WBUR

Do Noncompetes Make Mass. Noncompetitive?

BOSTON — Massachusetts lawmakers are considering a ban on noncompete agreements. Those are the clauses in employment contracts that bar an employee from working for a competitor, sometimes for several years.

The debate pits many established Bay State corporations against Greater Boston’s tech sector.

‘People Are Just Going To Move To California’

Last month, James Mitchell gave his two weeks notice. The 32-year-old told the Boston Web marketing company he worked for he was leaving to join a startup. And he was sure that he was not violating the noncompete clause in his contract.

“I have a list of 37 companies that I’m not to go work for,” he said. “The company I chose wasn’t on it. My actual boss who I resigned to hadn’t even heard of the company I was going to. And then all of a sudden in the legal documents I got it became a competitor.”

The debate pits many established Bay State corporations against Boston’s tech sector.

Mitchell’s first day at his new company, set for last week, never came to be. His previous employer decided to enforce his noncompete agreement. Mitchell said he can fight his work ban in court, but it could cost tens of thousands of dollars and take months, if not years.

“People are just going to move to California,” he said. “At the end of the day, they’re not going to deal with this. And we don’t have to. Because there’s plenty of good companies in California that pay and they don’t make you sign one of these noncompetes.”

Opponents of noncompete agreements say they stifle mobility of the labor force and are a drag on the fast-moving tech economy.

Gov. Deval Patrick agrees. His administration is asking state lawmakers to ban noncompetes, like California does. Massachusetts’ economic development secretary, Greg Bialecki, says they’re a crutch for businesses.

“If I run a workplace, I don’t have to work as hard to keep my employees happy and motivated because I know none of them can leave, and if they leave I’m going to threaten to sue them,” Bialecki said. “And so their only choices are to leave their profession and work in a different field, or leave the state.”

Proprietary Information

Supporters of the noncompete agreements, though, say they need the option.

“If you don’t like noncompetes, don’t use them,” said Chris Geehern, who’s with Associated Industries of Massachusetts, a trade group that represents thousands of Bay State companies, including manufacturers.

Geehern says they need to have the option of noncompetes to protect their competitive edge.

“These companies have invested a lot of time and a lot of money into proprietary information,” he said. “Whether it’s computer code, whether it’s genome sequencing, whether it’s a new formula for an industrial coating, they’re using noncompetes to make sure that those assets don’t walk out the door.”

Noncompete opponents say proprietary trade secrets are covered under other contracts, such as nondisclosure agreements. And they say if it’s really about trade secrets, why are noncompete clauses showing up in more sectors of the economy, including service jobs?

Pushback Against A Growing Trend

Colette Buser, 19, has worked for the last three summers at LINX, a camp for kids in the Boston suburbs.

Buser said the part-time job paid minimum wage, and this summer, she wanted to work for another camp. But LINX evoked her one-year noncompete agreement. The head of the company told The Boston Herald the techniques and training are proprietary. Buser disagrees.

“If I had gone to a new camp, I don’t think that LINX would have suffered because I had taken their secrets,” she said. “I think that most of what I did at camp was common sense and just knowledge and working with kids. I like working with kids.”

Without being able to work for that other camp, she’s been babysitting this summer instead.

The proliferation of noncompetes underlines a symptom of the transition to a knowledge economy, said Suffolk University business school professor Jodi Detjen.

“I think the big companies are really trying to protect what they have, and they’re very afraid of this innovative disruption that’s happening all around them,” she said. “But let’s be real. When you don’t allow people to be creative and move around and do all these things, you can’t innovate. It’s the exact opposite of what they’re trying to achieve.”

State lawmakers appear to be reluctant to ban noncompetes outright. They’re considering limiting them for salaried workers to six months and banning them for hourly workers.

Many in Boston’s tech sector say that would be an improvement, but that six months is still an eternity in the startup world.

