Massachusetts Governor Announces Plan to Abolish Noncompetes

http://bostinno.streetwise.co/2014/04/10/patrick-announces-plan-to-abolish-noncompetes-launch-a-global-eir-program-aimed-at-h1-b-visa-program/

by cmatthias • 12 years ago

288 112 12 years ago

bostinno.streetwise.co

dsr_• 12 years ago

I've been asked to sign a post-employment non-compete agreement several times. I never have, because I ask for a simple stipulation: for the length of time you don't want me to work in this field, you need to pay me the same salary.

Everyone agrees that this is fair, and then never mentions the non-compete agreement again.

bane2• 12 years ago

I use something similar

"I'd be happy to sign a perpetual non-compete contract so long as it includes a clause that you'll continue to pay me at current salary (with a yearly cost of living increase pegged at inflation) as long as the contract is in effect. If you wish to cancel the non-compete after it takes effect, you agree to a six month notification and run-down period".

I'd need the six month period so I could move from my retirement home in Malta or Corsica or wherever and get a job again.

greyskull• 12 years ago

I like that. I'm making note of it.

gtaylor2• 12 years ago

Some of the jobs I've had or looked at made employment contingent on a non-compete. In those cases, saying something like this would mean finding another job.

Depending on your skills, your area of expertise, and your reputation, this may or may not be a big deal to you personally, but it's not an option for everyone. My last employer (when I was straight out of college) would have just shown me the door if I said something like this.

smackfu3• 12 years ago

If wonder if companies with mandatory non-competes have lower salaries. They should.

jt21902• 12 years ago

  > In those cases, saying something like this would mean 
  > finding another job.

Did you actually try it?

qwerta2• 12 years ago

Czech republic and some other EU country actually have this in law. If employee with non-compete clause loses his job, employer has to pay his salary in full for duration of non compete. There are some exceptions such gross misconduct, voluntary redundancy etc..

JS19843• 12 years ago

Does the employer have an option to cancel the non-compete and not to pay the full salary?

walshemj• 12 years ago

Surprised that Eu law doesn't restrict the use of non competes - must rember to ask about that as I am due a refesher course on employment law.

rodgerd• 12 years ago

This is the legal position in New Zealand, not through an Act of Parliament, but as the result of various law court decisions. You cannot have a non-compete which prevents someone working for a living unless you pay compensation for that non-compete. Attempts to dodge the rules (claiming regular salary includes said compensation or a derisory amount) have been struck down.

drawkbox2• 12 years ago

Non-competes are anti-business, anti-innovation and feudal. I have never signed one.

I can't tell you how many times I have been asked to sign one that locks up your skills, which you are bringing to the company that they might not have yet, solely for them for years even though the project might only be 3-6 months.

I applaud this effort immensely in MA, there is no place for non-competes in the US. It is entirely anti-business, funny that fighting against this anti-business and anti-small business process comes from the liberal NE.

The game industry also has a big problem with this, you can't even work on games outside of work while at a major studio (why almost every game developer has to break out on their own rather than stay at a company -- game devs in MA will cheer this). Treating skilled workers badly and shutting them down the moment they aren't working for you. How is that not feudal in nature?

NDAs/confidentiality, contracts while being paid for work, that is understandable, non-competes should never be signed unless you are paid during that tenure at a premium, opportunity cost is huge. MA legislation is actually doing some good work for the individuals, smalls and mids here, the engine of America.

Next up, remove taxes for small companies until they reach a certain revenue threshold.

GFK_of_xmaspast• 12 years ago

Non-competes are very much pro-business, in that they weaken the power of labor.

drawkbox2• 12 years ago

Small businesses, contractors, freelancers, and more who are asked to sign these are very much businesses and it is very anti-business to them.

It is relative, if you are big and established they are good, if you are small/medium (where most innovation and eventual businesses comes from) then they are bad.

It is anti fair business, but in a monopolistic/feudal/plutocratic type system it might be pro-business to own skilled people (anti-poaching agreements are also pro-business in that view). In a libertarian and free market sense it is anti-business when viewed from the aspect of an individual/small/mid company.

I guess its safer to say non-competes are pro big business and anti small business / anti innovation at least.

rz2k3• 12 years ago

And, if understood in that way, it is an instance where the term "pro-business" is a political ideology rather than an economic perspective.

