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New Non-Compete Bill: Progress, But Issues Remain

Posted by Brad MacDougall on May 18, 2016 12:04:51 PM

The Massachusetts Legislature’s Joint Committee on Labor and Workforce Development on Monday released a non-compete reform bill containing provisions outlined by House Speaker Robert DeLeo in March.

ScalesofJusticeVerySmall.jpgThe measure is the latest iteration of a years-long battle by venture capitalists to ban or limit the use of non-compete agreements in Massachusetts. AIM has so far opposed changes to the non-compete law, believing the non-compete issue is about choice for both individuals and employers who should be free to negotiate contracts of mutual benefit as long as the employee is a part of the process.

AIM supports the following provisions of the Labor and Workforce Development bill:

  • Non-compete agreements could be only one year in duration.
  • Those subject to non-compete agreements would have to be given prior notice of the need to sign the agreement, as well as the opportunity to consult with legal counsel.
  • Extension of the non-compete to a second year should the employee unlawfully take property belonging to the employer.

AIM opposes the following provisions:

  • Imposition of a so called “garden leave” provision requiring that at least 50 percent compensation for the duration of a non-compete period. As one AIM-member lawyer noted, “This is not a law anywhere in the country. Moreover, most Massachusetts businesses are small and could not afford to protect their investments with this type of provision.”
  • Creation of multiple opportunities for a plaintiff or a court to void a non-compete contract. It is critical for a business to have confidence that their non-competes will be held up in court.
  • Non-competes would become invalid for employees who are terminated or laid off. As one western Massachusetts manufacturer noted, “The risk to employer is still alive and well if the terminated employee takes that information and goes to a direct competitor.”
  • A prohibition against courts reforming a contract, a provision that would make it likely that contracts would be voided. It is a long-standing and common practice for a court to reform an agreement rather than set it aside. As one AIM member noted, “The power and ability to reform a non-compete contract is a bedrock principle in equity. It is the primary way for the courts to make a fair and just ruling on the enforcement of a non-compete agreement. The courts take substantial evidence from the parties on an enforcement action, and thus is in the position to assess same and make a ruling which is ‘customized’ to the situation at hand. This a best practice that has allowed for proper and equitable application of non-compete agreements for over a hundred years”
  • Arbitrary rules for selecting the court where a claim may be brought.
  • Exemptions for certain workers for whom a non-compete would be invalid. AIM is concerned that changes announced today to the federal Fair Labor Standards Act will make these exemptions applicable to a broad swath of the work force. One AIM member from Fall River noted, that “In reality, how someone is paid (and how much) has little or nothing to do with what confidential or proprietary business information they may be exposed to. This has a big impact to small businesses.”

AIM has concerns about other sections of the legislation:

  • The manner in which the proposal captures independent contractors within the definition of full-time employee.
  • The chance that an employer may be precluded from recouping damages or costs associated with a stolen “sales list” if an employee were to voluntarily leave.
  • The requirement that a company reveal certain aspects of a specific trade secret through the court and discovery process. The court process and the manner in which trade and other business interests are protected in court should be given further analysis.
  • The aggressive implementation date of July 1, 2016. Given the significant challenge of changing legal documents, especially given new changes imposed by the defense of trade secret law

“AIM appreciates the approach that Speaker DeLeo has taken in the public policy debate over non-compete agreements,” said John Regan, Executive Vice President of Government Affairs at AIM.

“The Speaker clearly recognizes the need to protect business interests at a time when non-competes are a vital part of protecting investments and ideas created by employers of all sizes and from all industries. As the Speaker has noted in the past, Massachusetts cannot be an ‘invented here and manufactured elsewhere’ commonwealth.”

AIM looks forward to working with members of the Legislature to address these concerns.

AIM members may learn more about the non-compete issue by contacting Brad MacDougall, bmacdougall@aimnet.org.

Topics: Employment Law, Massachusetts employers, Non-Compete Agreements

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