Search results for: Ehrlich

The Massachusetts legislature is back at it again. Under new leadership, the Joint Committee on Labor & Workforce Development recently scheduled a hearing for October 31, 2017 on the non-compete reform bills proposed in January of this year. While we know little about the hearing, the bills to be discussed are presumably Senate Bill S.988 and companion House Bill H.2366. These identical bills were filed in January 2017 by the same legislators who began this process back in 2009, Senator William Brownsberger and Representative Lori Ehrlich.

As we previously reported, the proposed law brings many past proposals to the table with some new additions as well. We also reported in July and November of 2016 that the House and the Senate were unable to bridge their differences and agree on a compromise bill that year. For a detailed overview of the bills likely to be discussed in the upcoming hearing, please see our prior report.

We will continue to monitor these developments and report back with any updates. Perhaps 2017 is finally the year for non-compete and trade secret reform in Massachusetts after all. Readers of this blog know all too well, however, that this may just be another of the many attempts that the Massachusetts Legislature is unable to see through to its fruition.

shutterstock_66377878Last Friday, on January 20, 2017, the Massachusetts Legislature began its annual tradition of attempting to promulgate non-compete and trade secret reform in the Commonwealth. A new bill has been filed by the same legislators who began this process back in 2009, Senator William Brownsberger and Representative Lori Ehrlich, which brings many of the past proposals to the table with some new additions as well. As we reported in July and November, the House and the Senate were unable to bridge their differences and agree on a compromise bill in 2016.

The bill seeks to adopt much of the Uniform Trade Secrets Act. In addition, it would formally recognize the inevitable disclosure doctrine, providing that “threatened misappropriation may be enjoined upon principles of equity, including, but not limited to, consideration of party conduct before or after commencement of litigation and circumstances of potential use, upon a showing that information qualifying as a trade secret has been, or inevitably will be, misappropriated.”

On the non-compete side, the bill notably limits non-competes (with some exceptions) to a duration of one year from the date of termination, requires that the employee receive the non-compete prior to a formal offer of employment or two weeks prior the commencement of the his or her employment, and requires consideration beyond continued employment for post-hire non-competes. The bill also requires courts to apply the bright-line “red pencil” approach if the non-compete agreement fails to satisfy any of bill’s requirements, but grants courts the discretion to reform or otherwise revise an agreement to comply with certain safe harbors set forth in the bill.

Other provisions of the proposed legislation may cause some consternation for businesses or, at the very least, may require those businesses to change their practices. For example:

  • An agreement must expressly state that the employee has the right to consult with counsel prior to signing;
  • Employers must review all non-competes with their employees at least once every three years for them to remain valid and enforceable;
  • For post-hire non-competes, notice must be given at least ten days before the agreement becomes effective;
  • If the employee has breached his or her fiduciary duties, or taken property of the employer, the duration of the non-compete may be extended to two years;
  • A geographic reach of any non-compete is that is limited to “areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence is presumptively reasonable”;
  • A restriction that “protects legitimate business interest and is limited to only the specific types of services provided by the employee at any time during the last 2 years of employment is presumptively reasonable”;
  • Employers have ten days after the termination of employment to “notify the employee in writing by certified mail of the employer’s intent to enforce the noncompetition agreement.” If the employer fails to do so, the non-compete is deemed waived by the employer. That being said, this requirement does not apply if the employee has unlawfully taken the employer’s property or already breached the non-compete, a non-solicit, an anti-piracy/no-raid covenant, a confidentiality agreement, or a fiduciary duty;
  • Non-compete agreements would not be enforceable against (1) employees who are not exempt under the Fair Labor Standards Act, 29 U.S.C. §§ 201-209, (2) undergraduate or graduate students engaged in short-term employment, (3) employees terminated without cause or laid off, (4) employees who are 18 or under, and (5) non-employees who perform services for less than one year; and
  • If the employee is a resident of, or has been working in, Massachusetts for at least thirty days immediately prior to the termination, Massachusetts law will apply, rending any out-of-state choice of law provision unenforceable.