Historically the rationale for pro-business policies is that greater production creates more wealth for everyone in a society. As a result it could be argued that a labor union might hurt an economy if less output comes from the same input, while those labor unions' arguments would be that they disagree about how different working conditions maximize the society's actual utility.

A non-compete on the other hand is a contract to decrease worker productivity. It is the opposite of union agreements that forced companies to employ people whose work is no longer needed, it is an agreement not to work. Furthermore, it isn't even entirely about benefiting business owners over their employees, but about benefiting established companies for their past success rather than whether or not they can compete in the current business environment.

dragonwriter2• 12 years ago

"pro-capital" isn't necessarily the same thing as "pro-business"; non-competes, in particular, reduce labor market mobility, which reduces overall market efficiency in the same way that barriers to capital market liquidity would.

api2• 12 years ago

Capitalism is an adversarial system. People forget that.

MisterBastahrd3• 12 years ago

Yes they do, but they also weaken the labor pool. Their primary purpose as used nowadays is not to protect any vital business interest but to make it difficult for employees to move around the marketplace and seek their best rate.

patrickmay• 12 years ago

Limited non-compete agreements have value to startups. It's not unreasonable to want to protect the company's intellectual property, business plans, product roadmap, marketing strategy, etc. from someone who comes in, works for six months, and leaves to start a competitor.

Certainly large companies are abusing these agreements. However, so long as the non-compete is agreed at the time of hiring, is restricted to a year or so, and isn't so broad as to prevent the (ex-)employee from taking any new job, it doesn't make sense for a startup not to ask for one as part of the employment offer.

Of course, like any other part of the employment agreement, non-competes are subject to negotiation.

gtaylor2• 12 years ago

Limited non-compete agreements have value to startups.

Perhaps, but I often get the impression that startups think that they've got some kind of valuable secret methodology that is leagues better than everyone else. I feel that this is a really silly notion. Your startup is not a special snowflake. In fact, it's very likely to end in failure. It's the game we all play as entrepreneurs.

Success is largely determined by talent, excellent execution, a clear vision/direction, and strong leadership at the helm. These aren't really trade secrets, it's just hard work, focus, and even some luck.

Seeing a non-compete at a startup says to me that the founders are worrying about silly stuff like this instead of pushing forward into excellence.

jaegerpicker• 12 years ago

I completely agree, I've worked at 4 different start-ups and the successful ones weren't about ideas, they were about hard work and talent.

JS19843• 12 years ago

Agreed 100%. It may not be fully enforceable but it certainly helps startups to protect their IPs to some extent.

rimantas• 12 years ago

I'd argue, that any startup with such attitude has now IP worth protecting. Same goes for NDA.

dragonwriter2• 12 years ago

Yeah, many of us did exactly that back in 2007/2008. We nominated and worked hard to promote and to get elected a politician we believed -- based on our candidate's deeply-persuasive statements -- who would be "different". We did much more than vote. We built amazing software systems for our candidate, went door-to-door in places that almost got us shot, worked 80 hour weeks at the grass roots level, and in some cases estranged ourselves from our families. And of course we voted for him.

There are separate laws protecting IP directly, so you don't need a non-compete to do that any more than you do to protect company physical property. And specific restrictions on the use of proprietary information that isn't IP in the strict sense are often enforceable when non-competes (provision prohibiting someone from working in a particular field or capacity) are not.

bdcravens• 12 years ago

It's not unreasonable to want to protect the company's intellectual property

Even in the absence of a non-compete, you can still sign a NDA, and in the event of a disclosure or misappropriation, you can be sued into a pile of primordial ooze.

tptacek4• 12 years ago

It's worth knowing, maybe just because it's interesting, than even if pro-forma employee noncompetes are unenforceable, that doesn't mean all of them are. Get acquired sometime. Those noncompetes are binding, even in California.

ScottBurson• 12 years ago

You mean "get acquired" as an owner, or as an employee? I've been through two acquisitions as an employee and don't recall anything special in the way of non-compete agreements.

tptacek4• 12 years ago

Mostly owner, although depending on the grants and the terms of your acceleration, maybe? employee too?

The issue as I understand it is "consideration", beyond simple wages for employment.

gamblor9563• 12 years ago

California provides an exception to the non-compete prohibition which applies to owners. The theory is that someone in the position of meaningfully owning a company is in the position to compete with that company.

