Back in 2016, the Massachusetts House and Senate each passed different versions of non-competition reform bills, seeking to make changes to existing laws allowing employers to restrict its employees from gainful employment after termination. Both bills, however, failed, as the legislature was unable to come to an agreement before the legislative session ended. While many supporters of weakening non-competes lamented the failed opportunity at that time, it seems that there is renewed hope on Beacon Hill that substantive changes to Massachusetts’ non-compete laws may see the light of day.
Non-Competes: A Primer
A non-competition agreement or clause is a restrictive covenant, usually made by an employee, whereby the employee agrees that he or she will not compete with a business for a set period of time. Such competition generally encompasses when a former employee starts a competing business or goes to work for the employer’s competitor. Businesses generally employ these agreements in order to protect their valuable intellectual property, including client lists, confidential information, and other trade secrets. Often these agreements are brought to the employee as a precondition of employment, which leaves the employee with a take-it-or-leave-it dilemma.
While there are demonstrated benefits to non-competes, many businesses, especially in the tech industry, have come out against the practice. They argue that these restrictive covenants make it harder to hire top talent, who are resistant to voluntarily limiting their employment options post-termination. These companies, however, feel compelled to place their employees under non-competes, as they would be at a competitive disadvantage since their competition uses these covenants. The solution, many argue, is to do away with non-competes all together, like they have done in California, where anti-competition agreements are banned entirely.
The Proposed Bill
While it is not likely that Massachusetts will see non-competition agreements completely eliminated, the bill proposed in February (Bill SD.1578), builds on prior versions of legislation that failed to gain enough support to pass. The bill proposes several changes to existing law including:
- A limit on restricting an employee’s right to compete to 12 months after the employee’s termination;
- Prohibiting enforcement of non-competes against certain categories of workers including students, laid off employees and those terminated without cause, and non-exempt employees;
- Limiting choice of law provisions for Massachusetts residents;
- Requiring consideration beyond mere continued employment for employees who are asked to enter into non-competes after they have started working; and
- Adopting the Uniform Trade Secrets Act, which would bring Massachusetts in line with most other states.
Non-compete reform has been kicking around Beacon Hill for over 8 years, so it is far from certain that the current bill will gain better traction. It is also too soon to say whether the bill has a serious chance of becoming law. What is clear, however, is that the bill is not likely to move quickly through the legislature. We at The Jacobs Law will be sure to keep you up to date with any new developments on this and other legislation that affects business owners in Massachusetts.