Notably absent from the bill is the inclusion of a provision requiring “garden leave,” forcing employers to pay former employees bound by non-compete agreements fifty percent of their highest annualized salary over the last two years of employment for the restricted period. Such a provision has appeared in many of the proposed bills in the past few years.

We will continue to monitor these developments and report back with any updates. Perhaps 2017 is the finally year for non-compete and trade secret reform in Massachusetts after all. Readers of this blog know all too well, however, that this may just be another New Year’s resolution that the Massachusetts Legislature is not able to keep.

A special thanks to our friend Russell Beck for his thoughtful analysis of, and input into, the latest proposed legislation.

shutterstock_170169599Last summer was a busy time for legislators in Massachusetts mulling over non-compete reform. As we reported here and here, several competing bills were in play as the legislative session drew to a close, including a compromise bill that was passed in the state Senate but ultimately failed to advance in the House. You may even recall that then-Governor Deval Patrick introduced a bill that would have banned all non-compete agreements in Massachusetts, with a few very limited exceptions, which also failed to go anywhere. In keeping with what appears to have become a perennial tradition in Massachusetts, the legislative session ended with a whimper, at least with respect to non-compete reform, although Governor Patrick introduced a watered-down version after the legislative session ended, which also stalled.

Fast forward nearly a year, and the subject of non-compete reform (and the adoption of the Uniform Trade Secrets Act, which was also a hot topic last year) is largely absent from the halls of the statehouse, with none of the pending bills having even made it to a committee hearing. Many see this relative silence as a function of Governor Charlie Baker’s (presumed) more moderate stance on non-competes as compared to his predecessor, who was a staunch advocate of doing away with non-competes altogether. Indeed, much like his fellow candidates at the time, Governor Baker was relatively tight-lipped during his campaign on the topic of non-competes.

As reported by Massachusetts Lawyers Weekly (password required), Governor Baker has made two appointments recently that have observers pondering whether he is in fact opposed to non-compete reform. First, shortly after the election, Governor Baker appointed attorney Andrew P. Botti to his transition team subcommittee on jobs and the economy. Botti has been an outspoken critic of then-Governor Patrick’s bill proposing to ban non-competes in the Commonwealth, largely on behalf of the Smaller Business Association of New England.

More recently, and perhaps more significantly, in April, Governor Baker appointed Paul T. Dacier, the executive vice president and general counsel of EMC Corporation, to be the chairman of Baker’s Judicial Nominating Commission. EMC has earned a reputation as being a strong supporter of non-compete agreements, and as those familiar with some of the leading non-compete cases in Massachusetts know, EMC has frequently sought to enforce its non-compete agreements in the courts. Some have speculated that Governor Baker’s appointment of Dacier is a sign that the governor is directly opposed to non-compete reform.

Not surprisingly, those in Governor Baker’s camp have denied that these appointments have any hidden meaning, with Botti pointing to Governor Baker’s desire to tackle more urgent issues, such as the performance of the MBTA during this year’s record-breaking winter and the state budget. Even supporters of non-compete reform, such as Representative Lori Ehrlich, have largely attributed the lack of progress to disagreements between the state House of Representatives and Senate regarding committee rules, not lack of support from the Governor’s Office. However, Rep. Ehrlich did note that Dacier’s appointment “is certainly a concern.”

So, as we head into the dog days of summer (most welcome after the winter), it appears that non-compete reform is not at the top of the legislative agenda in Massachusetts. As always, we will keep you informed of any significant developments.

There are signs that the debate over whether to ban non-competes may end in a compromise, a result many, including this blog, have predicted.