Generally, that means someone who owns a significant amount of the company (on a facts-and-circumstances basis) so just owning some stock or options in a startup isn't enough.

stephengillie• 12 years ago

I've only ever had to sign non-competes when working for contracting companies -- those only prevented me from doing the same job for the same client for a competing contractor. Seeing as how cutthroat the contracting industry is around major tech companies, and the limited scope of the non-compete, it makes some sense to me.

protomyth• 12 years ago

Yeah, those are pretty fair given the situation and since most contracts include a hire clause that pays a finders fee to the contracting company. In that situation the non-compete basically keeps everyone on friendly terms.

markbnj• 12 years ago

They're damn near impossible to enforce unless written very carefully and specifically, and in general they're just a distraction and a waste of time. Good move, Massachusetts.

iamthepieman3• 12 years ago

Just because they are non-enforceable doesn't mean they have no effect. The COO of one of past employers was offered a job at a competitor shortly after he was fired. When the new company heard of his non-compete clause and the intent of the old company to enforce it, they withdrew their offer.

tptacek4• 12 years ago

They could conceivably be liable for interference. A previous employer of mine had that problem.

iamthepieman3• 12 years ago

This was a company with under 50 employees who had a full time general counsel. They had no lines of business that were remotely related to law.

Maybe that's not abnormal but I had never, and have never since, seen a small company who didn't outsource their GC needs.

ghaff4• 12 years ago

When I worked for a small research firm, we basically wouldn't have employment discussions with anyone who had a non-compete even if it seemed unlikely their current employer would go to the mat over it. Just the existence of a non-compete would have meant getting lawyers involved and it was just too much hassle and risk.

(It's also the case that one of our large competitor firms, at least at the time, put non-competes in place that effectively wouldn't let anyone who left work for any competitor. i.e. they couldn't do the same job at any other firm. And, apparently, they enforced these agreements rather vigorously.)

deveac• 12 years ago

When I worked for a small research firm, we basically wouldn't have employment discussions with anyone who had a non-compete even if it seemed unlikely their current employer would go to the mat over it. Just the existence of a non-compete would have meant getting lawyers involved and it was just too much hassle and risk.

Had a similar experience at my company. We worked as a subcontractor whose parent company lost a contract at renewal time to a rival. The rival did not sub out and instead approached our employees on site and hired one directly. The owners got in touch and told the new firm that we had a non-compete and their response was basically "Ok, that's fine. Let us know if you intend to enforce it. If not, we're hiring him. If so, we won't, but we're not subbing the work out to you. It really doesn't matter to us what you do, just let us know. If we don't here back from you by this time tomorrow we're not hiring him."

In the end I'm happy to say that management did the right thing and just let him go unmolested, but the hiring firm explicitly stated that his job wasn't worth the expense and hassle to them, and just threw the ball back at us.

smackfu3• 12 years ago

A non-compete when you are fired? That's odd. It seems very simple for companies to lock up tons of talent just by hiring and firing them.

iamthepieman3• 12 years ago

In the U.S many states (at least on the books) enforce non-competes even if fired without cause.

http://www.lexology.com/library/detail.aspx?g=f1eab2d5-0fda-...

edit: added link

ironhide• 12 years ago

Good idea. I would like to see this in my state.

will_brown2• 12 years ago

Perhaps of interest is that non-competes are unenforceable against lawyers. There are many reasons but the prevailing reasons are that a non-competes against lawyers interrupt a client's right to hire counsel of their choice and otherwise significantly limit access to the Courts, both are constitutionally protected rights.

Enforcement of non-competes in any jurisdiction is a complex analysis, where the scope, term and geographic restriction must be applied to a given job/industry. A general problem (from both employer/employee perspectives) is that people assume because they exist they are enforceable, it would lead me to believe people would be surprised how often, when challenged, they are found to to unenforceable.

gamblor9563• 12 years ago

Non-competes are enforceable against lawyers in most states, including California. Indeed, in some states, non-competes are even mandatory in certain situations, such as the sale of a law practice, and violation of the non-compete is treated as an ethical violation that could result in bar sanctions.

However, non-competes for lawyers are more limited in scope--they only apply to partners, and only to specific areas of legal practice. Generally, the non-compete can only prohibit the lawyer from marketing or soliciting clients but does not prevent new or former clients from voluntarily choosing to hire that lawyer (and the lawyer agreeing to take on that client). The big exception relates to sales of a law practice--in that situation, the lawyer generally can't take on new or former clients in the same area of law as they sold.

will_brown2• 12 years ago

American Bar Association Model of Professional Conduct Rule 5.6:

A lawyer shall not participate in offering or making:

(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy.

