Massachusetts looks to learn from California on noncompete rules

Massachusetts Governor Deval Patrick is proposing legislation that would make it easier for workers in technology and life sciences to move from job to job, according to a report in the Boston Globe. The legislation would ban noncompete agreements that prevent employees from moving from one company to a competitor.

The Globe reports that the Massachusetts proposal is modeled on California regulations that declare noncomptete clauses void.

The proposed legislation will pit Massachusetts businesses who fear the legislation would endanger trade secrets against venture capitalists who claim the present situation stifles innovation and hinders the formation of startups.

The Globe quotes Greg Bialecki, secretary of Housing and Economic Development, as saying We feel like noncompetes are a barrier to innovation in Massachusetts.” He continued, “When you look at California, the big and small tech companies out there have clearly figured out a way to do business without compromising intellectual property. Not only are they doing well, they’re doing fabulously.”

A likely opponent of the move is Andrew Botti, an employment lawyer and former chairman of the Small Business Association of New England, which, the Globe reports, previously opposed bans on noncompete clauses. The paper quotes Botti as saying, “This has been the law in Massachusetts for 200 years, and I’d say the Massachusetts high-tech economy has grown pretty well in the past 200 years. It’s sad but true that when a lot of employees leave their companies they take things they shouldn’t be taking. And that information is used to compete unfairly with their previous employers.”

However, the Globe cites a 2010 study by professors at Yale University and Brock University that concluded that “the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth.”

The Globe doesn't provide a reference to that study, but it appears to be this one by Sampsa Samila of Brock University and Olav Sorenson of Yale.

They report, “We find that the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to states that enforce noncompete covenants, an increase in the local supply of venture capital in states that restrict the scope of these agreements has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment.”

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