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Non-Compete Legislation Fails in Massachusetts

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| Legal Advisory

After an eventful legislative session, non-competes remain alive and well in Massachusetts – at least for the time being.

Over the last few years, a number of business leaders and legislators in Massachusetts have called for legislation banning non-competes, largely without gaining momentum. Leading these efforts have been technology industry startups, emerging companies, and venture capital firms, many of which argue that non-competes hamper the ability of Massachusetts to compete with the technology community in California, where non-competes are not enforced. More established Massachusetts companies generally have countered that non-competes are necessary to protect their substantial long-term investments in proprietary information and customer goodwill. Over the course of the legislative session that just drew to a close, proponents of restricting non-competes in Massachusetts appeared to gain substantially greater traction and garner more attention than past efforts. This occurred primarily because, for the first time, Governor Deval Patrick came out publicly in support of non-compete reform.

In April 2014, the Governor introduced a bill banning non-competes in Massachusetts. The bill contained several limited exceptions, and was contingent on Massachusetts adopting a form of the Uniform Trade Secrets Act to prevent employees from bringing proprietary information to new employers. However, the House ignored the Governor’s call, and passed a version of an economic development bill in June that did not include any language on non-competes. In July, the Senate attempted a compromise approach, passing its own version of an economic development bill that would have placed significant restrictions on non-competes but not an outright ban. Of significance, the Senate version of the bill essentially limited the length of non-competes to six months and prohibited employers from using them with FLSA non-exempt employees.

On July 31, 2014, the final day of formal sessions for the 2013-2014 legislative session, a conference committee of members of the Senate and House worked out the final economic development legislation. The conference committee offered no statutory language on non-competes and declined to adopt a version of the Uniform Trade Secrets Act. The final version of the economic development bill maintains the status quo with respect to non-competes and trade secrets. The Legislature’s bill is now on the Governor’s desk, and it appears that it will pass without any changes to non-compete laws.

Despite a high level of activity on non-compete legislation, the legal landscape governing non-competes in Massachusetts remains intact for now. Although courts will continue to carefully scrutinize non-competes, they will generally enforce narrowly crafted agreements that are necessary to protect a legitimate business interest and are reasonable in duration and geographic scope. However, legislation imposing restrictions on non-competes progressed further than ever before this year, and with the election of a new governor in the fall, it is open to question whether there will be another push for a non-compete ban or non-compete reform during the next legislative session. Employers and counsel should be aware that non-competes may remain under fire in Massachusetts in the upcoming legislative session.

This advisory was prepared by Christopher H. Lindstrom in the Labor, Employment and Benefits practice group at Nutter McClennen & Fish LLP. For more information, please contact Chris or your Nutter attorney at 617.439.2000.

This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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