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State House committee meets to consider change to non-compete rules today

Posted by Scott Kirsner  September 15, 2011 08:00 AM

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Just before July 4th, Angela, a 26 year-old Boston University alumna, was laid off from her job as a software trainer. She had only been at the company for two weeks.

Her employer didn't want to let her go, and Angela obviously wanted to keep the job. But Angela had signed a non-compete contract with an old employer — a job she'd left voluntarily last October — and the employer, Bullhorn, was now threatening to sue over it. (Angela requested that I not use her last name, to avoid hurting her reputation in the job market.) Angela told me, "The gist of the letter was, if you don't fire her immediately, we're going to take you to court." She'd signed the non-compete in 2007 without giving its implications much thought. But it prevented her from working for any other company that developed software for the staffing or recruiting industry for a year after she left Bullhorn.

Non-compete agreements are a drag on the Massachusetts economy. They prevent people from taking their talents wherever they choose. They prevent people from starting new companies in the business sectors they know best. And rather than protecting our state's biggest companies, they make them complacent and less competitive by allowing them to effectively lock up their best people, dissuading them from ever leaving to compete with the mother ship. So new rivals don't pop up here in the Bay State... just everywhere else in the world.

This morning, the state legislature's Joint Committee on Labor and Workforce Development is holding a hearing that will discuss changing the way non-competes are used by Massachusetts employers — or eliminating them entirely. (I'm rooting for the latter, and here's the background on my position.)

Angela's story illuminates many of the problems with the status quo in Massachusetts. Not only do non-competes prevent the all-star engineer or PhD chemist from leaving Company A to start Company B, but they can sideline much more junior people, even in industries that have nothing to do with intellectual property or trade secrets. This summer, I exchanged e-mails with a woman whose son — a 24-year old gymnastics instructor in Reading — decided to leave one gymnastics school to teach at another. His old job was part time and offered no benefits. His new job was full-time, with benefits. Just last week, the old employer sent a letter threatening legal action because the man was violating the terms of his non-compete agreement.

And these cases do sometimes wind up in our court system, taking up judges' time. Earlier this year, a judge blocked a South Shore hair stylist who was fired from one salon from taking his blowdryer over to another salon.

This is no way to run things in a state that hopes to cultivate and attract the best talent in an intensely-competitive global economy.

Angela worked at Bullhorn for about three years. She left the company on her own terms in October 2010 to work as a software trainer at a Boston-area hospital, but after seven months decided "it wasn't what I wanted to do." So she took a job as a business analyst with another company that sells software to recruiters. (Angela declines to name the company.) She suspects that someone at Bullhorn saw her update her LinkedIn profile with the new job, and within two weeks, the legal wrangling began. She was sort of surprised that Bullhorn would care about a relatively low-level person going to work for a competitor. "I'm not a VP or director-level person," she says. "I wasn't in sales. I didn't have client lists. I didn't know how their code is written, or what the future product plans are. I was making $60,000 a year."

Her new employer tried to work something out with Bullhorn, Angela says. "They tried saying that I wouldn't work on any clients that conflicted, but the negotiation fell apart." Her non-compete agreement extended through October 2011, and just before July 4th, she found herself suddenly out of work.

She consulted an attorney to see whether she might be able to contest the non-compete. "He told me I'd have to put up something like $20,000 if the case ended up going to court," she says. "And if we wanted to try to write some letters, it was going to cost $250 to $300 an hour for his time. He didn't sound that optimistic about being about to fight it."

Non-compete agreements are contracts, of course, and unless we decide that they shouldn't be used in Massachusetts — as they aren't in California and a few other states — employees like Angela can be held to them. I've been writing about this issue for more than two years now, and I've yet to hear an example of a prospective employee who was offered a job, asked to sign a non-compete, and successfully refused.

I asked Bullhorn's chief executive, Art Papas, to explain his company's rationale for choosing to pursue Angela's non-compete, but he wouldn't talk about her specific case. He did say that every employee at the Boston company is required to sign a non-compete lasting one year — pretty typical for companies in Massachusetts — that prevents them from working for another company that sells software or services to the recruiting and staffing industry.

Incredibly, Papas concedes that getting rid of non-competes would make our state's economy more competitive. But he doesn't want to unilaterally disarm, allowing his employees to go work for rivals without being able to hire their ex-employees. Papas wrote via e-mail, "As far as I know, every other big employer in the state [asks employees to sign non-competes] because without them, you're at a competitive disadvantage. I agree that eliminating non-competes state-wide would change things. It would force everyone onto a level playing field, and make Boston much more competitive on the national front."

Angela, meanwhile, just got approved for unemployment insurance payments last week. (Unemployment pays about 50 percent of her old salary.) She has been studying for some certification tests in her field, and taking a photography class for fun. When the non-compete she signed expires in October, she plans to go back to work for the very same employer that was forced to lay her off this summer. "I'm trying to stay busy and positive, which is tons easier now that I have an official start date and that unemployment insurance," she writes in an e-mail.

By its nature, Massachusetts has never been a state that has been satisfied with the status quo. It's time to acknowledge that our stance on non-compete agreements keeps talented people from applying their skills where they want, and that the contracts only give companies the illusion of being protected from competition. Rivals can crop up anywhere in the world, and why wouldn't we want them growing, creating jobs, and keeping more established firms on their toes, right here in Massachusetts? We live in an era of creative destruction, and while it's vitally important to protect the patents and trade secrets developed by companies, it just isn't wise to shackle employees, most of whom don't have the leverage to insist on not signing a non-compete agreement.

It's time to make some change.

Update: Here's the testimony being presented today by Greg Bialecki, Secretary of Housing and Economic Development in Massachusetts.

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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