In April of this year, Governor Deval Patrick introduced a sweeping economic growth bill (HB4045) which included a ban on employee non-compete agreements. HB4045 has taken a somewhat convoluted path to date, and we wanted to update you on some notable twists and turns.
By way of background, HB4045 (in its original form) would ban employee non-competes in the Commonwealth with limited exceptions, such as agreements entered in connection with a sale of a business. The bill would apply retroactively to agreements executed before the bill’s effective date, but would not affect other types of agreements such as non-solicitation agreements (prohibiting solicitation of customers or employees), non-disclosure agreements, forfeiture agreements, and employee agreements not to reapply for employment after termination. The bill also included provisions adopting the Uniform Trade Secrets Act (“UTSA”), which would make Massachusetts the forty-ninth state to adopt some version of UTSA.
In mid-May, another bill (HB4082), was introduced that removed those portions of HB4045 not dealing with trade secrets and non-competes, leaving only those sections that would adopt UTSA, repeal the current statutes regarding theft of trade secrets (Sections 42 and 42A of M.G.L. c. 93), and ban employee non-compete agreements. HB4082 is virtually identical to the non-compete and UTSA provisions of Governor Patrick’s original HB4045 (which was recently stripped of the non-compete and UTSA provisions). The introduction of HB4082 may have been due to concerns that the progress of HB4045 would be hindered by the wide scope of its provisions unrelated to employee non-compete agreements.
On May 29, 2014, the Legislature’s Joint Committee on Economic Development and Emerging Technologies held a hearing on Governor Patrick’s original bill, HB4045, which, at the time of the hearing, still included the trade secrets and employee non-compete provisions. Unsurprisingly, much of the testimony was devoted to these provisions.
As the New York Times reported on Sunday, many of those who testified at the hearing opined that employee non-competes stifle competition. For example, several legislators spoke of constituents who they deemed “trapped” in jobs because of non-competes signed years earlier, and insinuated that many employees are “ambushed” with non-compete agreements after they have quit their former jobs and rejected other offers. The Boston Globe and the Boston Herald have each recently published articles about the purported perils of employee non-compete agreements.
Others, however, noted their concern with the way the bill was drafted, and expressed skepticism that an outright ban on employee non-competes would have uniformly positive effects. For example, some testified that notwithstanding the fact that California bans employee non-competes, and likely because of this prohibition, there is increased trade secrets litigation in that state (which is typically much more costly and time consuming than non-compete litigation). Indeed, should this phenomenon occur in Massachusetts, some of those testifying noted that expensive trade secret litigation could bankrupt small employers and startups—the same group of employers that Governor Patrick’s original HB4045 (as well as HB4082) was purportedly designed to help.
Nevertheless, many of those who were opposed to the proposed ban on employee non-competes stated that they would be in favor of some form of non-compete reform (some citing with approval the compromise bill previously introduced by Senator William Brownsberger and Representative Lori Ehrlich in late 2012), but that an outright prohibition on the use of non-competes was simply a step too far. The compromise bill, however, appears to be stalled if not dead on arrival.
In yet another twist, just last week Massachusetts House Speaker Robert DeLeo announced plans to file an economic development package that would be similar to Governor Patrick’s bill in many respects, but conspicuously omits any provision affecting the enforceability of non-competes. According to the Boston Globe, Speaker DeLeo said that “he has heard from many more companies that oppose a ban on noncompete agreements than favor one, in the weeks since Patrick outlined his proposal.” It remains to be seen which approach will carry the day.
Notwithstanding this uncertainty, employers with operations in Massachusetts should consult with experienced counsel and take steps to prepare themselves in the event HB4082 or a similar bill becomes law, in which case even previously executed non-compete agreements may be invalidated. We will continue to monitor these bills, as well as any others that may be filed.