No Compete Agreements: Restraining the Innovation Economy

You are starting a new job. You sign a stack of mysterious paperwork -- tax forms, etc.  Some years later, it's time to leave.  You find a new job in a similar business and give your notice.  Your employer pulls out a piece of paper, signed by you,  promising not  to go to work for a competitor. 

I became concerned about non-competition agreements after a constituent told me how her career had been derailed.  As a young engineer, she had signed a non-competition agreement without fully understanding the implications.  She worked in a specialized field and was essentially locked out of her field by the agreement. 

It happens all to often to unsuspecting employees in Massachusetts,  but in California, non-competition agreements are against the law. 

Many business leaders, especially venture capitalists, feel that non-competition agreements inhibit innovation in Massachusetts.    In California, where the agreements are prohibited, there is more fluid movement of innovative young engineers among tech firms. 

Boston is, in many ways, a very positive environment for tech innovation and, in fact, we have a very dynamic tech sector, but all would agree that Silicon Valley is bigger and more vigorous.  Is that an accident of history -- is it because Google's founders happened to go Stanford instead of MIT?  Or does public policy in Massachusetts discourage young innovators from starting their own businesses?

Venture capitalists, eager to form and fund new ventures, see non-competition agreements as a barrier. Established businesses take a different view.  They see non-competition agreements as protection against employee "traitors" -- employees who go to competitors taking trade secrets, client lists or other confidential information.  Of course, theft of business assets breaks other civil and criminal laws, but non-competition agreements offer a simple enforcement mechanism: the wounded business can get a court order against the former employee just by showing that the employee violated a non-competition agreement; the wounded business doesn't have to actually prove that the employee stole business assets.

I filed my first bill to reform non-competition law in 2009.  It would have actually prohibited non-competes, as in California.  I quickly started hearing from concerned small business owners and also discovered that some major business groups, although not vocal, were adamantly opposed to the legislation.  I partnered with another legislator, Representative Lori Ehrlich, who also had legislation on the issue, and started to work on a compromise bill.

We tested different approaches to the problem, struggling unsuccessfully to find a way to build a consensus in support of  a bill.  We wanted to find an approach that would be perceived as fair to businesses, but would reduce the use of agreements that unnecessarily limit future employment. 

In the current session, Representative Ehrlich and I have adopted a simplified  approach -- essentially, we've proposed to prohibit enforcement of non-compete agreements longer than six months, except as to high level employees or in cases where assets are actually stolen.

We are still very open to alternative approaches.  I'd very much welcome your thoughts and stories -- at william.brownsberger@masenate.gov, at 617-722-1280 or at my online forum on this issue, http://willbrownsberger.com/forums/forum/non-competition-agreements-time....