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June 16, 2016

Reaching Consensus on Non-compete Reform Will Make Massachusetts Stronger

Boston’s economy is growing fast and changing even faster. We are now recognized globally as a leader in the innovation economy and the top region for start-ups and emerging companies.

This rapid change brings with it growing pains - especially when the needs of quickly growing companies bump into established regulations or ways of doing business that were formed years ago.  

REFORMING THE USE OF NON-COMPETE CLAUSES IS NOW AT RISK 

As a member of the startup community and as the Greater Boston Chamber of Commerce’s point person for the innovation community, I was excited to hear Massachusetts Speaker of the House Robert DeLeo announce the potential for substantive non-compete reform by the end of the 2016 session during his speech before the Chamber’s Government Affairs Forum. The speaker’s proposal offered the chance to extend Massachusetts’ leadership in innovation and provide greater opportunities for employees across the state, and across sectors.  

When Speaker DeLeo outlined his proposal for non-competes, I was sitting next to Jeff Busgang of Flybridge Capital Partners, Jody Rose of the New England Venture Capital Association, and several other leaders in our community who are outspoken on the need to update non-compete laws. They were open to what Speaker DeLeo was proposing, and the opportunity for compromise being championed by both sides of the table created a palpable air of change from just one year ago. Even EMC, which historically has been a strong non-compete proponent, came on record supporting the progress reform could provide.

However, when the bill came out, there were unexpected provisions that put the potential of any non-compete reform at risk. These include mandated “garden leave” and not allowing reformation through judicial discretion. Unfortunately, these provisions stalled a likely compromise and quickly revived an old “us versus them” narrative, which frankly is tiresome and problematic if we truly want to align how our current laws can be updated to support how our economy works today.

NON-COMPETES, GARDEN LEAVE AREN'T OLD VS. NEW GUARD ISSUES

What has become clear across many conversations is that non-compete reform is not an old versus new guard situation. It is an inherently nuanced conversation with non-competes seeing widely varied use across industries and even within industries over the last few years. In 2014, Boston Globe business columnist Shirley Leung wrote about the range of opinions even just within the tech community when it came to non-competes.  

Similarly, non-competes are not a big versus small company issue. All valuable companies have important intellectual property and fight for the best talent. The question becomes how best to help employees to maximize their working capacity in Massachusetts, while allowing companies to continue to protect process and trade secrets.  

The trick, which is where the argument of garden leave has gained steam, is whether or not there needs to be a required financial obligation charged to the employer in order to for non-competes not to be a free option to exercise. This is an intellectually interesting question and one that is politically tricky as the evidence on impact is minimal and employers’ opinions on the topic vary widely.

WHAT WE CAN CONTROL TODAY 

There are two key steps we can take today if we truly hope for change by the end of this legislative session:

1. Create more transparency around non-competes: Contracts are not static documents, and a potential employee does not have to join a company with rules that the employee believes unnecessarily burden his or her own future. An employment contract always includes more negotiation points than just salary. Office perks, vacation days, healthcare, transportation support, housing stipends, pension benefits, and, in some cases, limitations on their ability to leave and compete and the subsequent payments that come with that agreement. Both parties can opt out of a contract if any part doesn’t make sense.  

The inequity occurs when both parties are not clear on what can be negotiated in the first place. This was not always clear in the past when non-compete contracts were surreptitiously snuck into the conversation after the employee contract was already signed, or in several cases after the employee had already started working at the company. Regardless of whether garden leave sticks as a mandated clause, we can all make strides today in terms of clearly highlighting what contracts mean and creating a culture where potential employees are empowered to negotiate for what they want.

To end any confusion or surprises, employers and employees should advocate for transparency and companies should provide employees with knowledge about the tools available for gaining more equitable market positions with employers.   

2. Focus on compromise as a key to reforming non-competes: Pushing for legislation that results only in a “win” for those who oppose non-competes, or those who want them to remain, will not help advance Massachusetts as a leading center of the innovation economy. Some issues will always be contentious but we can find a meaningful common ground that will keep us all moving the right direction.

If we want to pass legislation that will truly reform the use of non-competes, the entire business community – and that means the startup and venture capital communities directly alongside the more established businesses - need to find common ground, resolution and opportunities that work for the entire economy.  

Legislation created in this spirit won’t deliver everything to everyone, but we will move the needle on ensuring greater employee mobility while protecting employers and their intellectual property. This progress may not always be as quick as we all would like, but it sets us in an important direction towards a new Boston instead of keeping us stuck wholly in the past.

 


David Brown is VP of Innovation Leadership at the Greater Boston Chamber of Commerce. Follow him on Twitter: @dbskier

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