Here is an interesting read from a recent New York Times article by Steven Greenhouse. In the article, Greenhouse discusses the issue that is non-compete agreements in today’s workplace. As many know, non-compete agreements are used more and more frequently throughout almost every industry. What was once a practice limited to tech firms, essential employees and unique services has now been extended to landscapers, hairdressers, and machinists. The Connecticut General Assembly attempted to tackle the issue but had its bill vetoed by the Governor.
As such, Connecticut still relies on the basic common law premise that such agreements must protect a legitimate business interest and be reasonably limited in time and geographical scope. Read through Greenhouse’s article below:
NY TIMES BOSTON —
Colette Buser couldn’t understand why a summer camp withdrew its offer for her to work there this year.
After all, the 19-year-old college student had worked as a counselor the three previous summers at a nearby Linx-branded camp in Wellesley, Mass. But the company balked at hiring her because it feared that Linx would sue to enforce a non-compete clause tucked into Ms. Buser’s 2013 summer employment contract. Her father, Cimarron Buser, testified before Massachusetts state lawmakers last month that his daughter had no idea that she had agreed to such restrictions, which in this case forbade her for one year from working at a competing camp within 10 miles of any of Linx’s more than 30 locations in Wellesley and neighboring Natick. “This was the type of example you could hardly believe,” Mr. Buser (pronounced BOO-ser) said in an interview.
Non-compete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.
John Hazen, head of his own paper company, says the non-compete clauses protect businesses. Credit Matthew Cavanaugh for The New York Times
Restrictions in Massachusetts
There are plenty of other examples of these restrictions popping up in new job categories: One Massachusetts man whose job largely involved spraying pesticides on lawns had to sign a two-year non-compete agreement. A textbook editor was required to sign a six-month pact.
A Boston University graduate was asked to sign a one-year non-compete pledge for an entry-level social media job at a marketing firm, while a college junior who took a summer internship at an electronics firm agreed to a yearlong ban.
“There has been a definite, significant rise in the use of non-competes, and not only for high tech, not only for high-skilled knowledge positions,” said Orly Lobel, a professor at the University of San Diego School of Law, who wrote a recent book on non-competes. “Talent Wants to be Free.” “They’ve become pervasive and standard in many service industries,” Ms. Lobel added.
Because of workers’ complaints and concerns that non-compete clauses may be holding back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that would ban non-competes in all but a few circumstances, and a committee in the Massachusetts House has passed a bill incorporating the governor’s proposals. To help assure that workers don’t walk off with trade secrets, the proposed legislation would adopt tough new rules in that area.
Arguments For and Against the Legislation
Supporters of the pending legislation argue that the proliferation of non-competes is a major reason Silicon Valley has left Route 128 and the Massachusetts high-tech industry in the dust. California bars non-compete clauses except in very limited circumstances.
“Non-competes are a dampener on innovation and economic development,” said Paul Maeder, co-founder and general partner of Highland Capital Partners, a venture capital firm with offices in both Boston and Silicon Valley. “They result in a lot of stillbirths of entrepreneurship — someone who wants to start a company, but can’t because of a non-compete.”
Backers of non-competes counter that they help spur the state’s economy and competitiveness by encouraging companies to invest heavily in their workers. Non-competes are also needed, supporters say, to prevent workers from walking off with valuable code, customer lists, trade secrets or expensive training.
Joe Kahn, Linx’s owner and founder, defended the non-compete that his company uses. “Our intellectual property is the training and fostering of our counselors, which makes for our unique environment,” he said. “It’s much like a tech firm with designers who developed chips: You don’t want those people walking out the door. It’s the same for us.” He called the restriction — no competing camps within 10 miles — very reasonable.
A Legislative Conflict
“The ban to non-competes is legislation in search of an issue,” said Christopher P. Geehern, an executive vice president of Associated Industries of Massachusetts, a trade group leading the fight to defeat the proposed restrictions. “They’re used in almost every sector of the economy to the seemingly mutual satisfaction of employers and individuals.”
The legislative fight here pits two powerful groups against each other: venture capitalists opposing non-competes and many manufacturers and tech companies eager to preserve them.
