Mass. Senate advances bill to limit noncompete contracts
The Massachusetts Senate on Monday advanced a bill that would sharply restrict the noncompete agreements companies use to prevent employees from leaving to work for a competitor or to start a rival firm.
The measure, approved by the Senate’s Rules committee, differs in two significant ways from legislation the House of Representatives approved in June.
First, the Senate would limit the time period during which a noncompete can be enforced to three months after the employee leaves a company. The House would allow restrictions to last one year.
The Senate bill also uses a more generous definition of so-called garden leave, in which companies would have to continue to pay the departing employee during the period of the noncompete agreement. In the Senate plan, the employee would receive the full amount of his or her regular pay for that period; under the House version, employees would get 50 percent of the salary.
The Senate is expected to debate the bill Thursday.
The two chambers appear to agree that noncompetes should not be allowed in wide swaths of the workforce, after lawmakers heard testimony about lower-wage workers such as camp counselors and sandwich shop workers being hit with such restrictions. Both measures would protect hourly workers up to a certain wage threshold from noncompetes.
But the major differences between the House and Senate all but assure that this issue will be decided by a to-be-appointed conference committee consisting of three negotiators from each chamber. They won’t have much time to reach a deal: Lawmakers adjourn their formal sessions for the year on July 31.
If they can pull off a compromise, legislative leaders would end years of debate over whether the state should restrict noncompete agreements.
In California, noncompetes are essentially illegal. For that reason, leaders in the Boston area’s startup and venture capital communities have argued that the region’s tech ecosystem is at a decided disadvantage when competing for talent with Silicon Valley. Many of the critics say noncompetes should be eliminated completely, as in California.
The debate has been a divisive one for Massachusetts’ tech community. Some big employers, such as EMC Corp. in Hopkinton, and their advocates have argued that noncompetes protect their intellectual property by preventing former employers from sharing confidential company information with competitors. They can also work as a buffer against losing employees in whom time and money have been invested.
Some companies have sued former workers who jumped ship to competitors to enforce the noncompete agreements.
In the past, the Senate has shown an interest in reining in noncompete contracts. In 2014, it approved a measure that would have made it tough to enforce noncompetes beyond a six-month period. But the plan died after the House opted against it.
House Speaker Robert DeLeo revived hopes for critics of noncompetes when he said in March that his leadership team would support restrictions, resulting in the legislation that was passed unanimously in late June.
That version was an attempt at a compromise, one that big companies and their trade groups could support. It included an alternative to the garden-leave provision that would allow companies to opt for a “mutually agreed upon consideration” instead. The Senate version appears to require that this alternative be equal to or above the worker’s full level of pay.
Other elements in the Senate version that are similar to the House bill include exempting college interns, most teens, and laid-off workers from the restrictions. And recruits would have to be notified they would be subject to noncompetes before starting a job.