Noncompete Reform Passes; More Work Still To Be Done

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In the late hours of July 31st, 2018, Massachusetts’ lawmakers passed a $1B economic development bill, and after nearly a decade of effort, noncompete reform was finally included. As the organization at the forefront of this fight, the passage of this legislation is a momentous occasion, if somewhat bittersweet.

We commend our Senators and Representatives for their persistence on such an important issue — one for which a middle ground has proven difficult to find.

Foremost, with this legislation, lawmakers have succeeded in securing important protections for some of the state’s most vulnerable: namely low-wage workers, students, minors, and those laid off and terminated without cause. These are not insignificant victories, and alone would be worth celebrating.

However, the NEVCA came to the reform effort with knowledge workers — and the innovation economy at large — in mind. High-skilled workers are the most common victim of onerous noncompetes, and use within this population has a chilling effect on the startup and high-tech ecosystem.

The noncompete reform included in the economic development bill is a good first step, but more must be done to protect the state’s high-skilled workforce and boost its innovation economy.

While the NEVCA continues to maintain that the best outcome for Massachusetts’ workers and economy would be a full ban on noncompete agreements, we have consistently held that a reasonable compromise should:

  • Limit noncompete duration to a maximum of six months
  • Include at least 50% mandatory garden leave
  • Prevent courts from rewriting overly-broad agreements

Unfortunately, these elements were not included in the legislation that just passed. Notably:

  • The bill limits noncompetes to 1 year rather than 6 months, essentially codifying existing practice. Most noncompetes are 1 year long — far too long for most people to be out of work.
  • The bill allows for 50% garden leave OR a “mutually agreed to consideration”. With job offers contingent on signing noncompete agreements, employers hold all the leverage. Since the “mutually agreed to consideration” is not defined, this language could allow employers to negotiate significantly lower compensation in return for employees signing the agreements.
  • The bill maintains the courts’ ability to rewrite noncompetes. This incentivizes employers to craft overly-broad agreements, since they know that if the case goes to court, a judge will simply narrow the agreement to comply with the law (rather than throw out the agreement altogether).

Reform has been a long time coming, and MA workers are better off now than they were before this legislation passed.

While it is disappointing that this reform does not go as far as we would have liked, it still marks a milestone for the state and its workforce. We look forward to working with legislators soon to improve this bill, and bring about more meaningful protections for the innovation workforce next session.

Until then, it is our sincere hope that Massachusetts’ leading companies will step up, take the lead, and curtail the use of noncompetes of their own accord.

Written by

New England Venture Capital Association (NEVCA) members support entrepreneurs winning. Great VCs depend on great entrepreneurs.

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