As we reported in Friday’s post, the Joint Committee on Economic Development and Emerging Technologies held a public hearing yesterday at the Statehouse on HB4802, which would adopt the Uniform Trade Secrets Act (“UTSA”), repeal the current statutes regarding theft of trade secrets (Sections 42 and 42A of Chapter 93), and ban employee non-compete agreements.  The three hour hearing was packed with legislators, lawyers, and business people on both sides of the non-compete debate. Also, in attendance and presenting testimony were individuals negatively impacted by non-competes, many of whom were wearing “Create Jobs in Massachusetts/Ban Non-Competes” stickers.

The Committee’s Chair, House representative, John Wagner noted at the commencement of the hearing that unless convinced otherwise he was somewhere along the spectrum between leaving the law as it is on non-competes, and banning them outright. The hearing testimony was kicked off by Governor Patrick’s economic development chief, Gregory Bialecki, who presented the Patrick administration’s position that non-competes stifle innovation and job growth and should be banned, but he told the committee that the administration would be open to a compromise.

Another House Representative, Lori Ehrlich,  who has been involved in the non-compete debate since 2009 (please see our link to previous blog entries on the topic), and worked previously with then House Representative William Brownsberger, on a compromise bill, offered proposed changes to the HB4802. She explained that the changes are designed to address the unpredictability of the current common law, and incent employers to use narrowly  tailored non-compete restrictions.  Ehrlich’s proposal would establish presumed reasonable terms for the duration, geographic scope, and activity restrictions of non-competes, such as a six month non-compete restriction, and limiting the employee only from taking a position with similar duties to previous position and within same geographic region he/she was in previously. Under current Massachusetts common law, while courts can reform overbroad agreements to be more limited, it is difficult at best for employers and employees to predict what will be deemed reasonable or not. Erhlich’s proposal sets a “reasonableness” guidepost. Moreover, in a departure from current law, the proposal includes a “red pencil” provision for any non-compete restriction not presumed reasonable under the proposed legislative scheme. For example, if the enforcing company cannot demonstrate a legitimate business reason for exceeding a 6 month non-compete restriction, Ehrlich’s proposal requires a court to “red pencil” and strike the non-compete, rather than merely reduce it to a 6 month presumed reasonable time frame. The intent behind this part of the proposal is to incent employers to implement very tailored and narrow non-compete restrictions. 

While it seems there is much less debate over the trade secrets provisions in HB4802, Erhlich also proposed some revisions relating to the UTSA, including expanding protections to licensees of trade secrets rather than just the owners; eliminating the need for owners of trade secrets that have been misappropriated to continue security protections while they pursue enforcement; and limiting the premature and breadth of disclosure of the trade secrets at issue in litigation to enforce UTSA protections.

As we had previously reported (link to previous blog), also still in play on non-compete and trade secret protection in Massachusetts are the House and Senate’s pending economic development bills. The House economic development bill is notably silent on the issue of non-competes and adoption of the UTSA. The Senate economic bill, was also silent on the issue of non-competes, but would adopt the UTSA. Yesterday, while the Joint Committee hearing was underway, the Senate voted 32-7 in favor of a compromise approach offered by Senator William Brownsberger, an early proponent of banning non-competes. Here is a link to earlier blog entries on the bills. This compromise like Ehrlich’s would limit the duration of non-compete restrictions to six months and prohibit their use with hourly employees. It is unclear what the House will do on the non-compete issue given the pending bill’s silence on the issue. These differences will no doubt be addressed and perhaps settled later in the month when the Senate and House try to reconcile their economic development bills before the end of the legislative session on July 31.

In sum, it seems more likely now that Massachusetts will enact some form of legislation governing the use of non-competes and adopt some form of the Uniform Trade Secrets Act. The final form of such legislation remains to be seen, as well as whether it can be accomplished before the end of July. As we reported previously, there will be no more formal sessions of this legislature after July 31st.  While informal sessions will still occur, typically those only address “non-controversial” legislation, such as the changing of a street name.  Moreover, it is the last year of the two year legislative session, so unless the legislature acts on HB4802 or another standalone bill before the end of July, the legislation would have to be reintroduced into a new congress in January — with a new governor.

