Legislators in the Massachusetts House and Senate have staked sharply different positions on noncompete agreements, leaving a wide gulf to bridge with just a few weeks before they adjourn at the end of July.
The state Senate Thursday passed legislation that would limit noncompete agreements to just three months and require companies to fully compensate their former employees during that period. The House version would allow noncompetes to last as long as a year and give employers more leeway in compensating workers for their downtime.
Noncompete agreements are used by companies to prevent employees from taking a job or starting a company in the same industry for a set period, sometimes a year or more. The issue has sharply divided the business community, in particular pitting entrepreneurs, venture capitalists, and others in the startup world against older, larger, and more established firms.
Opponents have been lobbying to have noncompetes eliminated or limited, contending they put Massachusetts at a disadvantage to its tech rival California, where the agreements are not enforceable.
Jody Rose, executive director of the New England Venture Capital Association, was hopeful the House and Senate could strike a compromise in the waning days of the session.
“I think we’re looking at more of a middle ground,” Rose said. “But it’s really hard to theorize what we think that middle ground will look like based on where we are in the process.”
One of the sticking points between the House and Senate is over compensation to workers who have to sit out the job market because of a noncompete. The Senate would require them to be paid 100 percent of their salary for the period, while the House caps compensation at 50 percent and allows companies to negotiate other types of payments with workers.
Supporters of noncompetes say they’re needed to prevent former employees from bringing trade secrets and clients to competitors. Given that they don’t want any limits on noncompete agreements, the state’s major business groups said they have made a major concession backing the House version, with its more generous terms for employers, and are unwilling to give more ground.
“The House represents compromise, so to then compromise a compromise doesn’t really make a whole lot of sense,” said Christopher Geehern, a spokesman for Associated Industries of Massachusetts.
Over the past several years, the contracts have become a key point of friction among powerful forces in the business community. In 2014, the Senate passed a proposal that would have essentially limited noncompetes to six months.
It failed after the House didn’t take it up.
The big difference between the two versions this year raises the prospect the House and Senate will again be unable to strike a deal, leaving noncompetes in wide use in Massachusetts.
Some companies say that would be fine with them.
“We really fail to see the issue,” Geehern said. “It’s simply an issue that has been pushed by a bunch of well-heeled venture capitalists.”
To ‘comp-romise a compro-mise doesn’t really make a whole lot of sense.’
Those investors and tech startups, however, have argued noncompetes stifle innovation in two ways: Workers who can’t give up a year’s pay won’t leave to join a startup, and experienced entrepreneurs can’t launch their next venture if they have to spend months on the sidelines.
Paul English knows that conundrum well. English signed a noncompete agreement with Priceline Group Inc. when it paid $1.8 billion in 2012 to acquire Kayak Software Corp., a travel-search company that English co-founded.
English left Priceline on Dec. 31, 2013. His current travel-tech startup, Lola Travel Company Inc., was incorporated in July 2015 — the very week that his Priceline noncompete expired.
“Someone in California could be 18 months ahead of me, and that’s enormous,” English said. “A lot of times when a new market is created, there’s a first-mover advantage. And in Massachusetts we don’t get that first-mover advantage because, many times, our entrepreneurs are delayed.”
Though finding a middle ground may not be easy, the House and Senate do agree on the need to limit noncompetes, which have also been enforced on a large range of workers, including sandwich-makers at Jimmy John’s to counselors at summer camps.
The House and Senate versions each would exempt lower-wage earners from the restrictions, release fired or laid-off workers from theirs, and require employers to notify workers when they are entering noncompete agreements.
Venture capitalist Jeff Bussgang, who has led efforts to reform noncompete policy for several years, said it has sometimes been difficult to convince opponents that something short of an outright ban is worthwhile.
“I think people have come around in the last year to really recognizing that we’ve got to compromise to see progress. But that’s a hard journey,” Bussgang said.Michael Bodley can be reached at firstname.lastname@example.org. Follow him on Twitter @michael_bodley.