Working Together

Many employers believe that non-compete agreements, also known as restrictive covenants, can be an important tool in protecting confidential information, trade secrets, and other legitimate business interests. They allow business owners to share vital information with key employees without fearing that they have merely educated their competitors if the key employee jumps ship.

Nor under current law are non-competes open-ended. Courts restrict them temporally (rarely longer than two years) and geographically (only to areas where the employer can reasonably claim a market that could be affected by competition). There is another restriction imposed by the courts; non-compete agreements will only be enforced against former employees who present true competitive risks. Simply put, a non-complete ought to be enforced against a key research and development manager, but not against a secretary or receptionist. A final restriction is that the employer must give some consideration for the non-compete, such as the job itself at the time of hire, or a promotion or salary increase during employment.

But there is a contrary school of thought that non-compete agreements limit a person’s free choice of employer, stifle innovation and burden unemployment compensation programs. These considerations have led to prohibition of non-compete agreements in California and North Dakota. Connecticut also enacted a very limited ban in 2007, Connecticut General Statutes Section 31-50a and 31-50b. Section 31-50a prohibits security companies from preventing guards from switching to a new company if the location being guarded changes security vendors. Section 31-50b prevents employers in the broadcast industry from imposing non-competes on employees other than sales or management, or from requiring employees to disclose recruiting offers that they may have received when their contracts expire.

These statutes have a more narrow purpose than fostering innovation. The security guard statute allows continuity of the guard force at a particular location, presumably enhancing safety and security. The broadcast industry statute seems designed to foster the free movement of on-air “talent” from one station to another. Broader prohibitions on non-competes have been introduced from time to time, but have not gotten much traction in the Legislature.

Now Massachusetts is seriously considering a restriction on non-compete agreements. Governor Deval Patrick originally introduced a ban, which would have applied even to existing agreements, apparently regardless of whether the employer had already paid for them. The proposal has been scaled back to permit non-competes only for FLSA-exempt employees, and for a duration no longer than six months. The more limited non-solicitation covenants, which prohibit solicitation of employees or customers (sometimes called no-raid provisions), are not affected.

Connecticut’s legislative session is over for now, but since the Connecticut and Massachusetts governments are relatively like-minded, probably more so than are California and North Dakota, successful legislation in Massachusetts may give new impetus to the ban-the-covenant movement in Connecticut.