We will continue to monitor all the pending bills, as well as any others that may be filed, and report back.

We reported in our post of June 11th that Governor Patrick had introduced a sweeping economic growth bill (HB4045) — that, if passed, would ban employee non-competes in the Commonwealth. We also explained that subsequent to Governor Patrick’s bill, another bill (HB4082), was introduced that stripped Governor’s Patrick’s bill and left only those portions dealing with trade secrets and non-competes. This new bill 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.  HB4082 was likely introduced because of concerns that Governor Patrick’s bill would not make swift enough progress, since the other provisions that did not relate to employee non-compete agreements were so broad in scope. 

The second bill, HB4802, was referred to the Joint Committee on Economic Development and Emerging Technologies in early June, and now that Committee has scheduled a public hearing for July 1, 2014 from 11:00 a.m. to 2:00 p.m. in Room B-1 at the Statehouse. Similar to the committee hearing held previously on Governor Patrick’s broader economic bill (HB4045), we expect to hear testimony from constituencies on both sides of the non-compete debate.  As the Boston Globe noted after the hearing on Governor Patrick’s bill, “[t]he sides are generally split according to size, with large, established employers … working to maintain the status quo, and people from the startup world — including venture capitalists who invest in early-stage companies — pushing to let workers jump to rivals whenever they want.We will be attending the hearing, and will report out after.

Also, still in play are the House and Senate’s economic development bills. As we reported previously, the House economic development bill is notably silent on the issue of non-competes and adoption of the Uniform Trade Secrets Act. The Senate economic bill, which was released this morning, is also silent on the issue of non-competes, but adopts the Uniform Trade Secrets Act. Both economic bills are pending.  After votes on any amendments to the Senate bill next week, a conference committee will be appointed with three members from each body to reconcile the House and Senate versions. Since neither of the economic bills mention non-competes at all, the final version of the  bill (after they reconcile the House and Senate bills) sent to the Governor for his signature (by July 31) will not change state law on non-competes. Separate and apart from the pending economic bills, whether or not a standalone bill like HB4802 will get to the Governor for signature by January 31st remains to be seen.

Against this backdrop, you may wonder what is next on the legislative path for HB4802 after the July 1st hearing.  As we understand it, the Committee will meet after the hearing to decide next steps.  This could happen as soon as Tuesday after the hearing, or sometime thereafter.  The bill could emerge from the Joint Committee as is, or it could include amendments. Some are suggesting that the bill will be amended and a compromise bill will emerge that will then go to the House Ways and Means Committee, where any changes to bills are reported.  It could then be reported out to the full House for consideration, or it may have to go back to committee.

In sum, it is difficult to predict at this juncture whether HB 4082 will survive in its current form, or evolve toward a compromise bill like the one previously introduced by Senator William Brownsberger and Representative Lori Ehrlich in late 2012.  Keep in mind that after July 31, there will be no more formal sessions of this legislature.  While informal sessions will still occur, typically those only address “non-controversial” legislation, such as the changing of a street name.  It is also worth noting that this is the last year of the two year legislative session, so unless the legislature acts on HB4802  before end of July, the legislation would have to be reintroduced into a new congress in January — with a new governor.

We will continue to monitor all the pending bills, as well as any others that may be filed, and report back after the July 1 hearing. You may be interested in today’s Boston Business Journal’s article on the non-compete debate in Massachusetts.

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.

We attended a hearing today before the Massachusetts Legislature’s Joint Committee on Labor and Workforce Development regarding the pending non-compete legislation on which we have previously posted. 

Among others who testified about the issue was Governor Deval Patrick’s Secretary of Housing and Economic Development, Gregory Bialecki. 

Mr. Bialecki finally acknowledged publicly what the Patrick Administration has been dancing around for some time now (see our recent post on the issue here), and which we believed was inevitable:  that it supports the “outright elimination of enforceability” of all non-compete agreements in Massachusetts, regardless of their duration or geographic scope.  Mr. Bialecki also said that the Patrick Administration wants to see Massachusetts adopt the Uniform Trade Secrets Act, which it believes provides sufficient protection to companies (see our previous post on this issue). 

