The Wall Street Journal recently reported there has been a 60 percent spike in the number of non-compete clause litigation actions filed against departing employees in the last 10 years.
Our Boston business lawyers know that while some view these actions as a way to insulate companies from theft of trade secrets or the heist of business relationships or customer data, others see it as stifling entrepreneurship and healthy corporate competition.
The truth is probably somewhere in the middle, and varies on a case-by-case basis.
One example provided by the news outlet was that of a former computer security firm employee, who reportedly had signed a non-compete clause when he first received his employment contract. However, several years later, he decided to splinter off and create his own company, which served to shield websites from automated computer hacks.
His former employer sued him just a few months after he got his business off the ground, alleging he had violated that non-compete clause. It took nearly six months, but he was finally able to negotiate a settlement with his former bosses. He now says that non-compete agreements are a roadblock for those who want to start their own companies because they limit how much you can use your existing professional network to grow.
This of course is all the more reason why start-up firms need to consult with an experienced business attorney. He or she can help you review any existing non-compete clauses to help you potentially avoid any legal landmines as you try to forge your own path. Investing in legal services at the foundation of your firm will likely help you head off any problems down the road.
Non-compete agreements are utilized by both larger and smaller companies, with leaders saying that not only are trade secrets at risk, but so is customer goodwill. These agreements can also be a strong incentive for a worker to stay put. This makes sense from a business standpoint, as many companies invest a fair amount of capital in their workers.
The Journal reports that U.S. court decisions involving non-compete agreements have climbed by more than 60 percent since 2002, with some 760 cases filed last year.
Recently, a Professor of Entrepreneurship at the Massachusetts Institute of Technology conducted research into how these agreements affected business growth. He called the impact “chilling.” Specifically, he looked at the growth of new small business in Michigan after 1985, which was when the state first started enforcing non-compete agreements. He said workers who signed these agreements were far less likely to leave their jobs and those who did were less likely to start their own company or join another start-up.
He recently testified in favor of a proposed Massachusetts bill that would limit the reach of non-compete clauses. State enforcement of non-compete agreements in Massachusetts are currently limited to certain professions, including physicians, nurses, social workers and those in the broadcasting industry.
In a recent article on the issue, the Boston Business Journal noted that Massachusetts non-compete agreements are becoming tougher to enforce because of the “material change” defense argument. That is, if an employee’s position changes materially within the time they are there and he or she does not sign a new non-compete agreement at the time of that change, the old agreement could potentially be voided.
If you have questions about your non-compete agreement or how the new legislation may affect you, feel free to contact our offices for more information.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Litigation Over Noncompete Clauses Is Rising, Aug. 14, 2013, By Ruth Simon and Angus Loten, The Wall Street Journal
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Boston Businesses Strive to Protect Intellectual Property, Defend Against Hackers, Aug. 26, 2013, Boston Business Lawyer Blog