“Facts are stubborn things”
John Adams
Rationale #1 for eliminating non-competition agreements in MA:
“Non-competes hinder start-ups, and thereby hurt the economy.”
FACT: Company start-ups in California have declined nearly 50% when one compares the 2009 – 2011 period with 1978 – 1980.
During the same comparative time periods, the decline in Massachusetts was 39%. The decline in the San Jose, Sunnyvale, and Santa Clara (“Silicon Valley”) area of CA was nearly 52% in the same period of time. The Austin, Texas area decline was 16%, and the Raleigh/Durham, NC area was about 35%. California does not allow non-competes.
(Source: Declining Business Dynamism in the United States: A Look at States and Metros – Robert E. Litan, The Brookings Institute, May 2014).
A recent Kauffman Foundation study put the Cambridge-Newton Framingham area 4th out of 25 metro regions nationally for high-tech start-up density – virtually tied with the San Jose-Sunnyvale-Santa Clara, CA region, i.e., Silicon Valley.
(Source: Tech Starts: High Technology Business Formation and Job Creation in the United States, Kauffman Foundation Research Series: Firm Formation and Economic Growth, August 2013)
Rationale #2 for eliminating non-competition agreements in MA:
“The big companies make employees sign them against their will and then prevent people from getting new jobs. Its David v. Goliath and it’s unfair”
FACT: 86% of businesses in MA have 19 or fewer employees.
They cannot afford to lose business due to unscrupulous employees. The giant companies are the exception in the state, not the norm.
When announcing the recent economic development plan, the Governor himself stated that Massachusetts has 10,000 high-tech companies with revenues under $20 million, and most of those have revenues under $5 million
(Source: Massachusetts Housing and Economic Development Statistic; AP story of April JO , 2014, by Steve LeBlanc.)
Rationale #3 for eliminating non-competition agreements in MA:
“Most employees are honest”
FACT: In 2009, The Washington Post reported that “nearly 60 percent of employees who quit a job or are asked to leave are stealing company data.”
The article cited a report by the Tucson, AZ-based Ponemon Institute. Nearly 80% of those surveyed admitted to taking data even when they knew their employer prohibited such action.
(Source: Data Theft Common by Departing Employees, by Brian Krebs, The Washington Post, February 2009)
Rationale #4 for eliminating non-competition agreements in MA:
“The employee can’t really harm the company. It’s crying over spilt milk.”
FACT: In smaller companies, employees tend to wear many hats out of necessity.
They are exposed to a lot more proprietary information than they would be in much larger companies. In a recent example of ex-employee mischief, a former salesman left a small high-tech start-up company for a much bigger competitor. The small company had developed a revolutionary new medical imaging technology. Its former salesman brought the technology to his new employer, who was going to offer it free to its customers as an adjunct product.
(Source: Life Image, Inc. v. Brown, 29 Mass.L.Rptr. 427, Superior Court 2011)
Rationale #5 for eliminating non-competition agreements in MA:
“Non-competes are bad for business and hinder employment growth. It’s common sense.”
FACT: In 2010, the statewide unemployment rate in California was 12.3%.
In Silicon Valley, the unemployment rate was 11.8%. These figures were much worse than the national average of 9.7%. In three areas where non-competes are routinely used and enforced, the unemployment rate at the same time was: 9.1% in Massachusetts; and 8.0% in the Research Triangle of North Carolina.
(Source: United States Bureau of Labor Statistics)
A recent study concluded as follows: “our results indicate that California’s unique legal structure is negatively associated with research productivity … the legal structure in California that places no restrictions on post-employment activities hinders firm’s research and development activities. We believe this occurs because firms cannot protect the tacit knowledge held by employees … Our results here suggest that smaller firms are particularly affected by the legal structure in California.”
(Source: Non-competition Agreements and Research Productivity in the Biotechnology Industry, Joseph E. Coombs, Texas A&M University, and Porcher Taylor, University of Richmond.)
Another study from 2000 looked at the effect of non-competes on four high-tech regions: California, Massachusetts, North Carolina/Research Triangle and Texas. The conclusion: The success of the four areas as high-tech “boom towns” shows that there is no correlation between enforcing non-competes and the amount of venture capital investment and venture capital transactions.
