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House Passes Bill Placing New Restrictions On Non-Compete Agreements

Tackling an issue that is particularly sensitive in the state's high-tech sector, the Massachusetts House on Wednesday approved a bill that restricts the use of non-compete agreements — clauses included in contracts to prevent employees from jumping ship and bringing their knowledge to competitors.

Drafted by the Labor and Workforce Development Committee, the bill (H 4323) would limit the length of non-compete agreements in most circumstances to 12 months, and prohibit employers from enforcing the agreements on minimum wage workers, college students or employees 18 and younger.

"The use of non-competes has pervaded every sector of the economy and they are being used in increasingly egregious ways. The time has come to rein in their use and provide employees with information and a small measure of leverage," said Rep. Lori Ehrlich, the bill's original sponsor. "In a masterful balance, the bill before us not only deals with the most egregious applications, but also sets limits on how they can be used legitimately."

Under the bill, non-compete agreements should be "no broader than necessary" to protect trade secrets and confidential business information and must be "reasonable in geographic scope."

A "garden leave clause" guaranteeing that workers leaving a job be paid half of their salary for the duration of their restricted period would also be required in any non-compete agreement under the bill. The House adopted an amendment to the bill Wednesday that would allow for "a mutually-agreed upon consideration" as an alternative to salary payments if both sides agree.

The legislation also proposes to adopt the Uniform Trade Secrets Act to offer protections for proprietary business information and trade secrets.

"There seems to be consensus both on the part of employees and on the part of employers that there are practices that need to be addressed," Rep. John Scibak, House chair of the Labor and Workforce Development Committee, said. "If we look at it objectively, some can argue that there appears to be an imbalance of power to some degree between the rights of employees and the rights of employers."

The bill, which sponsors said was years in the making, passed the House unanimously after little debate. Similar efforts fell short last session.

"The use of non-competes has pervaded every sector of the economy and they are being used in increasingly egregious ways. The time has come to rein in their use and provide employees with information and a small measure of leverage."

Rep. Lori Ehrlich

Gov. Deval Patrick also tried to outlaw non-compete agreements before he left office, but encountered opposition from the business community, including trade groups like Associated Industries of Massachusetts.

But AIM said the bill that went before the House on Wednesday represented a middle road and thanked House Speaker Robert DeLeo for engaging the business community in "productive discussions" on the issue.

"The speaker recognizes the need to protect business interests at a time when non-competes are a vital part of protecting investments and ideas created by employers of all sizes and from all industries," AIM Executive Vice President of Government Affairs John Regan said in a statement.

DeLeo on Wednesday said he heard arguments that non-compete agreements stifle innovation and economic development, but also listened to the business community's reasons for requiring employers to sign such agreements.

"What we did with the legislation, what the chair did, is to take both of those sides and come up with a much more balanced approach allowing non-competes but putting much more restrictions to them than there ever have been," DeLeo said. "Some of the stuff, by the way, was just absurd in terms of having someone who works at a sandwich shop as soon as they got out of college signing a non-compete."

The bill now moves to the Senate, which included a restriction on non-compete agreements in an economic development bill last session.

"The Senate did non-competes last term," Senate President Stanley Rosenberg told reporters Monday. "We're looking forward to seeing a bill from the House."

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