Revised Noncompete Legislation Doesn’t Go Far Enough

[Editor’s Note: Bijan Sabet of Spark Capital has kindly allowed us to cross-post this entry from his blog reacting to news today of a draft bill proposing compromise language on noncompete agreements in Massachusetts.]

My partners and I have been pushing to end the use of employee non-compete agreements for some time now.

We passionately believe in this issue and back in late 2007 I wrote that we should end these non-compete agreements. We planned on starting with our firm and then encourage our portfolio companies, entrepreneurs and other VCs to end this practice as well.

A few months later I wrote a guest post on GigaOm and also we started the Alliance For Open Competition. The idea was to start a grass roots effort to get rid of these things (n.b. we believe in protecting employers through the use of non-disclosure agreements, non-solicitation agreements and intellectual property governed by patent law). We were thankful that in a relatively short period of time prominent investors and entrepreneurs joined the cause and started speaking up.

Recently the Boston Globe Sunday Editorial took on this issue in their column—“Clause For Concern.”

I was pleased earlier this year when I was contacted by Rep. Brownsberger who was leading an effort for reform on this issue. Rep. Brownsberger and a team created House Bill 1794 which as originally drafted would give employees and employers the same protections that exist in California. I participated in a few sessions and was thrilled with the leadership of this bill. As a result our firm, Spark Capital formally endorsed this bill. I have huge respect and admiration for Representative Brownsberger.

Sometime over the last week or so that bill was modified significantly. The revised draft is on Rep. Brownsberger’s website. In our view, the revised changes won’t solve the problem in our humble opinion because they simply don’t go far enough to reform and create real change.

Here’s the principle changes they made last week:

1. Employees who make under $50k are free of non-competes. If you make more than that you are subject to a non-compete.

2. The revised draft requires that employers give advance notice that they will require non-competes in their offer letter.

3. Punish overreaching by employers by awarding attorney fees to the employee whenever an agreement is reformed or found unenforceable.

* * *

My reaction:

1. I don’t understand or agree with this new threshold of $50k/year. It will leave out plenty of entrepreneurs and employees.

2. The advance notice doesn’t help if every Massachusetts company requires non-competes.

3. Point #3 puts a huge risk on the entrepreneur/employee on the expense front. Who wants to fund a lawsuit? Even if it’s frivolous. Legal fees are expensive and they create a … Next Page »

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