Technology business leaders sparred over employee noncompete contracts Thursday in a hearing at the State House, with some urging the Legislature to adopt Governor Deval Patrick’s proposed ban on the restrictive covenants and others claiming such a change would make it easier to steal corporate secrets.
The governor’s bill, filed in April, has divided one of the state’s fastest-growing industries, which less than a year ago mounted a successful campaign to repeal a new tax on software services by presenting a strong, united front. This time, however, there is a deep schism between those who believe noncompete agreements stifle innovation and those who say they are an important tool for retaining talent and protecting intellectual property.
The sides are generally split according to size, with large, established employers such as EMC Corp., Boston Scientific Corp., and Covidien 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.
“Companies in Massachusetts owe it to their employees to create a culture where they actually want to stay and be innovative, or leave and not fear that they’re going to get sued,” said Gwill York, cofounder of Lighthouse Capital Partners in Cambridge, adding that she once missed a year of work because of a noncompete agreement. “Noncompetes really do matter — they’re like a silent killer.”
Opponents of the noncompete ban were represented at the hearing by prominent business associations, including the Greater Boston Chamber of Commerce and Associated Industries of Massachusetts. John Regan, AIM’s executive vice president for government affairs, rejected the common complaint that workers are forced into onerous contracts.
“The agreements are entered into willingly and freely,” he said. “In talking to my members, that’s how they understand them, and they want the ability to continue to use those tools if they think that’s the best course for protecting their intellectual property.”
Patrick’s bill would render virtually all employment agreements that block workers from taking jobs at rival firms or launching competing businesses unenforceable in court. The proposal covers all business types but has drawn heightened attention from the tech sector, where competition for talent and ideas is particularly fierce.
Currently, some companies require employees to sign contracts that bar them from working for competitors for a year, or longer, after leaving. About half of all tech workers in the state are bound by noncompete clauses, according to a survey by Matthew Marx, a career development professor at the Massachusetts Institute of Technology. As a result, workers looking for new jobs sometimes must change industries, sit out of the workforce while their contracts expire, or risk lawsuits.
Adding fuel to the debate is the fact that California, the nation’s unofficial tech capital, does not permit noncompete agreements in employment contracts. All other states allow noncompete clauses in some form.
Supporters of the Patrick bill argued that Massachusetts ought to mimic California to strengthen its technology sector — or risk losing more talent to the West Coast.
Several entrepreneurs and venture capitalists said they often advise local college students to move to California to preserve their employment mobility.
Jim Klocke, the Greater Boston chamber’s executive vice president for public policy, contended California is actually a poor model because its unemployment rate is higher than Massachusetts’s.
“If we’re looking for ideas to be swapped, California should look to borrow Massachusetts’s policies, rather than the other way around,” he said.
Under the governor’s plan, other restrictions would remain legal, such as prohibitions on soliciting business from a prior employer’s clients or trying to hire away former colleagues.
To protect companies’ intellectual property, Patrick has proposed adopting the Uniform Trade Secrets Act, which 48 other states and the District of Columbia use to stop workers from taking proprietary information about businesses with them to new firms.
Thomas Erickson, chief executive of Burlington cloud computing firm Acquia Inc., testified that his company relies on nondisclosure agreements to safeguard intellectual property and said noncompete contracts are unnecessary — especially if the act is in place. Acquia dropped noncompete clauses from its employee agreements earlier this month.
Workers from the technology sector and beyond told the Joint Committee on Economic Development and Emerging Technologies that in many cases, noncompete contracts go beyond efforts to protect company secrets and are designed to lock employees into their current jobs and deprive rival companies of qualified labor.
Cimarron Buser, senior vice president of business development at Boston-based Apperian, which makes software for managing enterprise mobile apps, said even his teenage daughter signed a noncompete agreement when she took a summer job as a camp counselor. The contract barred her from working at any other camp within 10 miles the following summer.
Representative Joseph F. Wagner, a Chicopee Democrat who is the House chairman of the committee, said he has not decided whether he will support the ban, but suggested proponents may be overstating the importance of eliminating noncompete clauses.
“I am not sure if it is front-burner issue. I do think the governor is interested in positioning it as a front-burner issue,” said Wagner. “His interest has driven, at least from my perspective, a good dialogue and a healthy dialogue.”