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  • M_knowfler

    Non competes really are horrible because they hurt individual people and families. The companies that exercise these non competes are sheltered behind the corporate power structure and have deep pockets. So even if the non compete is ruled not enforceable, it will cost the individual 10′s of thousands in lost wages and legal fees to get to that result, whereas the corporation can just invoke these documents willy nilly for any reason with very low relative cost. The article is right. People will just move to California. MIT and other universities in Mass are just the training institutions for California companies.

  • Jason Viehland

    Non-competes stifle innovation, hurt individuals, and have had a deleterious effect on the tech sector in Boston. Companies already partner with each other in some instances while competing in others. This cooperation/competition has unlocked a lot of value for their customers and spurred innovation. The sharing of ideas is what creates a wellspring of knowledge and discussion that makes innovation happen. No one organization has a monopoly on good ideas or smart people. It’s those same people who are hurt by non-competes. While the right to work will almost always trump a non-compete, few can afford the time or money to fight a company with deep pockets. It’s all well and good if someone made a lot of money and can ride out their year but if companies really want non-competes in place, they should have to supply a years severance, benefits, and job training. Finally, over the last decade we’ve seen the impact of non-competes in Boston as tech jobs have fled to California. After 2000 when the bubble burst, California rebounded. Boston? Not so much. That should tell law makers all they need to know. If you want the jobs, you need to allow people the ability to take them.

  • AB

    “If you don’t like noncompetes, don’t use them” — thanks, Chris Geehern, for adding nothing of value to the discussion. If just one business in a sector uses noncompetes, others are likely to follow suit, giving employees little choice in the matter whether they like them or not.

    IF NCs are to be allowed, there should be limits, NOT in how long after leaving a company one must wait before joining another, but how long one must work for a company until the noncompete no longer applies (e.g., once you’ve worked for the company for 2 years, the NC is N/A).

    • rushthis

      We know who’s paying Chris.

  • crescentfang

    Employees aren’t property. If the employer doesn’t want the employee to work for a competitor for two years, he should be prepared to pay him for that long after he quits. Otherwise, the rest of us get to pay for the unemployed worker. If the employer has valuable intellectual property, he should patent it or classify it as a trade secret and limit access to it. We have laws for dealing with intellectual property. We don’t need to make employees indentured servants to protect it.

  • rickrabin

    These noncompete agreements remind me of the employment contracts of the 1920s in which employers forced employees to agree not to join a union.

  • Hyoun Park

    Noncompete agreements let a corporation own a former employee’s terms of employment. Even if the employee is fired or laid off. Even if the employee wasn’t a manager. Even if the employee has no stock in the company. It’s the continuation of a trend where corporations own a human being’s right to work. And the court system doesn’t help.

    My own noncompete has cost tens of thousands of dollars. And for a 1 year noncompete, I don’t even get a scheduled court date until next February: 17 months after I left my job. So, basically, I’ve already lost because I’m banned from working in my industry and had to spend the legal fees to defend myself after trying to start a company. That’s the reality of noncompetes: for a few tens of thousands of dollars, a corporation can block an employee from starting a new company where he or she may be highly trained either through practical training or formal education. For a company, that’s chump change. For most employees, that is a formidable barrier.

    And in many job areas, openings don’t just pop up every 6 months. You’d think government officials would know this. If you leave office for 6 months, you can’t just come back. You have to wait another 2 to 4 years to run for office again. In effect, 6 months becomes 2 years. Many jobs work the same way, where openings only appear at certain times.

  • BostonBizPerson

    Suppose a company is willing to pay an extra $10K per year to get a non-compete and will be able to trust you better and give you more responsibility. Do you want the government to be able to block you from signing up? Or should the choice be in your hands? It seems like we should allow private parties to contract. The place to focus then is on blanket application of noncompetes, or using noncompetes for the young and non-sophisticated who may not fully appreciate the gravity of their decision until too late. By this logic, the compromise being discussed sounds like a good one. I would also support a selective cancel of non-competes for just the computer IT sector – give that a try for 2-3 years and see how it goes.

