In shift, DeLeo seeks to limit noncompete job contracts
House Speaker Robert A. DeLeo vowed Wednesday to put new limits on contracts that restrict employees from working for competitors, breathing new life into a long-running reform campaign that has divided the Massachusetts high-tech sector.
In a speech to the Greater Boston Chamber of Commerce, DeLeo said noncompete agreements should be limited to one year. He said the contracts should not apply to lower-wage workers, such as sandwich-shop employees.
Workers also should be clearly informed that a noncompete agreement is required before taking a job, DeLeo said.
“Our goal will be to protect businesses here and improve Massachusetts’ reputation as the premier incubator for talent,” DeLeo said.
His support for compromise legislation on noncompete agreements was welcomed by major employers, including EMC Corp. of Hopkinton, which has been a longtime supporter and enforcer of noncompete contracts.
But the details of DeLeo’s proposal irked some in the state’s startup sector, who said having any restrictions that prevent workers from taking new jobs makes Massachusetts less competitive with a state like California, where noncompete agreements are largely banned.
The timing of the bill’s release was unclear, although state lawmakers have only until the end of July before formal sessions end for the year. A spokesman for Senate President Stanley Rosenberg said he isn’t going to comment until he sees the specifics of DeLeo’s proposal, but noted that Rosenberg supported noncompete reforms in 2014.
Noncompete agreements give companies the ability to sue a former employee who takes a similar position in the same industry. Supporters of the agreements say they are an effective way of preventing workers from leaving with valuable trade secrets.
Opponents argue that such agreements stifle innovation by handcuffing people to their jobs, preventing bright employees from launching their own startups or joining fast-growing rivals.
Noncompete agreements typically range from one to two years in Massachusetts, although some are longer, said Christopher H. Lindstrom, a lawyer at Nutter McClennen & Fish. Judges can decide to amend a noncompete agreement, but two-year agreements aren’t usually seen as overly burdensome, he said. “There’s no question that limiting it to 12 months would have a significant impact on a lot of employers out there,” Lindstrom said.
Venture investors and technology entrepreneurs have made noncompete reform a central part of their public policy lobbying during the past few years. Those efforts gained traction on Beacon Hill in 2014, when the Senate approved a bill that would have made it tougher to enforce noncompete contracts that last longer than six months and prohibited their use for hourly workers.
One story that particularly resonated with lawmakers came from a college student from Wellesley who told them she had lost her summer job at a camp when management realized she had a noncompete agreement in effect with a nearby camp.
DeLeo and other House leaders declined to go along with the Senate at the time.
“Having him support reform really feels like progress,” said Jody Rose, executive director of the New England Venture Capital Association.
EMC’s support is also significant. The company has previously opposed efforts to change noncompete laws, but EMC’s general counsel, Paul Dacier, said Wednesday that DeLeo’s proposal “protects legitimate business interests while ensuring continued growth of our state’s innovation economy.”
DeLeo and his staff worked closely with business leaders, including the Massachusetts Competitive Partnership, during the past year to fashion a compromise bill. The involvement of the partnership, which consists of some of the most powerful CEOs in the state, started about a year ago, president Daniel O’Connell said. “The group felt they could provide some constructive input about a compromise on the issue,” he said.
EMC’s chief executive, Joe Tucci, is among the partnership’s members, but O’Connell declined to disclose the specific stance of any individual members. He said his group reached a consensus on the issue, and that the consensus is reflected in the reforms suggested by DeLeo on Wednesday.
“The speaker did not address all of our recommendations, but we felt he hit all the important points,” O’Connell said. “Twelve months seemed like a reasonable compromise to protect the intellectual property of employers and also allow employees to plot their own career paths.”
Associated Industries of Massachusetts, another business group, had been one of the most vocal supporters of noncompetes. But spokesman Chris Geehern said DeLeo’s proposal appears to be a reasonable compromise. He said DeLeo consulted with AIM several times before Wednesday’s speech.
Democratic Representative Lori Ehrlich of Marblehead has aggressively pursued bills to eliminate or restrict noncompetes for years. She said she would prefer a ban on them, but sees DeLeo’s approach as a big step forward in the debate.
Some notable members of the state’s tech sector, however, panned DeLeo’s plan as too limited.
Travel-tech veteran Paul English noted that he had to wait 18 months to start his newest company, Lola, to avoid a lawsuit under his noncompete agreement with a previous employer, Priceline Group. Restricting noncompete agreements to one year, he said, would still seriously limit entrepreneurship.
“I frankly think it’s just so weak that it almost has no impact,” English said. “To me, it’d be kind of like the new mayor of Flint, Mich., saying ‘Let’s just clean up half the water. We’re still going to make kids sick, but they’ll be a little bit less sick.’ ”
And Bijan Sabet, an investor with the Boston venture firm Spark Capital, said, “Why do employees in our state have less rights than employees in California?”
Jeff Bussgang, a general partner at another Boston venture firm, Flybridge Capital Partners, sees DeLeo’s stance as a positive development, but acknowledged that progress has been slow, especially for startups that are used to the fast pace of the innovation sector.
“I’ve been working on noncompete reform for like five years,” Bussgang said. “As an entrepreneur, it doesn’t make any sense. You’re like, ‘Problem? Solve the problem. What could be simpler?’ ”