Massachusetts Governor Deval Patrick Proposes Elimination of Most Non-Compete Agreements and Adoption of Uniform Trade Secrets Act

What you need to know:

Massachusetts Governor Deval Patrick recently proposed legislative reform that would abolish non-compete agreements made in the technology and life sciences sectors, as well as other, currently unspecified industries.  Eliminating non-competes would be contingent on the adoption of the Uniform Trade Secrets Act, already adopted by 48 other states.  If passed in its current form, the bill would have retroactive effect and void all prior non-compete agreements in the industries it covers.

What you need to do:

No changes to Massachusetts non-compete law have been made yet, but these legislative efforts underscore the need for employers to better safeguard their trade secrets, especially in light of a recent Massachusetts Superior Court decision holding that employers cannot successfully make a claim for trade secret misappropriation in the absence of efforts to preserve confidentiality.

The Proposal

Last week, Governor Patrick proposed a legislative package that would eliminate non-compete agreements, on the condition that Massachusetts adopt the Uniform Trade Secrets Act, among other provisions.  The debate in Massachusetts over non-compete agreements has been ongoing for several years, and a bill proposing a limit on the duration of non-compete agreements to six months is currently pending in the State Senate.  Governor Patrick’s outspoken support of eliminating non-compete agreements is a relatively recent development, however.

In its current form, Governor Patrick’s bill would invalidate any non-compete agreement or non-compete provision of an employment agreement, regardless of duration.  The bill would also adopt the Uniform Trade Secrets Act’s provisions.  The bill would still explicitly permit non-solicitation provisions, non-disclosure agreements, and non-compete agreements made in connection with asset sales (limited to employees with at least a 10% ownership interest in the company being sold).  The bill would also allow “forfeiture agreements” pursuant to which employees would receive additional compensation in return for an agreement not to compete.  Under such agreements, if the employee chose to compete, he or she would forfeit the additional compensation.

What the Bill Would Mean for Employers

If passed in its current form, this bill would prohibit employers from including any non-compete agreements or clauses in employment agreements, and could expose employers who attempt to form these agreements to tort, contract or statutory liability.  This bill would also void any non-compete agreements made prior to the effective date of the legislation.  While Governor Patrick indicated that the bill would be limited primarily to the technology and life sciences sectors, there do not appear to be such limiting terms in the bill itself.  As a result, it is possible that this legislation would void all prior and future non-compete agreements in any employment sector.

Despite the prohibition on non-competes, the bill would still permit agreements prohibiting customer or employee solicitation as well as non-disclosure agreements.  The bill would also adopt the Uniform Trade Secrets Act in an effort to decrease the risk of former employees leaking or transporting proprietary information to their new employment.  Adoption of the Uniform Trade Secrets Act would bring Massachusetts in line with the 48 other states that have already adopted that legislation.

In the meantime, employers should ensure that they implement policies and take other adequate steps to protect their trade secrets.  In a recent Massachusetts Superior Court case, CRTR, Inc. v. Lao, the court ruled against a plaintiff employer who failed to present any evidence of confidentiality agreements, confidential information policies, or restrictions on access to sensitive information.