Laid-off with a non-compete? Bill would guarantee salary

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By:  Patrick Thibodeau

The pending $67 billion EMC and Dell merger spurs new effort to reform non-compete provisions in Massachusetts

Non-compete agreements are controversial for many reasons, but what may be worst of all: Even if you are laid off from your job, a non-compete agreement may still apply.

California has made non-compete agreements unenforceable, but Massachusetts has not. Some opponents say that’s partly the result of lobbying by EMC, which has considerable clout as a major state employer, headquartered in the Boston suburb of Hopkinton.

But the pending $67 billion merger of EMC with Dell, and the prospect of merger-related layoffs, is spurring a new attack on non-compete agreements.

State lawmakers are considering limiting non-compete agreements to one year, banning them for low-wage workers and for people terminated without cause.

The leading legislative proposal will also require an employer to pay at least 50% of the former employer’s salary during the period of time the non-compete is in effect. This salary guarantee is called “garden leave” and is in Massachusetts House bill H.4323.

Among those pushing for non-compete reform is a new group, the Employee Association to Renegotiate Noncompetes – Team for EMC Employees (Earn-Tee). The group has met with EMC employees subject to non-competes, said Kevin Johnson, a spokesman for the group and an electrical engineer and entrepreneur who isn’t affiliated with EMC.

This labor association was formed to focus on the non-compete issue. Its genesis is the EMC and Dell merger, but there is another reason as well: EMC plays a particularly influential role in the state, and is “a very strong, outspoken opponent of non-compete reform in Massachusetts,” said Johnson.

EMC did not respond immediately to a request for comment.

The Massachusetts opponents of non-compete clauses want the state to make non-compete agreements unenforceable, similar to California. But forcing an employer to pay at least half an employee’s salary for the duration of the non-compete may be almost as good as an outright ban. This provision may prompt some employers to abandon the non-compete provisions altogether, say opponents.

This bill has some legislative leadership support but there’s little hope that the garden leave provision will make it into the final bill, say non-compete reformers.

James Bessen, a researcher and lecturer at the Boston University School of Law, who has studied tech labor trends, believes that non-compete agreements are hurting the technology industry in Massachusetts.

Bessen and Johnson were among the authors of a just-published essay arguing for the elimination of non-competes through “single-issue labor organizing campaigns.”

Non-compete agreements hurt the labor market because an “employee can’t be bid up by a competitor,” said Bessen, but there’s a social cost as well. “It limits the exchange of knowledge in new technology areas.” That is one reason why Silicon Valley has been successful; “they don’t enforce non-competes.”

Non-compete agreements limit firms from “taking advantage of talent and ideas,” said Jody Rose, executive director of the New England Venture Capital Association. Non-competes “are stifling our investor potential” and hurt the ability of workers to “cross-pollinate” ideas.

The belief that non-compete agreements are hurting innovation was one reason why Hawaii banned non-compete agreements for technology workers.

In justifying the bill, Hawaiian lawmakers wrote in the bill: “A non-compete atmosphere hinders innovation, creates a restrictive work environment for technology employees in the state, and forces spin-offs of existing technology companies to choose places other than Hawaii to establish their businesses.”

In May, the White House released a report about non-compete agreements. It found that 18% of the workforce is now covered by a non-compete agreement, but over the course of a career, some 37% of all workers will be subject to them. They have been signed by people at all salary and occupation levels, the report found.

The intent of non-competes is to protect trade secrets, but the White House report said there is evidence that they are being applied too broadly.

The White House found that even in California, non-compete agreements are still used in employment contracts even if they are not enforceable.

The use of non-competes in contracts is often a “poker game versus a solid legal document,” said David Lewis, the president and CEO of OperationsInc, a Norwalk, Conn.-based human resources consulting firm. In these cases, the non-compete is issued as a “threat to deter someone from competing versus as a guarantee that you will actually be able to enforce it, which in many cases you cannot.”

Philip Mortensen, a labor and employment law partner at Barton LLP in New York, said that non-competes are, generally speaking, enforceable if someone is terminated through no fault of his or her own.

Whether it is enforceable will depend “on the reasonableness of its terms,” said Mortensen, which include its geographic breadth and length of time. A year is usually the maximum length.

“In addition, the company will have to establish why the non-compete is necessary in the first place,” said Mortensen.

This story, “Laid-off with a non-compete? Bill would guarantee salary” was originally published by Computerworld.

Patrick ThibodeauSenior Editor