    • oregon moonbeam

      BostonBiz Person, an employee would be a fool to sign over their right to seek employment in their field for 2-3 years for a mere $10k. If you are out of your field for 2-3 years good luck finding employment. Your employment in that field may have ended, and $10k is not going to get you far. $250k might be more in line for Consideration.

      Right now, in most states besides CA and ND, employers hold all the cards. IMHO noncommpetes should only be applied in the rarest of circumstances, like when the owner of a company sells a business that includes all the IP. Otherwise, all these restrictions of noncompetes vastly restrict the free marketplace for employees. If companies want to keep the valuable talent, then keep them happy so won’t consider leaving. Many times it’s not about the money, but the opportunities available and challenges.

      One may feel they are in a rut and in a dead-end position at their company, and they should be able to freely market their talents and explore other opportunities, like professional sports players. No one asks sports players to sit on the sidelines for 2 years. I realize they are under contract for a period of years, and the analogy is not exactly the same, but it similar in that at the end of their contract they are Free Agents, and can go anywhere they able to negotiate another contract. Where is the end of the contract on these Employment Agreements? They seem to live for 2 years or so after the employee departs or is fired. That’s not right, and not of the American tradition of freedom.

      • BostonBizPerson

        Fair points and the selling owner is a perfect example of where noncompete should be allowed and might be worth millions higher exit to the owner is legally able to agree to that… As for the $10K, it comes down to the breadth of the noncompete and your skill set. Courts have usually held that non-competes can not be so broad as to deprive a person of their livelihood. If I am a mechanical engineer who works for Bose and the non-compete says “not to work for a rival consumer products company” then $10K is too little; but if it says “not to work for a rival audio speaker company” then I think most people would rather have the extra $10K. Anyway the point is that we should narrow and limit non-competes rather than prohibit them entirely, which is why the compromise approach is reasonable.

        • oregon moonbeam

          I agree that for some cases, like owners selling companies for megabucks and not being allowed to start, or work for a competitive company for a 2 yrs or so is reasonable for not having a complete ban for everyone.

          The only Courts that seem to matter are those in the state where one is sued. I actually live in a different state than the one which the company that I worked for resided, yet I was subject to their state rules on these matters. So, just because some court somewhere has ruled about noncompetes being so broad as to deprive a person of their livelihood, in some states they are allowed to be very broad, either in chosen field or location of working. In some location based noncompetes they force a person to move away from the area, or even state, in which they live in, in order to carry on their livelihood

          Suppose your mechanical engineer was a specialist in audio technology, and that acquired technology, either through education or work experience, allowed him /her to command a certain compensation, then the fact this this was narrowly defined actually restricts him/her from seeking employment is his/her particular area of experience. Thereby restricting his/her ability to earn compensation commensurate with their experience and expertise.

          Surely they could specialize in something else and become as valuable, but who knows whether an opportunity like that would exist, or how much time it would take.

          Even if that experience comes from the company that they were working for, do they “own” that in you? Do they own what you can retain in your mind that they “taught” you? My former employer that sued me argued that they did, and I think that a lot of these noncompetes are really about that, ownership and freedom.

          $10k is nothing when it comes to what it takes to even stand up and put up a reasonable fight against corporations with money to burn in order to make you their precedent against others leaving, or if they do have a real fear that by you going to a competitor it is going to do irreparable harm to them.They may think they have their interests to protect, and many may be willing to bankrupt you to make their point.

          Who knows what circumstances of employment opportunities will exist when one parts company for any reason, including getting laid off or fired. As a minimum and noncompete should null and void is laid off.

          Anyway, we agree on a lot in this matter, and I don’t live in Mass, but I hope all of you there can come with a reasonable compromise that does not restrict the average Joe & Sue from pursing their life’s happiness with the liberty to freely work for whom they want, yet if they are so lucky to sell their business and IP for a lot money, that they would be willing to live with restrictions that would have reasonable protections for the buyer.

