House and Senate negotiators failed Sunday night to reach a compromise on a bill to restrict corporate noncompete contracts in Massachusetts, a big disappointment for the local startup community.
The failure leaves unresolved one of the most contentious debates in the state’s technology sector, pitting established employers against fast-growing startup companies and their investors. Although the Senate and House each passed a noncompete bill, the two sides were unable to come to agreement in time for the end of the Legislature’s formal session.
Noncompete agreements give companies the right to sue a former employee who starts a new company or joins a competing business. Once an obscure bit of hiring paperwork, the contracts have become a source of bitter argument between powerful factions in the state’s business community.
The details vary, but workers who sign a noncompete might have to sit out of the labor force for a year or more after leaving a job. Noncompetes can remain in effect even if an employee is laid off.
Many large employers, including technology heavyweights like EMC Corp. and Boston Scientific Inc., have argued that noncompetes protect Massachusetts companies from competitors who might siphon away top employees and valuable trade secrets.
In a letter to state lawmakers, several of the state’s top business groups—including the Greater Boston Chamber of Commerce and Associated Industries of Massachusetts—argued for limited changes that would leave employers with leeway to enforce noncompetes.
“There is little evidence that the use of non-compete agreements harms Massachusetts’ position as a globally recognized leader in innovation,” the groups wrote.
The state’s technology startups, however, contended that noncompetes stifle innovation by restricting the free flow of talent and blocking would-be entrepreneurs from launching companies in the industries they know best.
Altering the state’s noncompete laws has become the top political priority for the New England Venture Capital Association, which represents the investors who back hot new startups. They point out that such contracts are mostly barred in California, which long ago seized the title of tech-industry capital.
“We are encouraged that legislators in both the House and Senate agree with our position: that noncompetes are both unfair to workers and bad for the economy. We look forward to continuing to work productively with our civic leaders on this issue, and a wide range of other matters going forward,” said Jody Rose, director of the New England Venture Capital Association.
The two sides’ final disagreement revolved around a so-called garden leave, which would require companies to pay former workers to stay out of the job market.
The House’s approach would have limited the noncompete period to one year, and required employers to pay half the worker’s salary. The Senate version would have limited those leaves to three months, and required a full salary.
The House version also would have allowed companies and workers to substitute garden leave pay for some other mutually agreed-upon arrangement. But venture investors and startups argued that language was so vague that it could allow companies to provide essentially no compensation.
Governor Charlie Baker said he supported limiting noncompete agreements, but favored the House’s approach.