If the legislature were to adopt the Patrick Administration’s suggestions, Massachusetts may be the next California as it relates to non-compete and trade secret law.

Below is Secretary Bialecki’s full testimony (with our emphasis added to the most notable points).  We will provide a more detailed report on the legislative hearing in the coming days. 

Dear Chairman Conroy and Senator Wolf,

Thank you for the opportunity to appear before you today. I am here to express the strong support of the Patrick Administration for substantial reform of the current rules on the enforceability of non-competition agreements in Massachusetts.

I gave very similar testimony to this committee almost two years ago. Now, as then, there are bills in the Legislature that call for changes to our current rules regarding the enforceability of non-competes and bills that call for the end to such enforceability.

I suggested two years ago that it seemed increasingly unlikely that we could achieve any meaningful consensus among the stakeholders on changes to our current system that left non- competes in place. I think that this has turned out to be the case, as the debates and disagreements that you will hear today are almost exactly the same as those that you heard two years ago.

I also suggested two years ago that if we could not achieve any meaningful consensus among the stakeholders on changes to our current system, then the best course for Massachusetts would be the outright elimination of enforceability of non-competition agreements. I am here today to affirm that the Patrick Administration now supports such outright elimination, combined with adoption of the Uniform Trade Secrets Act, which has been demonstrated in other states to protect the loss or disclosure of proprietary information by departing employees.

A key element of the Patrick Administration’s economic development strategy has been to build on the strength of our world-class innovation economy. A key measure of success for our economic development and job creation policies and programs considers whether our policies and programs effectively support the innovation and entrepreneurship that has given us our critical competitive advantage for so many years. If our policies and programs do not provide this support then we should simply re-consider them. Our policy on non-compete agreements needs reform because Massachusetts should do everything it can to (1) retain talented entrepreneurs; (2) support individual career growth and flexibility; and (3) encourage new innovative businesses that are the engines of economic growth. Massachusetts employers currently have tools to protect the stability of their businesses.

Retention is Key: We do an excellent job of educating talented people here in the Commonwealth. However, if they work here and sign a non-compete agreement, we are essentially asking those same talented people to leave and to become entrepreneurs elsewhere. If Massachusetts is not able to create an environment that gives entrepreneurial talent a chance to thrive, then the most effective job creating companies may be pushed to grow to scale in states like California. In fact, we have heard examples of entrepreneurs at MIT who were advised to start their businesses outside of Massachusetts as a result of non-compete agreements laws. Non-competes stifle movement and inhibit competition and we do not want that. The evidence is clear—we are not seeing the kind of spin-offs and starts up at the same rate that previously made Massachusetts an enviable model.

Individual career growth is good for the Commonwealth: We encourage our talent to be creative, to be innovative, and to network with other talented people. Furthermore, we encourage employers to recruit talented people. However, we send a mixed message: providing the talent needed to support the kind of explosive growth we want in the innovation economy is considerably more difficult if employees are legally unable to move between jobs in the innovation economy. The current law makes it considerably harder for employees to leave their current employers, whether due to the actual enforcement of a non-competition agreement, or more frequently, just due to the threat of enforcement. The individual has no effective recourse. The only thing to do is to suspend relevant work until the term of the non-compete agreement expires. Most individuals are not in a financial position to afford not working for the term of the non-compete. Being out of the market for the term is a major liability to the individual’s career and future development. An individual who has 10 or 20 or 30 years of experience and expertise is forced to avoid using their expertise during the term of their non-compete agreement. We do not want this mixed message to continue.

