Yesterday VCRLG attended the Boston Bar Association’s “Freedom to Compete?” symposium on the current debate in the Massachusetts’ legislature about limiting or prohibiting the use of employee non-competition agreements in Massachusetts. The discussion focused on a draft bill, sponsored by State Reps. William Brownsberger (who was on the panel) and Lori Ehrlich, that would prohibit non-competes in some employment relationships and otherwise limit when non-competes could be used and what restrictions could be enforced. The panel discussed the pros and cons of the new bill and there was a spirited Q&A session. Here’s some of what we learned about the new bill, along with a bit of commentary:
- If signing a non-compete will be a condition to employment, employers will be required to inform the potential new hire of this fact “to the extent reasonably feasible by the earlier of (a) two weeks before the employment period begins or (b) the time the offer of employment is made. The goal is to prevent employers from springing non-competes on an unsuspecting new employee, particularly where the new employee has already left his or her previous job.
- Non-competes would be unenforceable against employees earning under $50,000 and enforceable against employees earning $50,000 to $100,000 only to protect trade secrets or confidential information (but not for goodwill). As one panelist pointed out, these income thresholds seem fairly arbitrary and unhelpful, particularly for startups where the founders may not draw a salary.
- Where enforceable, non-competes would be limited to one year post-employment unless the employer makes “garden leave” payments to the employee, in which case the term could extend to two years. Garden leave payments must equal or exceed the greater of $50,000 or 50% of the employee’s total gross compensation at the time of termination, and payments may not be offset against any income the employee receives from other noncompetitive activities.
- A restricted period of no more than six months would be presumptively reasonable (i.e., if it went to court, the employee would have to demonstrate that the restriction was not reasonable).
- Attorneys’ fees will be awarded to an employee if (a) a court finds his or her non-compete to be “grossly over reaching” the limits set by the statute, (b) a court must make material changes to the agreement to make it enforceable, or (c) a court determines that the employer acted in bad faith in enforcing the agreement. Several panelists argued that awarding attorneys’ fees is necessary to counter employees’ supposed reluctance to challenge non-competes due to the costs of litigation.
- The bill would not set limitations on non-competes in the context of a business purchase, nor would it affect non-solicitation agreements.
- The bill would only apply to agreements entered into on or after January 1, 2010.
If you’re interested in learning more about the impact of non-competes on a local economy, check out MIT Professor Matt Marx’s paper on Michigan’s experience before and after repealing a prohibition on non-competes in 1985, which is available at http://www.mit.edu/~mmarx. For some additional commentary, check out the blogs of Bijan Sabet of Spark Capital, Michael Rosen of Foley Hoag and Scott Kirsner of the Boston Globe.
Tags: Massachusetts, non-comp, Non-Competition
Tags: Massachusetts, non-comp, Non-Competition