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Massachusetts Legislation to Watch on Non-competes and Trade Secrets

Written by: Adam M. Hamel & Jennifer L. Parent

(Article originally published in the Boston Business Journal, September 2009)

A number of bills are currently pending before the Massachusetts Legislature that would significantly change the law on the validity and enforceability of employment-based non-competition agreements and the protection of trade secrets.  These are issues of critical importance to Massachusetts businesses seeking to protect their valuable business assets, and to employees looking to take advantage of employment and entrepreneurship opportunities in these challenging economic times.  The following are bills to keep an eye on.

House Bill 1794: An act to prohibit restrictive employment covenants
Sponsor: Rep. William N. Brownsberger
Brief Description: This bill would render noncompete agreements void and unenforceable. It would prohibit any agreement restricting an employee's ability to seek or engage in any type of work, for any period of time, after the employment ends. The proposed law would not affect otherwise valid pre-existing noncompetes.
Benefits and drawbacks: Proponents say noncompetes reduce workforce mobility  and stifle innovation and entrepreneurship. They point to abuses, such as springing noncompetes on employees after they start working, overreaching by imposing noncompetes on employees who do not work with trade secrets or confidential information, and enforcing noncompetes against laid-off employees.

Opponents argue that elimination of noncompetes represents a fundamental change in the way business is done in Massachusetts. While the bill preserves employers’ ability to protect confidential information and trade secrets through non-disclosure agreements, violations of such agreements are hard to discover and enforce. Noncompetes are an efficient means of protecting employers' interests, and employers pay for that protection by compensating employees subject to noncompetes well.

House Bill 1799: An act relative to noncompetes
Sponsor: Rep. Lori Ehrlich
Brief description: This bill would prohibit any noncompete with a duration of more than two years, or that affects an employee whose gross annual salary is less than $100,000. For all other noncompetes, the bill imposes several restrictions.
The agreement must be in writing. When a noncompete is a condition of new employment, it must be given to the employee at least two weeks before the start date. If the job offer is made orally, the employer must either simultaneously inform the employee that the noncompete is a condition of employment or provide written notification of the noncompete prior to the employee resigning from current employment. If entered into with an existing employee, the agreement must be supported by reasonably adequate consideration and must be presented at least two weeks before its effective date. The bill exempts so-called “garden leave” agreements, under which an employee is paid during the restriction period, so long as the agreement is for less than two years and the employee receives the greater of half his or her gross base salary or $100,000. Only noncompetes entered into after the statute’s effective date are affected. 
Benefits and drawbacks: Rather than banning noncompetes altogether, this bill seeks to strike a balance between employers' desire to protect confidential information, trade secrets and goodwill, and employees' ability to seek employment and pursue opportunities for innovation. The limitations protect against employers who ambush by presenting a noncompete after hire or who overreach on lower-level employees. But critics note that the proposed changes may not solve the targeted problems, and the complex rules could lead to more litigation.  
Legislative compromise: Brownsberger and Ehrlich are considering a compromise which would limit the term of any noncompete to one year and prohibit them for those earning less than $50,000. For employees earning between $50,000 and $100,000, noncompetes would only be permitted where necessary to protect trade secrets or confidential information. The Joint Committee on Labor and Workforce Development plans to hold a public hearing on the proposed bills in early October.

House Bill 329: An act making uniform the law regarding trade secrets
Sponsors: Rep. Daniel E. Bosley and Sen. John A. Hart, Jr.
Brief description: This bill would adopt a version of the Uniform Trade Secrets Act, and would expand protection of  trade secrets in Massachusetts. It more broadly defines “trade secret” than under current law and allows for protection against actual or threatened misappropriation. It defines “misappropriation” to include the acquisition, disclosure, or use of a trade secret. Damages recoverable include monetary damages for actual loss, unjust enrichment, and reasonable royalties. Double damages are available for willful and malicious conduct, and attorney fees may be awarded. It does not affect valid contracts or criminal remedies.
Benefits and drawbacks: The proposed law appears to broaden the definition of trade secrets to allow for greater protection of what is considered confidential information. There does not appear to be any vocal opposition to the current bill, and the proponents are guardedly optimistic that the bill will pass in this session as part of a concentrated effort to reform noncompete and trade secrets law.

Massachusetts employers and employees will both be following these bills as the legislative session continues.

Jennifer Parent and Adam Hamel are attorneys with McLane, Graf, Raulerson & Middleton, Professional Association. They can be reached in the firm’s Woburn, Massachusetts office at (781) 904-2700.

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