          • BostonBizPerson

            Thanks you seem lucid and level-headed about this. The acquired technology example is exactly the core of the issue – Bose wants to be able to share its secrets with the new employee without having them walk to competitors. Some secrets are easily protectable by patent and NDA; but some are not easily protectable and so Bose requires the noncompete. Personally I think that is reasonable and may be a reason for Bose to locate its R&D in a particular state, and R&D is a key industry that Boston cannot afford to lose and has attracted a lot of investment (especially pharma/biotech). A limitation to consider is that if Bose later fires the employee without cause, should the non-compete be voided? (that’s not the case now). Maybe big Pharma firms could live wth that. Where we really should loosen up is when dot-com A hires a programmer and tries to use a non-compete to block the programmer from working for any other dot-com. In any case, thank you for a good discussion.

          • oregon moonbeam

            Thanks! Having had to spend my life savings and remortgage my house in order to continue employment after being sued for allegedly violating a non-compete could have made me quite jaded about this issue, but I try to see both sides. I am certainly biased having experienced firsthand the horror of what can happen to you when you decide to change jobs and further your career. I had no knowledge of non-competes, until I was sued for allegedly violating their interpretation of what they claimed was an non-compete. Maybe I naive about this, how could I have known when my former employer never once said that I couldn’t leave for a competitor, like I had done by joining them for 8 years. BTW, I had only signed an non-disclosure, but it was interpreted by them that it was non-compete. That a Federal Court would even allow a case such as mine to proceed was unbelievable. At least all this press is bringing this issue to light as I’m sure many employees are a naive as I was.

            I have one question though, wouldn’t a non-disclosure protect the employer from a former employee from disclosing Trade Secrets and Proprietary Information?

            My non-disclosure pretty well covered this, but my former employer used the Inevitability Clause to claim that by the mere fact that I would be working for a competitor that I would inevitably be forced disclose these infamous Trade Secrets. My attorney was sure they would have lost this case on the merits of not really being a non-compete.

            The “so called” training and knowledge that I had gained mostly came from the 17 years I had worked in my field by the first company that I worked for, yet the 2nd company (the one that sued me) claimed they “owned” all the knowledge I had gained over my lifetime in the field, and that I could not apply that knowledge to work for a competitor. Now, if they had offered me $500,000 to sign away my right to never work for anyone where I would use my knowledge to help a competitor, I probably would have never left. The ironic thing is that they probably spent more than that in their effort to prevent me from working in my field for anyone that they considered to be a competitor.

            Somewhere in all this are lessons to be learned, and some room for compromise and reason to protect employer and employees.

            One thing I’d like to see that if there is a dispute in any of these issues that it would mandatory to go to an Arbitrator before any litigation can proceed. That is what I have written into my Settlement Agreement. I think most issues could be economically be resolved without very expensive litigation. Maybe moving this to Labor Board, at least as first step, before entering the Court System. At least this would give employees a fighting chance to air the merits of the case without costing them their financial health.

            Thank for the reasonable discussion.

    • chris9465

      there is nothing good about non compete agreements its indentured servitude

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  • Nicole

    I don’t like noncompete clauses because I think that for the most part, people bring their own education and innovation to a company much more than a company imparts “secret” information, which is already covered under nondisclosure agreements. People should have the right to work where they wish, and employers should have to compete for the most skilled workers. But if a company has a noncompete clause, there should be an easy way for employees to discover which companies they cannot work without their employer knowing they wish to leave. If you go out and get an offer from a company you believe you can work for, tell your current company, and only then find out it violates your agreement, you may have to stay at your current job but your current employer will have it in for you knowing that you want to leave. Or they will just fire you, because most employees are at-will and there’s nothing to protect you from that.

  • blah99999

    I actually testified during the senate committee meeting these quotes are referencing. I don’t have a problem with non-competes. As long as the company pays full salary and benefits to the leaving employee for the duration of their “confinement.” It’s a good idea because it gives the company a choice: Does that employee really have that much trade information that makes it worth a non-compete? Or can we just get by with letting him go.

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