We want innovative businesses. A priority of this Administration has been to support and enhance the innovation economy. Massachusetts has long had a vibrant and leading edge in research and the innovative community. Many of the fundamental technological advances like the Internet economy and digital media had beginnings in Massachusetts in the past couple of decades. However, we could do more. We need more start-ups, especially in the technology and bio-tech sectors. Start-ups are good; they create jobs, push innovation to new heights, and retain talent. Many of our current employers, larger and small, report they are unable to attract lateral or advanced talent due to our current laws limiting the mobility of our workforce.

Current employers should not feel threatened: Senators Brownsberger, Vice-Chairman Ehrlich, and Leader Bradley have championed the efforts in the legislature to reform the current system. While, we understand employers concerns that protecting their proprietary information is critical, non-compete agreements are neither the best option nor the only available vehicle to protect companies. By adopting the Uniform Trade Secrets Protection Act, and limiting or abolishing non-compete agreements, we will have an opportunity to both grow our economy and protect a company’s proprietary information.

The Uniform Trade Secret Act (UTSA) has been adopted in 47 other states and the District of Columbia. The UTSA and other tools protect an employer’s trade secrets and proprietary information, which is fundamentally important. Patents, confidentiality agreements, and trade secrets are more than sufficient to protect legitimate company interests against former employees. Even without non-compete agreements, companies still have a disproportionate ability to litigate against the individual.

You will certainly hear today from businesses and business groups who would prefer to keep the current legal arrangements regarding non-competes intact. While holding onto their current employees may be convenient for employers, it is not at all clear that it is necessary to their business success. Our businesses could recruit the very talent they need without a non-compete agreement impeding the opportunity.

For these reasons, we support outright elimination of enforceability of non-completive agreements in Massachusetts combined with adoption of the Uniform Trade Secrets Act.

On July 23, 2013, the Boston Bar Association hosted its 5th Annual Symposium on Employee Non-Compete Agreements, Trade Secrets, and Job Creation.  

Speakers at the well-attended event included Senator William N. Brownsberger and Representative Lori A. Ehrlich, co-sponsors of a compromise non-compete bill that is working its way through the state legislature, along with Jennifer Lawrence, General Counsel of the Massachusetts Executive Office of Housing and Economic Development (who participated as a representative of Governor Deval Patrick’s Administration), and several private practitioners (including Russell Beck and Michael Rosen, whose non-compete blogs can be found here and here). 

Brownsberger and Ehrlich described the long process that has led to their most recent (and substantially watered down) bill, discussed below, along with the myriad interests with which they have had to contend on a hot-button issue such as this.  Both seemed genuinely interested in getting to a result that was equitable to both employers and employees, but expressed frustration with the amount of time and effort it has taken to get there.  Ms. Lawrence indicated that the Patrick administration is strongly opposed to non-compete agreements in general, and she repeatedly referenced the impact of restrictive covenants on both single mothers who are kept out of work and high tech companies, which purportedly will not relocate to Massachusetts due to its enforcement of non-compete agreements (despite the fact that 46 other states also permit them in one form or another, and that there are several other laws on the books in Massachusetts under which companies find it exceedingly difficult to do business, including the wage and hour laws). 

There are currently three bills pending in the Massachusetts legislature that could affect the enforceability of non-compete agreements in the Commonwealth:  Senator Brownsberger and Representative Ehrlich’s compromise bill and two bills that would prohibit non-compete agreements altogether.  Recall from these previous posts that Senator Brownsberger and Representative Ehrlich each introduced competing non-compete legislation in 2008 — Brownsberger’s would have gone the way of California and a few other states and banned all non-compete agreements, whereas Ehrlich’s would have been far less restrictive.  In the spring of 2009, the legislators collaborated on a compromise bill, Massachusetts House Bill 2293, entitled “An Act Relative to Noncompetition Agreements.” House Bill 2293 aimed to codify existing common law while affording greater procedural protections to those subject to contractual restrictions on employment mobility. After several revisions, House Bill 2293 ultimately failed to pass.  According to Brownsberger and Ehrlich, this failure was due, in part, to the bill being weighed down and made too complicated by new provisions that were intended to mollify critics on both sides of the issue. 

