Noncompete contracts in Massachusetts? Lawmakers are near a deal
Negotiators on Beacon Hill say they’re closing in on a compromise to restrict the use of noncompete contracts, after a previous effort collapsed in the final hours of the Legislature’s last two-year session.
Senator Jason Lewis and Representative Paul Brodeur, cochairmen of the Labor and Workforce Development Committee, said they are hopeful a version of the legislation will pass the House and Senate this year, ending a decade-long tussle over the issue.
“There’s enough history now with noncompete legislation,” Lewis said in an interview. “We’re fully aware of what the hot-button issues are and where there’s likely to be concern. . . . I have confidence that we can achieve that reasonable compromise.”
Brodeur, meanwhile, issued a brief statement, saying the two chairmen are making progress and that he is “eager to finally put this issue to rest.”
Employers use noncompetes to prevent workers from jumping to rivals or starting their own competitive firms for a certain period of time. Critics say they are too broadly used — often for low-paid workers — and hinder the growth of new businesses.
There are still some issues to be worked out between House and Senate negotiators. The legislation will most likely include noncontroversial elements such as bans on using noncompetes for lower-paid hourly workers, such as camp counselors and sub-shop employees. But the two sides have yet to agree on how long noncompete contracts can remain in force. In 2016, the House leadership supported up to 12 months, while the Senate backed a three-month limit.
Another potential sticking point: the wording for how departing employees should receive payments, known as “garden leave,” while their noncompetes are in effect.
Longtime opponents of noncompete contracts say the Legislature is overdue in reining them in. They note that California, a state that effectively bans noncompetes, dominates various high-tech industries.
“Noncompetes are a clear barrier to innovation,” said Paul English, chief executive of the travel tech startup Lola. “They are not used in California, and the tech industry there seems to be doing just fine.”
Venture capitalist Jeff Bussgang noted that California has many large public tech companies, compared to relatively few in Massachusetts, and “shockingly few” venture-backed startups in the state worth more than $1 billion. Massachusetts “would benefit from more local competition, not less,” he said.
There’s renewed optimism among some critics that new limits can become law this time around. There are new chairmen, Lewis and Brodeur, at the committee that oversees the issue. Moreover, several big business groups that once categorically opposed noncompetes eventually supported a compromise from House Speaker Robert DeLeo by the end of the last session.
Another factor: The tech giant EMC, among the most aggressive defenders of noncompete contracts, has since been acquired by Dell. Supporters of changing the law hope Dell won’t put up the same kind of fight.
“Dell uses noncompetes in a thoughtful and targeted manner to protect its confidential information and trade secrets,” spokesman Dave Farmer said in a statement. “Dell’s noncompetes are reasonable in scope, enforced judiciously, and designed to allow ex-employees to obtain employment that will not put Dell at risk.”
Another influential defender of noncompetes, Associated Industries of Massachusetts, supports a bill filed by House minority leader Bradley Jones that resembles the one DeLeo backed in 2016. The bill would limit noncompete contracts to 12 months and require employees to receive garden leave pay equal to at least 50 percent of their previous salary, or “other mutually agreed upon consideration.”
“At the beginning of this debate, we clearly didn’t want any changes to noncompetes,” said AIM’s executive vice president, Chris Geehern. “We recognized that there are some reasonable limitations you can put on noncompetes and not fundamentally alter the way they’re used in most businesses.”
That said, some big-business groups, including AIM and the Greater Boston Chamber of Commerce, remain skeptical that noncompetes hurt the state’s competitiveness.
The chamber’s chief executive, Jim Rooney, pointed to the downside of not having them in California, where companies invest time and money in recruiting and training workers, only to see them snatched up by competitors. The labor market in California, he said, “is like the Wild, Wild West.”