Analysis | Massachusetts bill would require employers to pay up when enforcing noncompetes — but there’s a loophole

After a decade, an effort to protect workers was watered down in the version that will go to Gov. Charlie Baker’s desk for a signature.

The new Massachusetts law described in this article will not impose a complete ban on enforcement of noncompete clauses in employment agreements. Only California, North Dakota and Oklahoma completely ban noncompetes.  It is a step in the right direction.

A flood of publicity ensued recently about Jimmy Johns sandwich deliverers being stuck with take-it-or-leave-it noncompete clauses in their employment agreements. These clauses prevent them from delivering sandwiches for competitors. In response, a flurry of legislation was introduced in Congress, and in some states, to ban employee noncompete clauses.

This Massachusetts law does not impose a complete ban on enforcement of noncompete agreements, but it does 1) require some specific compensation for any employee giving up his right to compete, 2) limit the non-compete period to one year after leaving any job, and 3) require that the employer give all employees time to read and consider the effects of their noncompete clause.

Most importantly, the law does impose a complete ban on enforcement of noncompete agreements against workers who are not exempt from wage and hour laws. These are typically workers who are paid based on hours worked, and who are eligible for overtime pay. This ban would cover most of the lower-paid workers like the sandwich deliverers, camp counselors, and hair dressers whose ability to work for a competitor was at the heart of the recent controversy that, in part, prompted this legislation. It would also seem to include, at least in Massachusetts, the Amazon hourly workers whose noncompete-restricted ability to work for a competitor has recently been criticized as an unfair source of Amazon’s profits.

Higher-paid professional workers with valuable knowledge of company practices were the original targets of noncompete clauses in employment agreements. They would likely not be covered by the law’s complete ban on noncompetes for hourly workers. They are, however, protected by California’s constitutional ban on noncompete agreements for all employees. Economists have identified California’s noncompete ban as a magnet for attracting engineering talent from other states, as a crucial element of its startup culture, and a key factor in Silicon Valley’s rise to dominance over other high-technology centers, like the Massachusetts Route 128 technology corridor.

 

Source: Analysis | Massachusetts bill would require employers to pay up when enforcing noncompetes — but there’s a loophole