The Massachusetts House of Representatives voted 149-0 Thursday to approve compromise legislation governing the use of non-compete agreements.
Associated Industries of Massachusetts has opposed efforts to ban or limit the use of non-competes, but has also engaged in productive discussions with House Speaker Robert DeLeo on the issue.
“AIM recognizes and appreciates the approach that Speaker DeLeo has taken in the debate over non-compete agreements,” said John Regan, Executive Vice President of Government Affairs at AIM.
“The speaker 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.”
The House proposal makes three positive changes from legislation originally advanced by the Legislature’s Joint Committee on Labor & Workforce Development. The changes address some of the major concerns expressed by AIM and other members of the business community in a June 20 meeting with Speaker DeLeo:
- Garden Leave: A provision that would have required employers to pay workers half their salary during the restricted period of a non-compete agreement has been modified to recognize “other mutually-agreed upon consideration between the employer and the employee.” That means companies that compensate employees at the time they sign non-competes would not have to pay them again during the restricted period. While AIM would prefer to eliminate the “garden leave” provision entirely, the revision provides some flexibility to employers.
- Amending contracts: The compromise legislation would allow courts to reform or alter non-compete contracts to ensure that both parties are treated fairly. Previous language would have forced a court to invalidate a contract in full.
- Effective date: The legislation would provide time for businesses to update contracts by moving the effective date from July 1 to October 1, 2016. As previously proposed, the law would not apply retroactively to contracts signed as of October 1, 2016.
AIM has expressed support for several provisions of the revised bill that clearly define the conditions under which non-competes may be used:
- 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.
- The non-compete would extend to a second year should an employee unlawfully take property belonging to the employer.
Amid these improvements, concerns remain. AIM urges the House of Representative to consider several changes:
- Stock options: Make stock-option offerings exempt from being directly tied to non-compete agreements since such grants are used for attracting and retaining talent.
- Exemptions: Change the criteria under which workers would be exempt from non-competes from the Fair Labor Standards Act to a standard that relies on the minimum wage.
- Garden Leave: Make technical changes to underscore the fact that non-compete agreements are often part of broader standardized national or international compensation plans.
- Choice of Law Provision: Strike language that sets arbitrary rules for selecting the court where a claim may be brought.
- Garden Leave exemption: Create language to allow a non-compete to remain enforceable when an employee receives a severance payment or other long-term compensation.
- Independent Contractors: Strike language that defines employee to include independent contractors within the definition of full-time employee.
- Damages: Strike language that would preclude an employer from recouping damages or costs associated with a stolen “sales list” if an employee were to leave voluntarily.
AIM continues to maintain that there is no evidence that the use of non-compete agreements harms Massachusetts’ position as as a globally recognized leader in innovation. In fact, Securities and Exchange Commission (SEC) filings indicate that the well-heeled venture capitalists pushing to limit non-competes use such agreements themselves.
Employers believe selective use of non-competes protects the significant investments that allow their companies to be global leaders in their industries and to create jobs in the commonwealth. The compromise legislation begins to recognize that Massachusetts employers need flexibility and legal options to protect intellectual property.
AIM looks forward to working with members of the Legislature to address the changes that remain to be made.
Employers seeking to learn more about the non-compete issue may contact me at email@example.com.