
Massachusetts Governor Announces Plan to Abolish Noncompetes - cmatthias
http://bostinno.streetwise.co/2014/04/10/patrick-announces-plan-to-abolish-noncompetes-launch-a-global-eir-program-aimed-at-h1-b-visa-program/
======
grellas
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
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
Cases like that could be enforced like fraud (or stealing work time). There is
no point to invoke non-compete here.

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

~~~
api
Capitalism is an adversarial system. People forget that.

~~~
pekk
It's not a zero-sum system.

~~~
api
Doesn't matter. If you have no leverage you don't capture any of the upside
regardless of whether the overall system is growing.

------
dsr_
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.

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

~~~
bane
If they make a point about it, say you'd be willing to negotiate on the six
month notification clause.

------
geebee
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](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.

~~~
gamblor956
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...](http://ymsllp.com/news-and-publications/with-limited-exceptions-
non-compete-clauses-are-not-enforceable-in-california).

------
will_brown
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.

~~~
gamblor956
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_brown
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.

------
iamthepieman
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.

~~~
ghaff
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
_> 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.

------
dalek2point3
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...](http://mitsloanexperts.mit.edu/matthew-marx-non-compete-agreements-
and-their-impact-on-employees/)

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

------
stephengillie
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
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.

------
tptacek
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
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.

~~~
tptacek
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.

------
blaze33
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.

------
danvoell
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_mahan
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.

~~~
larrys
"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?

~~~
chris_mahan
"Because you need to earn a living for one thing. "

Then make a better product, a more valuable product.

~~~
MisterBastahrd
Perhaps you should learn something about sales instead of being so incredibly
obtuse.

When an employer sends a salesman out to sell his product, he is sending him
out on the company dime to wine and dine customers and get them to sign that
contract for services rendered or product delivered. This costs the employer a
great deal of money. The salesperson is worth nothing except for the
relationships he can create between the employer and the client. These
business relationships are created on behalf of the owner, not the
salesperson.

So when a salesperson leaves a company and then decides to use the information
he gathered during his tenure there to create new business elsewhere, he is
essentially stealing what he was hired to create in the first place. I don't
know of many companies that allow their employees to walk off with proprietary
information, and information related to core business functions is certainly
proprietary.

"Create a better product" doesn't fly. Anywhere. Not even in California. They
simply call the list of customers a "trade secret" and sue your ass when you
decide to start dialing them up at your fancy new employer.

~~~
chris_mahan
But the real reality is that it's the salesperson the client is forming a
relationship with, and that it's the salesman they trust to get stuff done.

Also, companies often like to hire experienced salesmen _because_ of their
rolodex.

(Do they still use rolodexes?)

~~~
MisterBastahrd
Companies don't trust sales reps for the most part. They use them, but they
don't trust them. Hence the trade secrets clauses in their employment
agreements. Companies like to hire experienced sales reps because of their
contact list? Sure, because if that employee's former employer hits them with
a lawsuit, they can fire the employee and settle out of court. It's worth the
potential risk. At the same time, there aren't many companies that are going
to stand behind a brand new employee when they know he's probably holding onto
data that is considered a trade secret.

What happens when your previous employer fired you for using data you stole
from a previous client?

Good luck taking years to build back your reputation.

------
nchuhoai
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

------
markbnj
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.

------
jt2190
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](http://en.wikipedia.org/wiki/Uniform_Trade_Secrets_Act)
[2]
[http://www.boston.com/business/technology/innoeco/2011/09/no...](http://www.boston.com/business/technology/innoeco/2011/09/noncomps.html)

------
tibbon
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.

------
patrickmay
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.

~~~
gtaylor
> 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
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.

------
bippi
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.

------
taivare
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.

------
malandrew
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.

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

~~~
hga
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](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?

------
drpgq
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
Judging from this story ([http://www.theglobeandmail.com/report-on-
business/careers/ca...](http://www.theglobeandmail.com/report-on-
business/careers/career-advice/can-my-employer-force-me-to-sign-a-non-compete-
clause/article533688/)) 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
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.

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

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

------
rdl
This is bad news for California.

Which states are left with the non-competes?

~~~
ghaff
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.

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

