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Senate Takes Step Back on Non-Competes

Posted on July 15, 2016

The Massachusetts Senate took a dramatic step backward yesterday on non-compete agreements, passing Draconian restrictions that would effectively end of the use of the documents in the Bay State.

ScalesofJusticeVerySmall.jpgThe Senate passed by voice vote a measure that would limit non-compete agreements to three months and require employers to pay the full salary of the former employee during the restricted period. The bill would exempt anyone earning $130,000 or less from non-competes.

The Senate measure stands in marked contrast to a compromise version passed by the House in late June that allows one-year non-competes and not require companies that compensate employees at the time they sign non-competes to pay them again during the restricted period.

Lawmakers will have to reconcile all those differences before the session ends on July 31 if a non-compete bill is to become law. 

“Employers support the House bill, period,” said John Regan, Executive Vice President of Government Affairs at AIM.

“House leaders worked with people on all sides of the issue and came up with a reasonable compromise that protects the rights of both employers and workers. The idea that you would now compromise a compromise makes no sense.”

Employers believe selective use of non-competes protects the significant investments that allow their companies to be global leaders in their industries and to create jobs in the commonwealth.  The compromise legislation begins to recognize that Massachusetts employers need flexibility and legal options to protect intellectual property. 

AIM continues to maintain that there is no evidence that the use of non-compete agreements harms Massachusetts’ position as a globally recognized leader in innovation. In fact, Securities and Exchange Commission (SEC) filings indicate that the well-heeled venture capitalists pushing to limit non-competes use such agreements themselves.

Employers have articulated several provisions that would be required for them to support a bill limiting non-competes:

  • Minimum one-year duration.
  • A “garden leave” provision that requires the employer to pay 50% of the employees’ prorated salary during the restricted period, or other mutually-agreed upon compensation.
  • Maintaining and clarifying the ability of a court to reform or alter non-compete contracts to ensure that both parties are treated fairly.
  • Those subject to non-compete agreements would have to be given prior notice of the need to sign the agreement, as well as the opportunity to consult with legal counsel.
  • The non-compete would extend to a second year should an employee unlawfully take property belonging to the employer, as included in the House version.