49 of the 50 states have adopted their own version of the ABA rule prohibiting non-competes in the practice of law. In fact in Florida if an associate leaves a firm, for every file the associate worked on, said associate must notice each client of their right to continue representation with the firm or the associate, of course the associate can not be forced to accept any client(s). Your examples of non-solicitation is generally true, but there is a difference between non-solicitation and non-compete under the rule, especially against a partner who sold the practice or retired.

blaze33• 12 years ago

In France I regularly had non-compete clauses in my employment contracts except here, it has to be specific, limited in time (1 to 2 years max) and you have to be compensated for it (usually 30% of your salary) otherwise it's legally void. The employer has the choice to enforce the clause (and to pay you) at the end of the contract and must notify you within 15 days.

You're usually notified that the clause is dismissed and that's it. I was told that it could be useful in some edge cases like if you know an employee will start a competing business with your current clients but I've never heard of such cases. Also I think the former employee could already be breaking confidentiality agreements, nda, etc. doing so.

geebee• 12 years ago

This is good news for and from Massachusetts.

I read a very interesting thing about how non-compete agreements signed in other states are treated in California...

http://lawzilla.com/content/noncompete.shtml

"Who wins often depends upon a race to the courthouse. For multi-state employers it is often a rush to the courthouse to determine if a non-compete agreement is valid. The employer's strategy is to get an order outside of California in their favor. The employee or California prospective employer's strategy is to get an order within California in their favor. In the face of dueling, and opposing orders, the first to the courthouse may win because states often must give effect to orders from other courts."

The whole thing is actually very interesting, worth a read.

mathattack• 12 years ago

I had heard similar - that if you go to CA, you have to pre-emptively sue to get out of it.

Are non-competes enforced often enough that this is an issue?

I've only heard of a few cases, and these were notorious hedge funds, or flagrant post-move poaching of employees. (Not just "I'm gone" but "I'm gone and taking my team even though I signed something that said I wouldn't.")

gamblor9563• 12 years ago

As most other authorities describe in greater detail--it doesn't matter who wins the race to the courthouse. The non-compete will be valid in whatever state was selected as choice-of-law, but the non-compete provisions will be invalid in California because California generally prohibits non-competes except in very limited circumstances (such as owners of the company).

Consequently, a non-California non-compete is not valid within the state of California, even if another state's court validates it. This means that so long as the employee remains within California, the non-compete cannot bar them from seeking further employment in California, even if it would otherwise violate the non-compete. However, by the same token, even if a California court invalidates a non-compete, it only applies within California--the non-compete may remain invalid in other states (depending on their laws regarding non-competes) if the employee were to attempt to seek employment outside of California during the term of the non-compete.

See, e.g., http://ymsllp.com/news-and-publications/with-limited-excepti....

dalek2point3• 12 years ago

My professor at MIT has done some of the most path breaking research on the impact of non-competes on innovation, and what he finds is mostly negative. http://mitsloanexperts.mit.edu/matthew-marx-non-compete-agre...

This is the best example for the impact of policy-driven legislation.

drpgq• 12 years ago

I wish Ontario would do this. The fact that California doesn't allow non-competes should be pretty compelling for any state or province that is trying to grow their tech sector.

CanSpice• 12 years ago

Judging from this story (http://www.theglobeandmail.com/report-on-business/careers/ca...) it would appear that the Ontario courts are pretty firmly on the side of non-competes being unenforceable. "In short, most non-compete clauses are excessive, and thus will be upheld only in very limited circumstances."

cookerware• 12 years ago

What about BC? I signed a non-compete clause a while back and it says I can't work for any competitor startup or start my own in that niche. Apparently the non-compete extends for a year after leaving. It mentions I can't offer consulting or work for the competition. It's been a few years now, but I wonder what other dirty tricks they may have up their sleeves regarding this.

I want to start my own company in this niche and I can't do it because of the fear that they will sue me if I ever make it on their radar.

