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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Inching Closer to California: An Update on Massachusetts Non-Compete Legislation

Posted in Legislation, Non-Compete Enforceability, Practice & Procedure, Trade Secrets

As we have previously reported, in April of this year, Massachusetts Governor Deval Patrick introduced a sweeping economic growth bill (HB4045) that, if passed, would ban employee non-competes in the Commonwealth.  The bill has taken a somewhat convoluted path to date, and we wanted to update you on some notable twists and turns.

First, in mid-May, yet another bill (HB4082) was introduced that stripped those portions of Governor’s Patrick’s bill not dealing with trade secrets and non-competes (in other words, the vast majority of the 42-page bill), leaving only those sections that would adopt the Uniform Trade Secrets Act, repeal the current statutes regarding theft of trade secrets (Sections 42 and 42A of Chapter 93), and ban employee non-compete agreements.  This new bill is virtually identical to those provisions of Governor Patrick’s original bill (which, as of early this week, has now been stripped of the non-compete and Uniform Trade Secret Act provisions).  The introduction of HB4082 was likely due to concerns that Governor Patrick’s bill would not make swift enough progress, considering the wide scope of its other provisions that did not relate to employee non-compete agreements.  Earlier this week, this new bill was referred to the Joint Committee on Economic Development and Emerging Technologies.

Next, on May 29, 2014, the Joint Committee on Economic Development and Emerging Technologies held a hearing on Governor Patrick’s bill, including the provisions related to trade secrets and employee non-competes (which, until this week, were still included in the legislation).  We attended the all-day hearing and, unsurprisingly, much of the testimony was devoted to these provisions.

As the New York Times reported on Sunday, many of those who testified at the hearing opined that employee non-competes stifle competition.  For example, several legislators spoke of constituents who they deemed “trapped” in jobs because of non-competes signed years earlier, and insinuated that many employees are “ambushed” with non-compete agreements after they have quit their former jobs and rejected other offers.  The Boston Globe and the Boston Herald have each recently published articles about the purported perils of employee non-compete agreements, both of which (as well as the New York Times article) referenced a summer camp in Wellesley, Massachusetts that makes its camp counsellors sign them. 

Others, however, noted their concern with the way the bill was drafted, and expressed skepticism that an outright ban on employee non-competes would have uniformly positive effects.  For example, some testified that notwithstanding the fact that California bans employee non-competes, and likely because of this prohibition, there is increased trade secrets litigation in that state (which is typically much more costly and time consuming than non-compete litigation).  Indeed, should this phenomenon occur in Massachusetts, some of those testifying noted that expensive trade secret litigation could bankrupt small employers and startups—the same group of employers that Governor Patrick’s bill (as well as HB4082) was purportedly designed to help. 

Nevertheless, many of those who were opposed to the proposed ban on employee non-competes stated that they would be in favor of some form of non-compete reform (some citing with approval the compromise bill previously introduced by Senator William Brownsberger and Representative Lori Ehrlich in late 2012), but that an outright prohibition on the use of non-competes was simply a step too far.  The compromise bill, however, appears to be stalled if not dead on arrival. 

In yet another twist, just last week Massachusetts House Speaker Robert DeLeo announced plans to file an economic development package that would be similar to Governor Patrick’s bill in many respects, but conspicuously omits any provision affecting the enforceability of non-competes.  According to the Boston Globe, Speaker DeLeo said that “he has heard from many more companies that oppose a ban on noncompete agreements than favor one, in the weeks since Patrick outlined his proposal.”  It remains to be seen which approach will carry the day.

We will continue to monitor these bills, as well as any others that may be filed, and report back on any progress.  Please join us for our upcoming webinar on the latest legislative developments in trade secret, non-compete, and social media law.