The Noncompetition Agreement Duration Act.  The “Noncompetition Agreement Duration Act”(on which we previously reported here, introduced by Senator Brownsberger and Representative Ehrlich,leaves intact much of the existing common law, but creates a presumption that a non-compete agreement of up to six months is reasonable, whereas a non-compete agreement that lasts longer than six months is presumed unreasonable.  If a court determines that the duration of the non-compete agreement is unreasonable, the non-compete agreement will be unenforceable in its entirety, with three exceptions (in which case the court may enforce the non-compete for any duration it deems appropriate): (i) “the employee has breached his or her fiduciary duty to the employer;” (ii) “the employee has unlawfully taken, physically or electronically, property belonging to the employer”; or (iii) “the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.”  This represents a significant departure from existing Massachusetts law, which permits the court to reform an unenforceable agreement to make it enforceable.  Like House Bill 2293, the Noncompete Agreement Duration Act does not impact non-disclosure agreements, non-solicitation agreements, non-competes in connection with the sale of a business (where the party to be restricted is an owner of at least a 10% interest of the business who receives significant consideration for the sale), non-competes outside of the employment context, forfeiture agreements, or existing trade secrets law.  A hearing on this bill is currently scheduled for September 10, 2013 before the Joint Committee on Labor & Workforce Development.  We plan to attend and will report back with any material updates. 

An Act Relative to the Prohibition of Noncompete Agreements.  Representative Sheila Harrington filed a competing bill to the Noncompetition Agreement Duration Act on January 18, 2013, entitled “An Act Relative to the Prohibition of Noncompete Agreements,” that would prohibit the use of non-compete agreements altogether, much like California has done.  Specifically, the bill states:  “Except as provided in this section, any contract that serves to restrict an employee or former employee from engaging in a lawful profession, trade, or business of any kind is deemed unlawful.”  The only exceptions are for the sale of a business or the dissolution of a partnership or LLC, which have substantial limitations.  Unlike Senator Brownsberger and Representative Ehrlich’s previous and current compromise bills, this bill would seemingly apply to non-solicitation agreements as well.  Indeed, the bill explicitly states that it does not apply to non-disclosure agreements, but is silent about non-solicitation agreements. 

The Uniform Trade Secrets Act.  Finally, snuck into a bill that seeks to make Massachusetts the 49th state to adopt the Uniform Trade Secrets Act (on which we previously reported here), is a provision that would ban non-compete agreements altogether, much like the bill filed by Representative Harrington.  This bill, filed by Representatives Garrett Bradley and Thomas Calter, would similarly bring Massachusetts in line with California and a small group of other states that prohibit the use of non-compete agreements.  It is interesting that this provision is included in the Uniform Trade Secrets Act, which in its original form does not include such a prohibition.

Based upon Ms. Lawrence’s comments at the symposium (as well as Governor Patrick’s own statement earlier this year, on which we previously reported here), these latter two bills would be more favorable to the Patrick administration than Senator Brownsberger and Representative Ehrlich’s Noncompetition Agreement Duration Act.  As the panelists at the symposium discussed, however, prohibiting non-compete agreements would not necessarily reduce the amount of litigation in Massachusetts; instead, it may just shift to disputes over misappropriation of trade secrets and breaches of non-solicitation agreements, which can be just as costly and time-consuming, if not more so.  In fact, as trade secret misappropriation can be quite difficult to allege absent strong indicators of such misappropriation (e.g., proof of large transfers or deletion of data), in the absence of the protections afforded by non-compete provisions many employers may find themselves in the unenviable position of being unable to prevent irreparable harm to their business when a key employee leaves for a competitor until there is solid proof of misappropriation, at which point it may simply be too late to protect the employer’s assets.

So, as we said back in 2009, Massachusetts Is Not California; At Least Not Yet!   Nothing has changed since that time, however, and it may very well be heading in that direction if compromise legislation cannot be passed. That would seem to be Governor Patrick’s preference.  In any event, this healthy and productive debate continues, and we will continue to monitor it and report any material updates. If you missed our recent webinar on significant legislative updates across the country, you can watch it here.

