Massachusetts legislators have spent the last seven years debating non-compete agreements, which prevent employees from taking positions at rival companies. Despite former Massachusetts Gov. Deval Patrick’s proposition to make such agreements illegal in April 2014, these binding contracts are still legal and widely used. This week, Communispace, an international market research agency headquartered in Boston, took that a step further, banning non-compete agreements among all employees except among its top executives.
“A non-compete agreement is basically an agreement that companies issue which prevents employees from bringing insider information or contact lists to competitor companies after leaving the company,” said Jack Beermann, a professor in Boston University’s School of Law. They also prevent employees from leaving their current jobs for competitor positions for a set period of time after quitting, usually about a year, depending on the agreement’s specified conditions.
“It’s been a topic of discussion in Massachusetts the past few years, where there are a lot of business leaders who believe that non-compete agreements actually stifle innovation rather than supporting it by limiting the flow of ideas, energy and ultimately people,” said Communispace Chief Technology and Strategy Officer Howard Kogan. “In some cases, it’s just unfair for employees to have their employment options limited in industries where there’s just no reason to limit the flow of people from getting new jobs.”
Beermann noted that non-compete agreements limit an employee’s ability to take on new opportunities, as it would mean being out of work for a year.
“It’s a binding agreement that may discourage employees from leaving for another opportunity like starting a competitor company or working elsewhere. In many states, like California, non-competes are completely illegal,” Beermann said.
Though in the past many employees signed non-compete agreements without a second thought, the binding agreement has become increasingly problematic among employees who want the freedom to make ambitious moves in their careers.
“I think that more and more employees are going to be aware of this issue, and if they have a choice between different companies to work at, which many employees in the high tech industry do since there’s a high demands, that might very well be a factor in where they choose to go,” Kogan said.
Despite these reasons, employers still have purposes for using non-compete agreements to protect company information.
“For employers, [non-competes] allow better security in terms of keeping valuable company information from getting out to other companies. Companies who require non-competes may have to add extra to employee salaries because it limits the employee’s ability to switch jobs,” Beermann said. “However, banning non-compete agreements may attract people of higher expertise and talent to work at the company because it gives them the freedom to leave the job if it doesn’t work out, or pursue opportunities down the line.”
Kogan said while keeping company information classified is a valid concern for any company, non-compete agreements are not the only way to ensure the security of trade secrets.
“A lot of people will argue that non-competes are used to protect that information, but that’s a really blunt instrument to try and protect confidential information,” Kogan said. “You can do that in other ways that are a bit more surgical, like we have, and just explicitly protect that information while allowing people freedom of employment.”
Although the majority of Communispace’s employees will no longer have to worry about non-compete agreements, the company’s top executives are still bound to these agreements.
“Top executives will probably have more valuable information within the company that they won’t want to get out,” Beermann said. “Executives are paid more and typically more valuable to the company.”
Communispace’s move to ban non-compete agreements allows its employees more freedom to follow their ambitions and take on new opportunities without the company risk of losing valuable insider information, Kogan said.
“My employees have told me since we’ve announced this that it gives them a lot of pride to work for a progressive company who places a premium on employees and the values at which they treat their employees,” Kogan said. “I think it’s a positive move for how people feel about the place that they spend their day every day.”
