The recent activity in the Massachusetts House indicates that changes to the long-standing law of non-competes may be imminent. Despite what may occur on Beacon Hill, there remain a variety of ways that businesses may protect their proprietary information. Even before non-competes became fashionable, intellectual property rights were recognized and secured in the United States Constitution. Article I, Section 8, Clause 8 expressly provides: “The Congress shall have the Power …To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive right to their respective Writings and Discoveries.” Thus, both copyrights and rights to inventions are recognized as fundamental Constitutional concepts.
Last week the Massachusetts House of Representatives voted 149-0 to change the long-standing common law concerning non-compete agreements. The bill voted on – HO 4434 – requires employers to pay 50 percent of a former employee’s salary during the non-compete period, or “other mutually-agreed upon consideration between the employer and the employee.” This 50 percent formulation – and the required payment for a non-compete “sit-it-out” period – does not exist in any other state. The bill also prohibits non-compete enforcement against “employees that have been terminated without cause or laid off[.]” The maximum restriction period is 12 months.
While the passage of HO 4434 does not yet make the bill law, the unanimous vote in favor does not augur well for those who would prefer to keep the present law as it currently exists, i.e., common law recognizing the importance of a private contract between private parties. The Senate has yet to act on the formulation set forth in HO 4434, thus no final formulation has landed on the Governor’s desk for review.
Out of the Joint Committee on Labor and Workforce Development has come the proposed “Massachusetts Noncompetition Agreement Act,” which would be an amendment to Chapter 149 of the General Laws.
The major provisions are as follows:
- the non-compete must be provided to the employee with a formal offer of employment or 10 days before employment, whichever is earliest;
- restrictive period of no more than 12 months;
- requires that the non-compete contain a garden leave clause such that the employee will be paid for the duration of the restrictive period;
- prohibits enforcement of non-competes against certain types of workers including those classified as nonexempt under FLSA, as well as employees that have been terminated without cause or laid off.
The U.S. Chamber of Commerce, in conjunction with several other similar groups, issued a report this week entitled, “Innovation That Matters.” The report looked at the high-tech start-up environments of twenty five U.S. cities and concluded that Boston was the number one start-up city in the so-called “digital economy.” The top five cities were:
- San Francisco Bay Area
- San Diego