John Hazen, chief executive at Hazen Paper, said his 230-employee company in Holyoke, Mass., spends heavily to train workers on sophisticated machinery and elaborate paper-making processes.
“Non-competes reduce the potential for poaching,” said Mr. Hazen, whose company makes scratch lottery tickets and special packaging. “We consider them an important way to protect our business. As an entrepreneur who invests a lot of money in equipment, in intellectual property and in people, I’m worried about losing these people we’ve invested in.”
Rules for Non-Competes
The United States has a patchwork of rules on non-competes. Only California and North Dakota ban them, while states like Texas and Florida place few limits on them. When these cases wind up in court, judges often cut back the time restraints if they’re viewed as unreasonable, such as lasting five years or longer.
“In most states there has to be a legitimate business interest, and it has to be narrowly tailored and reasonable in scope and duration,” said Samuel Estreicher, a professor at New York University School of Law.
Daniel McKinnon, who had been a hairstylist in Norwell, Mass., lost a court battle with his former employer who claimed that Mr. McKinnon had violated the terms of his agreement when he went to work at a nearby salon. Mr. McKinnon said that he did not think the original restriction — to wait at least 12 months before working at any salon in nearby towns — still applied because he had been fired after years of friction with the manager there. Shortly after being fired, he went to work at a nearby salon.
But a judge issued an injunction ordering him to stop working at his new employer.
“It was pretty lousy that you would take away someone’s livelihood like that,” said Mr. McKinnon, who for the following year lived off jobless benefits of $300 a week. “I almost lost my truck. I almost lost my apartment. Almost everything came sweeping out from under me.”
He resisted the idea of traveling miles from his apartment to a new salon, saying that would have meant an unpleasant and costly commute.
“The salon where I worked was doing just fine — I don’t see why they needed to do this,” he said. “I basically had to give up a year of working.”
Employee & Employer Response
Wendi S. Lazar, an employment lawyer in Manhattan, said she saw an increase in litigation to enforce non-competes. “Companies are spending money, hiring lawyers, to go after people — just to put the fear of death in them.”
State Representative Lori Ehrlich, one of the main sponsors of the Massachusetts legislation to bar non-competes and vice chairwoman of the Joint Committee on Labor and Workforce Development, said that many people had complained to her about the restrictions being set for employees.
“It’s hurting growth in the economy by decreasing worker mobility and squelching start-ups,” Ms. Ehrlich, a Democrat, said. “They’re hurting families by making it so people are unable to work for an extended period of time. This has increasingly become exploitative to workers.”
Matthew Marx, a professor of entrepreneurship at the M.I.T. Sloan School of Management, said a recent study he did found that half of the nation’s engineers had signed non-competes, with a third lasting more than a year, and some more than two years.
The Impact of Non-Compete Bans
“Where non-competes are not enforced, there’s a more open labor market — companies compete for talent,” he said. “We used to have a saying at the Silicon Valley start-up where I worked, ‘You never stop hiring someone.’ They can go where they want. People are free to leave and start companies if they’re not happy.”
Professor Marx said California’s ban on non-competes was a major reason Silicon Valley was thriving. If a few employees there have an innovative idea and their bosses don’t want to pursue it, they can leave to found a start-up. But in Massachusetts, if employees with non-competes bring that innovative idea to their boss and it is rejected, they are stuck — or they would have to leave the company and wait a year before they could pursue their new idea. (Or they could move to California, where the courts would not enforce the Massachusetts agreement.)
Mr. Geehern of Associated Industries of Massachusetts denied that the California economy, with a 7.8 percent jobless rate, was doing better than the Massachusetts economy, with a 6 percent rate.
“If non-competes are so onerous and burdensome, why aren’t we seeing a significant migration of talent away from the companies that use non-competes toward the companies that don’t use them?” he said. “The companies that use non-competes still attract plenty of the best and brightest.”
Michael Rodrigues, a Democratic state senator from Fall River, Mass., said the government should not be interfering in contractual matters like non-competes. “It should be up to the individual employer and the individual potential employee among themselves,” he said. “They’re both adults.”
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