At the annual meeting of the Massachusetts Technology Leadership Council on March 12, Massachusetts Governor Deval Patrick reportedly described arguments in favor of eliminating the state’s longstanding approval of non-compete clauses as “compelling,” while stopping short of endorsing those efforts. 

During a question-and-answer session at the conference, Branko Gerovac, chief strategy officer at search engine optimization startup Jungle Torch, reportedly expressed concern that non-compete agreements cause businesses to leave for other states, particularly California, which prohibits them.  “The Boston area is falling behind,” he reportedly said, and the reason is that non-compete clauses decrease the available workforce for high-tech jobs.   

Governor Patrick reportedly said that the state’s strong technology sector has been critical in allowing Massachusetts to regain the total number of jobs lost during the recession, and he agrees that broad non-compete agreements restrain jobs.  He also reportedly noted that “there are a handful of tech sector people on the other side” of the debate. He also reportedly said, “I am not practicing law anymore but I have some serious doubts as a lawyer whether a [sic] non-compete is even enforceable in Massachusetts.”

In January, Sen. Will Brownsberger and Rep. Lori Ehrlich proposed legislation to limit non-compete agreements.  Under the bill, H1715, any agreement that lasts longer than six months would be “presumed unreasonable” and unenforceable in Massachusetts.  H1715 is still awaiting a date for a hearing before the Labor and Workforce Development Committee. We will keep you posted on any further material developments in the debate.

By Erik Weibust and Ryan Malloy

Massachusetts has entered a new chapter in a long-standing effort to enact comprehensive non-compete reform in the Commonwealth. Recall from these previous posts that Senator Will Brownsberger and Representative Lori Ehrlich each introduced competing non-compete legislation in 2008 — Brownsberger’s would have gone the way of California and a few other states and banned all non-compete agreements, whereas Ehrlich’s would have been far less restrictive. In the spring of 2009, the legislators collaborated on a compromise bill, Massachusetts House Bill 2293, entitled “An Act Relative to Noncompetition Agreements.” House Bill 2293 aimed to codify existing common law while affording greater procedural protections to those subject to contractual restrictions on employment mobility. After several revisions, House Bill 2293 ultimately failed to pass.

This session, however, Representatives Brownsberger and Ehrlich have taken a simplified approach with the introduction of a new bill that focuses exclusively on the duration of non-compete agreements in the employer-employee context. The proposed bill, entitled the “Noncompete Agreement Duration Act,” is based on the following findings:

  • “[T]he Commonwealth of Massachusetts has a significant interest in its economic competitiveness and the protection of its employers, and a strong public policy favoring the mobility of its workforce” and
  • “[T]he Commonwealth of Massachusetts has determined that an employee noncompetition agreement restricting an employee’s mobility for longer than six months is a restraint on trade and harms the economy.”

The proposed bill leaves intact much of the existing common law, but creates a presumption that a non-compete agreement of up to six months is reasonable, whereas a non-compete agreement that lasts longer than six months is unreasonable, with three exceptions: (i) “the employee has breached his or her fiduciary duty to the employer;” (ii) “the employee has unlawfully taken, physically or electronically, property belonging to the employer”; or (iii) “the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.” If a court determines that the duration of the non-compete agreement is unreasonable and one of the exceptions does not apply, however, the non-compete agreement will be unenforceable in its entirety. This represents a big departure from existing Massachusetts law, which permits the court to reform an unenforceable agreement to make it enforceable.

Like House Bill 2293, the Noncompete Agreement Duration Act does not impact non-disclosure agreements, non-solicitation agreements, non-competes in connection with the sale of a business, non-competes outside of the employment context, forfeiture agreements, or existing trade secrets law.

We will continue to monitor the progress of this legislation and will provide updates when appropriate.