Why are Massachusetts lawmakers debating non-compete agreements?

Commercial trade secrets can be the lifeblood of a company’s competitive edge. Yet there is a debate in Massachusetts over how best to protect these rights.

As background, non-compete agreements are a contractual way to protect a company’s secrets. An agreement might require an employee to refrain from working in a particular industry for a period of time after leaving his or her job, perhaps for a year. The rationale is aimed at preventing a worker from jumping ship to go to a competing business, or to start his or her own new company based on the company’s established model. If a non-compete agreement is not honored, a company has the legal option to sue a former employee.

However, the scope of non-compete agreements is currently the subject of debate in Massachusetts. In fact, state lawmakers recently ended negotiations in a stalemate over a proposed bill to restrict corporate non-compete contracts. The Senate proposal would have limited the non-compete period to only three months, complete with a full salary. The House, in contrast, favored a one-year period and would have required employers to pay only half of the employee’s salary.

The lawmakers’ impasse was of particular disappointment to local startups in the technology sector. Many small businesses, in fact, want restrictions to limit the use of non-compete agreements. They claim that such provisions suppress entrepreneurial opportunities and innovation, and are unfair to workers. In support, they point to California’s Silicon Valley, where non-compete agreements are mostly barred due to state law.

Proponents of non-compete agreements, in contrast, claim that such clauses in employment agreements can protect a company from competitors who might otherwise try to steal their most valuable employees and/or trade secrets. Many larger corporations favor non-compete agreements.

Drafting a non-compete agreement that complies with current state law is vitally important for employers. Similarly, an employee faced with this clause in an employment contract may want to consult with an attorney, as well. Our business and commercial law firm can help clients understand the nuances of non-compete agreements, as well as a complete array of business services topics.

Source: Boston Globe, “Noncompete changes founder at Legislature’s frantic end,” Curt Woodward, Aug. 1, 2016