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The issue of enforcing noncompete clauses has long been the bane of existence for those in the tech community who view them as a barrier to growing and keeping companies in Massachusetts. The recent economic downturn may just give those advocates an opportunity to finally end the practice.
Several legislators on Beacon Hill have proposed changes to the law concerning a company’s ability to restrict employees from leaving to join rival companies or building their own competing firms, ranging from making the agreements unenforceable to limiting who can be covered by a noncompete and for how long. These new bills appear to have gained support from legislators and some state leaders.
But the antipathy shown for noncompetes is not universal, nor is the evidence overwhelming that they have a real effect on competitiveness with states such as California, which do not enforce noncompetes. The volume and tenor of the debate is, however, indicative of the introspection by tech community as to what impedes the area from returning to the IT dominance of yesteryear.
“We’re all grasping for solutions and doing some soul searching as to what is holding us back and what are some of the contributors to that,” said Michael Greeley, general partner at Flybridge Capital Partners in Boston.
The debate over the relative value of noncompete agreements has been waged for years, but several new West Coast-style investors have provided the most recent spark to the debate, including Bijan Sabet, general partner of Boston’s Spark Capital, along with long-time local tech leaders like Paul Maeder at Highland Capital Partners in Lexington and Cambridge Innovation Center’s Tim Rowe.
“Noncompetes are helpful as an individual entity. The challenge is that it seems in doing so you make the economy less effective,” Rowe said. “The net effect is, we miss something that we know happens on the West Coast: The best and the brightest accumulate a tremendous amount of experience by moving through multiple companies.”
The opponents cite new research that links noncompetes with a stifling of innovation. Researchers from Harvard Business School released a report in April showing Michigan’s enforcement of noncompete agreements after 1985, when the Wolverine State’s legislature changed its laws in the Michigan Antitrust Reform Act, restricted the movement of workers with specialized skill sets by 15 percent and also made employees more likely to take jobs with larger firms.
State Rep. William Brownsberger added to the debate when he filed a bill in January to essentially void any contract that restricts a worker’s ability to be hired by another entity. The bill received the support of two dozen legislators in the House.
But a significant and powerful subsector of technology employers decry such efforts to water down noncompetes, arguing it is critical to company’s ability to keep its edge.
“We view it as one of the essential tools to attract and retain employees,” said Paul Dacier, general counsel of Hopkinton-based EMC Corp. “Massachusetts law is clear on its face and unambiguous when it comes to noncompetes, and any form of legislation that tries to change that I think is inappropriate.”
Dacier and other executives argue the voluntary nature of the agreements — not all companies have to require noncompete agreements and employees don’t have to sign them — makes the point for the status quo. The Smaller Business Association of New England came out against the elimination of noncompetes, but is working with Brownsberger in his effort to draft a compromise bill that would keep noncompetes in place but restrict their scope and length.
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