Legislative session comes to a close without action on noncompete reforms
Advocates for curbing the use of noncompete agreements will soon run up against the same obstacle that has blocked reform efforts in the past: the legislative calendar.
They missed a Tuesday deadline to get versions of a bill to limit noncompete agreements sent to a conference committee — a panel of negotiators that’s typically appointed to resolve differences between the House and Senate on controversial or complex legislation.
Sponsors want to limit how companies can use noncompetes, which typically prevent former employees from working for a direct competitor for a set period of time. They are often used in the technology sector, but critics say the clauses stifle innovation because they prevent workers from pursuing new options in their field.
Two senators who favor curtailing noncompetes, Will Brownsberger and Jason Lewis, say they haven’t given up. They may try one last maneuver before formal sessions end for the year on Beacon Hill on July 31: attaching a noncompete measure to other legislation moving through the Senate — in this case, an economic development bill. To succeed, the version would need to closely resemble one previously supported by House Speaker Robert DeLeo but that was opposed by the venture capital industry.
Brownsberger, for one, is ready. “I have a lot of respect for the House’s position, and it really moves the ball forward in some positive ways,” Brownsberger said.
Many entrepreneurs and venture capitalists want to eliminate noncompetes entirely, arguing that the tech industry in California has thrived because noncompetes are essentially illegal there.
But many larger companies and their trade groups want to keep them in some form. Two years ago, DeLeo brokered a compromise that would exempt lower-paid hourly workers and interns from noncompetes, and limit such agreements to one year for other employees — still too long for some in the venture capital community.
However the real sticking point is a provision known as “garden leave” that would require employers to pay workers half of their salaries during the noncompete period, or some other ”mutually agreed upon consideration.”
Venture capitalists and others say that last phrase essentially amounted to a giant loophole, and the disagreement was the main reason a compromise effort died two years ago. And now lobbyists for business groups said they expect the issue is again dead this year.
“There are still sore feelings about the deal two years ago, and how that fell apart,” said Carolyn Ryan, with the Greater Boston Chamber of Commerce. “At the end of the day, the question is, is this an issue that is going to make or break Boston’s economic health? I feel like there are bigger issues to deal with right now.”
Ryan said business executives are concerned about new employees who receive upfront payments when they’re hired then being eligible for another payout if they leave to work for a competitor.
But the New England Venture Capital Association remains opposed to any way around a 50 percent pay requirement.
“That ‘mutually agreed upon’ language basically renders the garden leave clause null and void,” said Jody Rose, the venture capital group’s president. “You’re hamstringing people for [up to] a year.”
John Bauer, a partner with the law firm of Lawson & Weitzen in Boston, said the compromise language backed by DeLeo doesn’t represent meaningful reform. Bauer, who backs a full prohibition as in California, said a one-year ban isn’t substantive because judges in Massachusetts rarely would enforce a noncompete for longer than that term.
“There is simply growing evidence that noncompetes are bad for the economy, they discourage entrepreneurship and discourage employee mobility,” Bauer said.
In previous years, EMC Corp. had been the most vocal corporate supporter of noncompetes, but seemed willing to go along with DeLeo’s one-year compromise. The company has since been acquired by Dell, which also uses noncompetes. A spokesman said Dell is willing to work with government leaders on a “balanced approach that prioritizes fair competition while promoting innovation and talent advancement.”
Representative Lori Ehrlich, another advocate for noncompete reform, said she remains hopeful something can get passed in the next two weeks — if just for the thousands of low-wage workers who would benefit.
“We had come awfully close . . . last session,” Ehrlich said. “By not having it over the line, all these people were left unprotected.”