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A Gap In Noncompete Legislation Still Leaves Fast Food Workers Exposed

Low-wage workers, from fast-food to construction, are being asked to sign binding noncompete agreements. (Wikimedia Commons/Jimmy John's Franchise, LLC)
Low-wage workers, from fast-food to construction, are being asked to sign binding noncompete agreements. (Wikimedia Commons/Jimmy John's Franchise, LLC)
This article is more than 2 years old.

State lawmakers passed a partial ban on noncompete agreements in Wednesday's wee hours, finding middle ground in a debate that for years has pitted companies against their employees.

Noncompete agreements would be limited to one year for most workers, while employees classified as "non-exempt" under the federal Fair Labor Standards Act — typically low-wage, hourly workers — could no longer be blocked from joining competing businesses after leaving their jobs.

That means a fast food restaurant could not bar a line cook from jumping to a rival burger joint. The same restaurant could, however, stop the cook from taking a better job at another location within the chain.

Such restrictions on the career mobility of fast food workers are known as "no-poach" agreements. They are different from noncompete agreements and are not addressed in a broad economic development bill that would take effect Oct. 1 if signed by Gov. Charlie Baker.

Massachusetts Attorney General Maura Healey, along with her counterparts in nine states and the District of Columbia, launched an investigation in July into the "no-poach" practices of fast food chains. Some fast food companies quickly pledged to end the restrictions, but others have kept them in place.

Healey's office said Wednesday that the bill passed by state lawmakers would have no effect on the probe.

Companies in various industries say restricting where and when former employees can work after leaving is the only way to protect intellectual property. Associated Industries of Massachusetts, a trade group representing more than 4,000 employers in the state, pushed to preserve businesses' ability to enforce noncompetes.

Chris Geehern, AIM's executive vice president, said the group is pleased that the bill passed on Wednesday would allow companies to sign salaried workers to noncompete agreements that forbid them from joining rivals for one year after leaving.

"The most important thing that we were looking at, in terms of the compromise, was the bill recognizes the fact that workers and companies often have some kind of financial arrangement when someone signs a noncompete," Geehern said.

Such an arrangement might take the form of a bonus or higher salary that compensates a worker for the limits placed on future job prospects.

The New England Venture Capital Association, an opponent of noncompetes, lobbied for additional compensation — a "garden leave" provision that would pay a worker at least 50 percent of her former salary during the year in which a noncompete agreement is in effect.

Lawmakers ultimately set 50 percent as a guideline but provided for "other mutually-agreed upon consideration between the employer and the employee." The language means companies do not necessarily have to pay former workers when enforcing noncompetes.

Tom Hopcroft, president of the Massachusetts Technology Leadership Council, said the noncompete issue divided his group's members, which include large and small firms.

"At the end of the day," he said, "reaching this compromise on noncompetes has been a step in the right direction. It's not going to make everyone happy. It's important that we keep moving forward on the issue and improve it over time."

Hopcroft said his members were more united in favor of another measure approved by lawmakers — a crackdown on "patent trolls," shell companies that threaten or file frivolous lawsuits alleging patent infringement.

"This comes up after a legitimate company is successfully selling a product," said Shirley Paley, general counsel at Catalant Technologies, which operates an online marketplace for business consultants. "The non-practicing entity — the patent troll — knows that there's money there."

Paley's husband Eric is a managing partner at the venture capital firm Founder Collective. He also lobbied for tighter restrictions on who can claim patent infringement.

"It really is something we're very thrilled to see happen, and we're just delighted that the public process actually works," Eric Paley said.

This article was originally published on August 01, 2018.

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Callum covers the Greater Boston business community for Bostonomix.

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