State-by-State Smackdown News: Massachusetts to Decide Whether to Ban Noncompetes

Momentum continues to build in Massachusetts for that state to adopt the California model and ban the enforcement of employee covenants not to compete in the state.  Last fall, we told you that Gregory Bialecki, Secretary of Housing and Economic Development under Gov. Deval Patrick (D), went on record as saying that the administration supports the “outright elimination of enforceability” of noncompetes in Massachusetts in a story broken by Scott Kirsner of the Boston Globe.

Of course, there is often a world of a difference between a politician “supporting” something and being willing to actually spend political capital to try and bring about actual legislation.  At first, Gov. Patrick’s support was limited to 2013’s H.B. 1715, which (as we explained here, over a year ago) would not have prohibited noncompetes, but would have instead created a statutory regime that prohibited such clauses that exceeded six months in length.  That bill failed to pass the legislature in 2013.

We’ve now learned that the Patrick administration has proposed broader legislation that would eliminate the enforceability of noncompete clauses in Massachusetts.  Patrick’s proposal would also have Massachusetts adopt the Uniform Trade Secrets Act that is currently law in 46 states and the District of Columbia.  The Boston Globe describes the proposed legislation as “controversial” and notes that it faces an uphill battle in the legislature.

Obviously, we can expect the discussion of those sorts of issues to  ramp up in Massachusetts as legislators (and citizens) hash out for themselves whether or not to act on Gov. Patrick’s proposal.  We’ve previously set forth some of the political arguments for and against eliminating noncompete clauses; see part 1 and part 2 of our discussion.

Interestingly, the first salvo out of the gate in Massachusetts has been filed by none other than Scott Kirsner -- yes, the same Kirsner who first broke the news of the Patrick administration's support for eliminating noncompetes back in 2013 -- who appears to have been convinced by the administration’s arguments.  Kirsner’s recent column details the story of a consultant who was hired to build, staff, and finance the Massachusetts office of a growing California tech company.  After laying the groundwork, the consultant concluded that he would be unable to recruit and hire the talent – 10 or so engineers – that he’d been targeting to staff up the new office, because they would be prevented from moving to a new employer by non-compete agreements .  As a result, the California company shelved its expansion plans.

Kirsner’s piece also returns to a common theme echoed by the Patrick administration:  by banning noncompetes, California has created an attractive economic environment for technology startups.  In particular, Kirsner highlights the growth of California-based Pinterest, the popular social media site where users create and share “pinboards” of pictures, recipes, and other graphic-heavy content.  Pinterest’s early employees came from Facebook – which itself went from startup to social media juggernaut in a few short years.  As Kirsner tells it:

Since there are no noncompetes in California, they [the former Facebook employees who left for Pinterest] did not have to take a yearlong vacation.  Did the defections hurt Facebook?  Its stock is up 38 percent since my visit.  And Pinterest, with 70 million users, is expected to go public soon.  Building great companies is not a zero-sum game.

Kirsner’s article details the fates of other would-be job creators in Massachusetts, and highlights academic research – like that conducted by On Amir and Orly Lobel that we told you about earlier this year – before urging his readers unequivocally to back the new proposed law.  You should give it a read, and we will, of course, continue to monitor and let you know how the winds are blowing in the Bay State.

• Noncompete Agreements ‎