BC government also is not in the habit of protecting tech workers and cares more about tax revenues. Maybe I should move to Ontario or leave Canada all together.

danvoell4• 12 years ago

For sales people I see a value in non-competes. I own a company which can run successfully with 100 clients. If I hire a sales person who builds good enough relationships with 50 of our existing clients such that he takes them to another company, he could cut our revenue in half. Why is that supposed to make me want to set up my business in Massachusetts? This announcement would seem to make businesses less competitive in my mind. I'm just going to look for competitors in Massachusetts who's sales people I can cherry pick.

chris_mahan3• 12 years ago

If those 50 clients would be better served getting a different product from a different vendor, then why would you want to stop that?

If your product is superior in value, the salesman won't be able to move the customers away from your products.

Make better products.

Anyway, you'll attract better salesmen.

danvoell4• 12 years ago

I don't want to deny consumers from the ability to choose. This concept theoretically makes business entities weaker and employees stronger. In practice I presume that this concept would force business owners to provide less information to employees if such information could be used against them in the future. So is the employee actually stronger?

larrys2• 12 years ago

"If those 50 clients would be better served getting a different product from a different vendor, then why would you want to stop that?"

Because you need to earn a living for one thing. And you won't keep your job for long as another reason (see strategic cases below because there are exceptions of course).

Anyway along those lines would you suggest that a salesman for jet engines for Boeing not take an order and simply tell the client that a Rolls Royce engine is a better fit for the application? (And yes I know that there are strategic cases where it can build loyalty by doing this and/or if the stakes aren't to large you can try to be helpful.).

So in other words the salesman's job is to, at the expense of the survival of his own company, to simply help the client (on his employer's dime) make the best decision and as a result he will still be able to earn a living because everything will just work out? And of course his competitors are doing the same thing, right?

dusing• 12 years ago

I think the main issue is not the product but that the salesperson knows who in the 50 companies to talk to, and has relationships with those 50 people so they will talk to him/her. The amount of money spent by the original business to obtain those 50 contact's trust and business could be very large, yet the salesperson is allowed to steal all that investment and take it as their own.

larrys2• 12 years ago

You are talking about the "book of business" problem.

I agree but I think there might be other legal (or see "know the customer yourself" below) ways to protect your clients.

So while you can't prevent someone from working for a competitor I believe there is a reasonable way to protect the customer list and/or specifically soliciting an existing customer. [1]

Nothing can prevent a client who knows the new business from approaching the salesman of course. But if the salesman is prevented from contacting them it is a bit of friction.

Separately, a way that you can protect against this is also to build some loyalty (as the business owner) with the client. Make contact yourself and let them know you value their business. Not fail safe but will definitely help. In other words multiple contacts, not just one contact.

[1] I've seen this even with hair salons for that matter. You will see ads which say "Joan is now at XYZ Salon" because Joan isn't allowed to go after her clients. But she can advertise that she has a new job. But not directly (by direct mail to a list of only her clients but she could spray direct mail though or advertise in the local paper because it's not targeted).

yardie• 12 years ago

I've seen this even with hair salons for that matter.

This would be really odd for salons. Most beauticians are contractors so technically they are her clients. She's paying the salon to rent their facilities. So salons get the best of both worlds. They skirt labor laws and tax laws.

bm1362• 12 years ago

If a sales person is keeping around 50% of your business, you should provide incentive for them to stay- right?

danvoell4• 12 years ago

Yes you should provide incentives. I'm not in favor of bad management or bad partnerships, I just think that the value of an employee who can bring new relationships to a new company should be more than the value that they have maintaining relationships at their existing company.

hga2• 12 years ago

I might be inclined to agree, but doesn't the wild success of so many California companies where even these non-competes are unenforceable suggest the net value isn't high, maybe even negative?

Massachusetts has had one modern era wildly successful civilian high tech period, stretching from the minicomputer era to the early PC era (both Visicalc and Lotus 1-2-3 were done in the Boston area). But this part of its high tech scene died hard by 1990 (and I left the area, I was an eyewitness starting in 1979); non-competes were I believe part of the problem with Silicon Valley wildly out-competing the Boston area.

Since then I've heard things got better in the web era, but still nothing compared to the Bay Area.

zxexz• 12 years ago

It's pretty good here (MA), but the really successful high tech area here is the medical/bio/ informatics and biotech. It's amazing how much development there is in the biotech industry here.

bippi• 12 years ago

There is a rumor in the company I work for currently that an employee went to go work for a vendor of ours. That vendor was informed that if they wanted to stay a vender, they wouldn't hire that former employee. The former employee wasn't hired. This was all kept in phone conversations and voice calls, so it was hard to legally track.

