People who support banning non-compete agreements in Massachusetts often point to California as a state that has unleashed a flood of entrepreneurial energy by doing away with non-competes.

But it turns out that California could afford to eliminate non-competes because the state is far better equipped than Massachusetts to protect the intellectual property of employers. The land of sunshine on the left coast is one of 46 states to have adopted a Uniform Trade Secrets Act to help employers protect their technology and ideas from walking out the door with employees, while Massachusetts is one of the four that have not.

How important is the Uniform Trade Secrets Act to employers? Two lawyers at AIM member Holland & Knight – Paul Lannon, partner and chair of the Non-Competition, Trade Secrets and Employee Defection Team and Senior Counsel James Michalski – argue that such laws are essential:

The July 2011 ruling of Richmond Technologies, Inc. v. Aumtech Business Solutions affirms the right of employers to protect their trade secrets under the California Uniform Trade Secrets Act as a means of preventing unfair competition by a departing employee.  The ruling also provides the following:

• Proof positive that an employer can enforce restrictive covenants in California provided that the enforcement results from the need to protect its “trade secrets.”
• Demonstrates the importance for California employers to write employment contracts that link limits on competition by departing employers to the protection of the employer’s “trade secrets.”
• Highlights how a strong trade secrets law in California can protect intellectual property rights in a way that Massachusetts law does not currently provide.

The Richmond Technologies decision demonstrates the critical use of “trade secret” protections for employers.  The egregious facts of that case detail how an employee stole trade secrets from his employer and then leveraged that information to obtain a new job with a direct competitor.  The employee and the direct competitor even schemed to steal the trade secrets. 

Richmond Technologies ultimately prevailed against the rogue employee because the court construed the employment agreement as being consistent with the California Uniform Trade Secrets Act, which defines “trade secret” to include programs, methods, and techniques that derive independent economic value from not being generally known to the public, provided they are subject to reasonable efforts to maintain their secrecy.

AIM believes that protecting the intellectual property of employers is critical to the knowledge-based Massachusetts economy with its heavy concentration of technology, biosciences and manufacturing companies. The association recently testified against legislation that would significantly alter the commonwealth’s non-compete laws and backs a second bill that would establish a Uniform Trade Secrets Law.

Massachusetts must join the large majority of states that have Uniform Trade Secrets laws before even considering changes to non-competes.  The intellectual vibrancy of the Massachusetts economy is at stake.