Secretary Gregory Bialecki, Executive Office of Housing and Economic Development
I have been asked via blog comments and email to talk about the Administration's views on non-compete clauses under Massachusetts law. So here goes…
We are aware of the arguments in favor of changing our current situation, under which non-competition clauses in employment contracts are widely enforceable in a court of law. There is the experience of California, widely admired for its entrepreneurial environment, which refuses to enforce non-competes. There is the Kennedy School study that appears to reflect an decrease in entrepreneurial activity in Michigan after that state changed its laws to allow enforcement of non-competes. There are the strong opinions of a number of thoughtful observers of our own innovation ecosystem, including from Scott Kirsner and Tim Rowe. As I have said in prior posts, we really are working to support and promote our innovation ecosystem in every way possible and this is certainly a potentially intriguing way to do just that (one that would not require any new state spending, by the way).
On the other hand, we are still wrestling with the following:
1. It would be a significant change in the way business is done in Massachusetts and should not be undertaken lightly.
2. We are hearing a real mix of opinions on the issue from people in our innovation economy.
3. The defenders of the current system are not only the big tech companies, but also some of the smaller ones. Brian Shin at Visible Measures, for one, has explained to me why he is comfortable with the rule as it stands. There is also a mix of opinion among VCs.
4. Critics of the current system usually give me examples of what sound to me like unreasonable or overzealous abuses of the rule, not reasons to throw out the rule entirely.
5. On the other hand, simply trying to modify the current rule (as pending legislation proposes), rather than getting rid of it, may not improve the situation much and may lead to uncertainty and litigation.
6. The middle of a severe economic downturn may not be the best time to make such a change.
7. There are reasons to believe that the market itself could address this issue, if companies that don’t require non-competes make a big deal of this issue and thereby recruit talent more successfully than those that do.
On balance, we don't yet see the case to have been sufficiently proven that a change in our existing laws will be a significant improvement to our innovation ecosystem. But we will continue to keep on top of the debate.
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