Massachusetts Bills to Ban Noncompetes and Adopt UTSA in the New Legislative Session (2015-2016)

IMG_0017Several bills concerning trade secrets and noncompetes were filed this week in the Massachusetts legislature.

On trade secrets side, the following bills were filed: H.2569 by Representatives Bradley Jones and Elizabeth Poirier; H.2157 by Representative Garrett Bradley; and S.334 by Senator Jason Lewis.

The following bills were filed on the noncompete side: H.2332 by Representative Lori Ehrlich and an identical bill in the senate (S.809) by Senator Will Brownsberger; H.730 by Representative Angelo Puppolo; H.2157 by Representative Garrett Bradley; H.709 by Representative Sheila Harrington; and S.334 by Senator Jason Lewis.

The bills (all of which are available through the above links) are summarized as follows:

The various trade secrets bills filed by Senator Jason Lewis and Representatives Brad Jones, Elizabeth Poirer, and Garrett Bradley are all essentially last session’s version of the bill to adopt the Uniform Trade Secrets Act with some very minor (nonsubstantive) changes. As I explained here, this version the UTSA would substantially weaken Massachusetts trade secrets law. However, Steve Chow‘s version, which I worked on with Steve to address these concerns, was filed by Steve Chow as a Uniform Law Commissioner in the fall and remains up for consideration.

The noncompete bills all seek to ban noncompetes, albeit using different language. Representatives Harrington and Puppolo bills track California’s Business and Professions Code sections 16600 to 16602.5 (with a little restructuring). It is important to note that while they specifically exempt nondisclosure agreements, they could have the effect of banning nonsolicitation agreements. (That’s how the same language has been interpreted in California.)

The other approaches to banning noncompetes use similar language to that proposed last year by Governor Patrick (which I had helped to draft). The full language, which is set out in Senator Brownsberger’s and Representative Ehrlich’s bill, is reproduced below.

However, several aspects of this version are important to note. First, if passed, this bill would not apply to other types of restrictive covenants, such as nondisclosure agreements, nonsolicitation agreements, or no raid agreements. Nor does the bill apply retroactively; it prohibits only agreements entered into after the bill and passed and the law becomes effective. (Senator Jason Lew’s bill, while nearly identical, would apply retroactively, i.e., to existing agreements. Similarly, Representative Bradley’s bill, which uses some but not all of the same language, also applies retroactively; however, Representative Bradley’s bill could also be interpreted to ban all other restrictive covenants – not just noncompetes.)

As a side note, last legislative session, there was a fair amount of discussion about including language expressly permitting what has become referred to as a “springing noncompete.” The concept was that while noncompete agreements would be banned, a court may nevertheless prohibit the former employee from working for the new employer as a remedy for a breach of another restrictive covenant (e.g., a nondisclosure agreement or nonsolicitation agreement). Although not expressly provided for in the current bills, that relief may still be available, as the bill would ban only “agreements” and leaves unaffected a court’s broad equitable powers.

Given the completeness of the Brownsberger/Ehrlich bill (and my involvement with its drafting), I have provided its full text here.

An Act relative to the judicial enforcement of noncompetition agreements.

            Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

Chapter 149 of the General Laws of Massachusetts shall be amended by inserting the following as Section 19D:

Section 19D. Noncompetition Agreements

Any written or oral agreement arising out of an employment or independent contractor relationship that prohibits, impairs, restrains, restricts, or places any condition on a person’s ability to seek, engage in, or accept any type of employment or independent contractor work, for any period of time after an employment or independent contractor relationship has ended, shall, to that extent, be void and unenforceable. This section does not render void or unenforceable the remainder of the agreement containing the unenforceable noncompetition agreement, nor does it preclude the imposition by a court, through a temporary restraining order, preliminary injunction, permanent injunction, or otherwise, of a noncompetition restriction as a provisional or permanent remedy for a breach of another contractual obligation or violation of a statutory or common law duty. Nor shall this section affect (i) covenants not to solicit or hire employees or independent contractors of the employer; (ii) covenants not to solicit or transact business with customers, clients, or vendors of the employer; (iii) nondisclosure agreements; (iv) noncompetition agreements made in connection with the sale of a business or partnership or substantially all of the assets of a business, when the party restricted by the noncompetition agreement is an owner of, or partner with, at least a ten percent interest of the business who received significant consideration for the sale; (v) noncompetition agreements outside of an employment or independent contractor relationship; (vi) forfeiture agreements; or (vii) agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.

This section shall apply to all contracts and agreements executed after the effective date of this act.

One thought on “Massachusetts Bills to Ban Noncompetes and Adopt UTSA in the New Legislative Session (2015-2016)

  1. Steve

    While Russell and I spent very productive time to reach compromise language on the issues he raised late Spring (and more precise and consistent language generally), I do not believe that the version filed by the legislators “substantially weaken Massachusetts trade secrets law.” I’m happy with either version and am happy to explain the differences.

    I’m more troubled by the effort to create a federal private right of action using some of the Uniform Trade Secrets Act (UTSA) language and concepts in the interest of “uniformity” without any express deference to state construction of the language over the 35-year history (and 48-state adoption) of the UTSA. This gives the first litigants (proponents) the opportunity to establish “federal” constructions for concepts such as “improper means” which ordinarily is subject to the mores of the States (“the laboratories of democracy”).

    -Steve Chow

    Reply

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