(Source: A Comparison of the Enforceability of Covenants Not to Compete and Recent Economic Histories of Four High-Technology Regions, Jason S. Woods, University of Virginia Journal of Law and Technology)
Massachusetts recently ranked first in competitiveness by the Beacon Hill Institute of Suffolk University. The categories examined included human resources, technology, and business incubation, among others.
(Source: The Boston Business Journal, Annual Analysis Puts Massachusetts in top spot nationally for competitiveness, by Eric Convey, 2014)
Massachusetts has upheld such restraints in trade, at least since 1811. (Source: Pierce v. Fuller, 8 Mass. 223 (1811)
At any given time, hundreds – if not thousands – of non-competes expire per their own terms – usually one year.
(Source: MA Superior Court Case Law/All Counties)
Rationale #6 for eliminating non-competition agreements in MA:
“We’re not getting our fair share of venture capital!”
FACT: In 2013, Massachusetts venture capital firms raised more than triple the amount raised in 2012.
Massachusetts venture capital firms raised nearly one-third of all venture funding in 2013.
(Source: Venture Capital Firms Booming in Massachusetts, The Boston Globe, January 14, 2014, by Mike Farrell; Thomson Reuters and National Venture Capital Association)
Rationale #7 for eliminating non-competition agreements in MA:
“We don’t need non-competes ifwe have the Uniform Trade Secrets Act.”
FACT: The vast majority of states which enforce non-competes also have the Uniform Trade Secrets Act in place.
MA already has a trade secrets statute which allows for multiple damages and attorneys’ fees.
(Source: G.L. c. 93)
Rationale #8 for eliminating non-competition agreements in MA:
“We don’t need non-competes ifwe have confidentiality and non-solicitation agreements.”
FACT: These agreements are not as good as non-competes when it comes to protecting proprietary information.
Many cases enforcing non-competes recognize that an ex-employee either intentionally or inadvertently will utilize proprietary information in their new job with a competitor.
And, one cannot “un-ring a bell.” The entire purpose of a non-compete is to protect proprietary information at least until competitors are likely through legitimate means to have become aware of same. Competitors should not be allowed a competitive advantage by avoidance of the costs of invention and discovery.
(Source: Analogic Case, 371 Mass. 643 (1976))
Rationale #9 for eliminating non-competition agreements in MA:
“Venture capital firms do not like non-compete agreements. “
FACT: Non-compete clauses are prevalent among high-tech companies in which venture capitalists invest.
“For example, Kaplan and Stromberg (2003) find that venture capital firms required 90 per cent of the founders of the companies they financed to sign non-compete agreements.”
(Source: Handbook on Law, Innovation and Growth, EE Publishing 2011, Edited by Robert E. Liter)
Rationale #10 for eliminating non-competition agreements in MA:
“Getting rid of non-competes will help the little guy.”
FACT: New Hampshire is only a few miles away.
The large employers in MA have the means and motive to leave what is already considered an over-regulated business environment. Large-scale job loss ripples through any economy.
(Source: Fidelity Will Move 1,100 Jobs Out of Mass., by Curt Nickisch, WBUR, March 2011)
Rationale #11 for eliminating non-competition agreements in MA:
“Adopting the Uniform Trade Secrets Act will add clarity to a confusing area of the law.”
FACT: It will take years for the Massachusetts judicial system to interpret the statute’s meaning and proper application.
The common law parameters governing the area of enforcement of restrictive covenants are actually quite clear. Equity allows some flexibility, as it should.
(Source: “The life of the law has not been logic; it has been experience.” Oliver Wendell Holmes, The Common Law, 1881)
Rationale #12 for eliminating non-competition agreements in MA:
“Non-competes promote litigation and keep people out of work.”
FACT: A typical non-compete enforcement action lasts a matter of weeks – at most – due to the expedited court procedure available to those involved in such a case.
Judges in MA have the power to reform the terms of the non-compete contract if they feel it is unfair in some way. Often, this dynamic leads to a settlement that all can live with.
(Source: EMC Corporation v. Donatelli, 25 Mass.L.Rptr. 399, Superior Court, 2009)
