has yet been introduced in the legislature.  (If such a ban were to become law, Massachusetts would become only the second state in the country to prohibit noncompete clauses, along with California.)  We’ll continue to watch closely and let you know of any developments.

• Noncompete Agreements ‎