Since that time, anytime someone leaves, no one...and I mean no one... finds out about where someone is going until long down the road.

nchuhoai• 12 years ago

It's really surprising to me that no one has so far mentioned the EIR program for international students. While details are vague, it seems like Massachusettes is trying to set up an alternative for international students that want to start startups instead of being slaved in an H1B position. Really looking forward to this one

jt21902• 12 years ago

tl;dr They're planning to replace overly-broad, vague non-compete agreements with the more focused Uniform Trade Secret Act. [1]

This should get rid of the ridiculous abuses of non-competes that we've seen here in Massachusetts. For example:

    Just before July 4th [2011], Angela, a 26 year-old Boston
    University alumna, was laid off from her job as a 
    software trainer. She had only been at the company for 
    two weeks... Angela had signed a non-compete contract 
    with an old employer — a job she'd left voluntarily [in]
    October [2010] — and the employer... was now threatening 
    to sue over it...She'd signed the non-compete in 2007 
    without giving its implications much thought. But it 
    prevented her from working for any other company that 
    developed software for the staffing or recruiting 
    industry for a year after she left... [2]

[1] http://en.wikipedia.org/wiki/Uniform_Trade_Secrets_Act [2] http://www.boston.com/business/technology/innoeco/2011/09/no...

awda• 12 years ago

I work for EMC. Do we know if this will retroactively apply to existing contracts?

hga2• 12 years ago

It normally would.

These sorts of things are normally declaring that such things in contracts are against the public interest, like restrictive covenants in real estate deeds to not sell your land to a black.

Those were all made null and void back in 1948 (https://en.wikipedia.org/wiki/Shelley_v._Kraemer), and modern efforts to blacken, so to speak, the reputations of people who since then bought such property are mendacious.

But who knows what might emerge from the legislative sausage grinder of the rather corrupt Massachusetts General Court?

supercanuck• 12 years ago

This would be awesome, it would totally remove the 3 shell companies have to go through get to some clients.

rdl• 12 years ago

This is bad news for California.

Which states are left with the non-competes?

infinite8s• 12 years ago

spamizbad• 12 years ago

Several.

However the strength and scope of these non-competes varies widely. And many companies have clumsily written non-competes in their employee contracts that would never hold up under scrutiny.

commandar• 12 years ago

Georgia passed making non-competes enforceable by referendum a few years ago. It passed overwhelmingly and many people attribute that to the ballot item being worded in a stunningly dishonest way.

http://ballotpedia.org/Georgia_Employment_Contract_Enforceme...

ghaff4• 12 years ago

Most AFAIK. My understanding (IANAL) is that, in Massachusetts for example, it's not that there are laws explicitly allowing non-competes on the books but, rather, that they're supported by common law spelled out through many precedents related to contract law, employment law, etc. I imagine the situation in many other states is similar. California is unusual in that they have specifically limited non-competes by statute.

taivare• 12 years ago

I was employed by one of the largest commercial real estate companies in the U.S. ,fortune 100 , they were asking low level maintenance workers to sign non-competes. Asking the guy who's emptying trash cans at the mall to sign a non-compete exemplifies just how far these corporations are willing go.

grellas• 12 years ago

Non-compete clauses have their place in the law but they have in my view been abused in the employment context.

The classic case of a good reason for having an enforceable non-compete arises with the sale of goodwill in a business. Proprietor X sells his business for $10M and then sets up shop next door to steal the customers of the business back to his new, competing one. In effect, this is a case of theft. Someone pays value for the goodwill value of your business and that means (usually) mostly for the revenues resulting from continued business from its existing customer base. If you take that value for that asset, it is deemed unfair under law that you should be able to grab the asset back through immediate competition for that same customer base. Buyers are savvy enough to know this and therefore require that you enter into a non-compete clause as part of the sale. And the law says, "yes, indeed, this is a restraint of trade in that it limits what the seller can do in pursuit of his trade or business following the sale but it is a reasonable restraint of trade, and hence enforceable, because it protects the value of the goodwill interest bought by the buyer for which good value was paid." Even in enforcing such clauses, the law says that they are enforceable only to the extent they are reasonably necessary to fulfill the legitimate purpose the law seeks to protect. In the sale-of-business context, then, non-compete clauses are enforceable insofar as they are limited in scope (that is, in duration and in geographical reach) in a way that the law regards as reasonable.

