Bill to limit noncompete deals includes a surprise catch
A bill to limit corporate noncompete agreements advanced in the Legislature Monday, but it includes a surprise provision that some big companies may not support.
The Labor and Workforce Development Committee approved compromise legislation with terms similar to those outlined in a March speech by House Speaker Robert A. DeLeo. Legislative leaders are seeking to address the concerns of tech entrepreneurs who argue that noncompete clauses stifle innovation.
As expected, the bill would limit nearly all such agreements to one year and prevent them from being applied to most hourly workers.
Employers also would need to notify new hires before they start working if they will be governed by a noncompete agreement.
At the time of DeLeo’s speech, business groups that had opposed eliminating noncompetes altogether seemed amenable to the compromise.
But there’s a new provision that could jeopardize that support among big employers: The bill’s “garden leave” provision would require an employer to continue paying a worker with a noncompete agreement who leaves half of his or her salary until the contract expires.
“That was unexpected, and I think would be a problem for us,” said the Greater Boston Chamber of Commerce’s chief executive, Jim Rooney. “It creates a dynamic in which an employer would have to basically pay someone for not working. . . . This doesn’t feel right.”
Chris Geehern, an executive vice president at Associated Industries of Massachusetts, said he remains hopeful a compromise can finally be reached. But he said his group’s leaders were disappointed to learn about the garden-leave provision.
Employees who sign noncompetes are typically paid more at the outset, he said, to reflect the noncompete agreement. “In essence, they’re already being compensated for that noncompete period,” Geehern said.
Representative John W. Scibak, the South Hadley Democrat who chairs the labor committee and is a key architect of the bill, defended including the garden-leave provision.
“If there’s value in terms of keeping a particular employee out of the market, if you will, then that employee has some value, and I think that value is worth considering in terms of some compensation,” he said Monday.
Bills that would rein in noncompete agreements have been batted around Beacon Hill for years. Some would have eliminated them outright, while others would have imposed time limits.
A number of big employers — most notably the tech giant EMC Corp. — rely on noncompetes. Their advocates argue that these contracts prevent important trade secrets from flowing to rivals, and that the state is already a hotbed of innovation — even with noncompetes in use.
Efforts to limit noncompetes gained traction in 2014, when the state Senate agreed to a bill that could have made it tough to enforce the contracts for more than six months and would have prohibited them for hourly workers. But DeLeo and other House leaders declined to go along with that proposal, saying they needed more time to study the issue.
With the new bill, DeLeo wants to address the most egregious applications of noncompetes, after hearing reports of sandwich shops and summer camps applying them to lower-wage workers.
“I heard from employers and employees alike on this legislation,” DeLeo said Monday. “I feel that with this bill, that we’ve struck that proper balance.”
The 12-month limit in this bill was viewed as more palatable to big employers that rely on noncompetes than a six-month limit. EMC’s general counsel in March responded favorably to the points that DeLeo outlined then.
Many members of the startup community would prefer to see noncompete agreements prohibited, arguing they are detrimental to innovation. Such contracts are generally banned in California, one of Massachusetts’ biggest competitors for talented technology employees and promising startups.
It’s unclear when the new bill will head to the House and Senate floors for votes, before heading to the governor’s desk if it is approved. The bill was written with input from legislators in both chambers. Lawmakers plan to adjourn from formal sessions for the year on July 31, so some action is likely to take place before that deadline.
Asked about the bill on Monday, Governor Charlie Baker sounded positive, though noncommittal, saying that his staff still needed time to review the language.
“We felt all along the issue was less about whether we have them or not,” Baker said, “and more about if we do have them, what’s the nature of them, how do they apply, who do they apply to, what’s the length of time, and all the rest.”
To Representative Lori Ehrlich, getting this far in the legislative process — including the House speaker’s endorsement — represents a big victory. She said she has been pushing for changes for nearly eight years.
“Sometimes complicated subjects take a while to reach critical mass, and I think we finally just reached that point,” said Ehrlich, a Democrat from Marblehead.
“Every hearing on this issue was packed, and testimony was heart-wrenching, oftentimes, and really lopsided in favor of reform. People were faced with financial run, and others rendered unemployable. And oftentimes, they don’t remember signing noncompetes on their first day of work.”