Battle over banning noncompete agreements brews on Beacon Hill
State lawmakers are reviving efforts to limit or ban contracts that restrict employees from working for competitors after a compromise failed last summer.
Noncompete agreements represent one of the most divisive issues in the technology sector, pitting entrepreneurs and venture capitalists who argue noncompetes stifle innovation against established companies, such as EMC Corp. of Hopkinton, which say the contracts protect intellectual property. Noncompetes often prohibit people from working for competing firms for a year or more after departing their previous employer.
Legislators last week filed at least six bills seeking to limit the use of such agreements. They include bills by Representative Lori Ehrlich, a Marblehead Democrat, and Senator Will Brownsberger, a Belmont Democrat, that would essentially ban noncompetes in the state. (Company owners who sell their businesses could still be bound by noncompetes after the sale.)The New England Venture Capital Association, a trade group in Cambridge, plans to unveil a coalition encompassing different industries next month to push the Legislature to outlaw noncompete agreements in most instances. The goal is to make the rules here similar to those in California, one of three states in which noncompetes are essentially illegal and Massachusetts’ biggest competitor in the innovation economy.
“California has this wonderful ecosystem where it’s understood smart people get training and at some point want to take that training elsewhere,” said C.A. Webb, executive director of the venture capital group. “Noncompetes aren’t holding them back.”
Noncompetes, Webb said, put a damper on innovation by discouraging people from leaving to launch their own companies and chasing talented workers to other states where the agreements won’t be enforced. Companies can prevent the sharing of trade secrets and other proprietary information with rivals through other means, such as nondisclosure agreements, Webb said.
Opponents have railed against noncompetes for years, but their efforts gained momentum during the last legislative session as more examples outside the tech sector emerged. One story that resonated came from Colette Buser, a University of Richmond sophomore from Wellesley, who testified at a State House hearing that she lost her summer job at a local camp when management realized she had a noncompete agreement in effect with a nearby camp.
Buser said Monday that she was not aware she had signed such a contract — she apparently agreed to it by clicking on a digital form when she was first hired at her previous job a few years ago. “I didn’t really know what a noncompete even was,” she said. “I was 16.”
A compromise bill that would have exempted hourly employees from noncompetes and made it much tougher to enforce noncompete contracts that last longer than six months was approved by the state Senate last summer. But House leaders declined to go along, and it was dropped from a broader measure in the final formal meetings of the Legislature’s last session.
Noncompete opponents lost a champion when Deval Patrick, who favored a ban similar to California’s, left the governor’s office this month. Governor Charlie Baker said he doesn’t consider it to be a black-and-white issue, although he concedes there probably should be some limits.
“After working on this for so many years, it’s clear that noncompetes are being overused in many ways,” Ehrlich said. “The person making your sandwich at lunch, the person serving your pizza, your camp counselor — they’re often bound by them and unable to work for anyone else.”
EMC spokeswoman Katryn McGaughey said the success of innovation sectors in states such as New York, North Carolina, and Washington show that thriving economies can exist in conjunction with properly used noncompete agreements. (EMC, she said, uses a limited number of such agreements to protect its business interests.)
Some of the state’s leading business groups — including the Massachusetts High Technology Council, the Greater Boston Chamber of Commerce, and Associated Industries of Massachusetts — support keeping noncompetes as an option for employers. The groups say such contracts are vital to protecting the intellectual property, corporate strategies, and investments in talent considered crucial to the state’s tech economy.
State law already prohibits the sharing of trade secrets and other improper disclosures. But they usually require litigation to enforce, and by that time the damage to a company’s business is usually done, said Christopher Geehern, an executive vice president at AIM.
“You want to prevent that trade secret from walking out the door,” Geehern said. “At that point, the horse is already out of the barn.”