The problem with non-compete clauses in the employment context is that they are almost inherently unreasonable in their application. I join company X as a developer. I leave my employment after two years and I want to pursue my livelihood in the same line of business that company X engaged in, albeit not using any of its confidential proprietary technology. Yet, even though I would respect its trade secrets and not do anything the law would regard as being innately some form of unfair competition, the non-compete clause imposes an absolute bar prohibiting me from pursuing my livelihood in my very area of strength for as long as it remains in effect. This can cost me money. It can cost me opportunities. It can represent a setback to my ability to continue to develop skill levels in areas that are important for my future. All this for what? I get nothing whatever for it. Unlike the seller who just walked away with a pile of cash for selling his goodwill interest, I am not paid for being burdened with this restraint. I am simply stuck with it, to my great cost. And what is the justification for this? Again, unlike the sale-of-goodwill context, an employer does not have some right to keep competitors out of his space. All kinds of people can compete with him. What he can do, via the non-compete, is arbitrarily keep me as a former employee out of his space. Why should he have that right? Well, there is no particularly good reason except insofar as my competing with him may allow me to misuse confidential proprietary information that I got from my former employment with him. Everything else is arbitrary. Of course, even states that give maximum enforcement to such non-compete clauses will require that they be limited in duration. But two years (or whatever) is two years and this does not make it more fair to the former employee.

California refuses to enforce non-compete clauses in the employment context except to the extent necessary to protect confidential proprietary information. It has long done so and this has not stopped major employers from thriving with their tech companies in this state. Even companies that are located elsewhere have always been required to abide by these rules with respect to their employees who actually work in California. They have adapted over the years to the California rules with no serious setbacks to their financial interests.

I believe other states will in time be forced to conform to the California pattern as part of staying competitive in their bids to attract tech workers. I don't know the local situation in Massachusetts but would guess this is a key factor in the governor's decision to push for change.

In any case, this is one area where the idea of reasonableness is important to how the law should be shaped: if there is an awfully good reason why a non-compete clause should be enforced (such as in the sale-of-goodwill context), let the law enforce it to protect legitimate interests; otherwise, it is arbitrary and unreasonable and hence an unenforceable, illegal restraint of trade. This should be the rule everywhere, not just in California.

greggman• 12 years ago

I agree with you 100%. But as an anecdote I know full time employee that was supposed to be working on a football game for company ABC. He had an arrangement to work from home. He worked for ~1 year and appeared to be very behind schedule. He then quit, started his own company, 3 months later his company shipped a football game.

dennisgorelik• 12 years ago

Cases like that could be enforced like fraud (or stealing work time). There is no point to invoke non-compete here.

Shivetya• 12 years ago

my least favorite, having employees sign essentially the same when leaving a company. Really, watched a friend go through this recently. It was that or lose his accumulated vacation monies which were not insignificant.

Been through the non compete issue post hiring, in job for many years when it lands in everyone's inbox. Really? So I am all for them being punted.

furyg3• 12 years ago

I don't know where your friend worked, but (most places) in treat accrued vacation money as pay. Meaning the employer must pay it out when you leave.

malandrew• 12 years ago

IANAL and I'm not familiar with the act, but I can totally see the ability to sure under the Uniform Trade Secret Act being abused by companies in Massachusetts if this passes. Hopefully that act includes provisions for protecting employees from frivolous fishing lawsuits against former employees.

tibbon• 12 years ago

What I don't get is why companies in states that allow non-competes just seem to do them by default. Someone on their legal team or board pushes for them, and then just just become defacto and no one can seem to justify them.

I may have had a conversation with a company recently where a friend was trying to get hired for a temporary 3 week position, and the company wanted them to sign a non-compete in MA that would exclude them from working in the industry for a year. The same company has presence in California. I asked the company if they have problems with people taking their experience and running off to another company and exposing their secrets- the company said they had never had such a problem in California. I asked them why they thought they'd have a problem in Massachusetts then, and why they needed/wanted a non-compete for a problem that didn't seem to actually have any material risk (they've had hundreds of employees now, if an issue were to pop up, it would have popped up by now). They didn't have a good answer, aside from the fact that HR/the board wanted it that way.

geekam• 12 years ago

Does this (or any other state's) non-compete change anything for the H1 visa holders?

Massachusetts Governor Announces Plan to Abolish Noncompetes

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