Twenty years ago, I started a company with a colleague in California. I was based in Boston and he was based in San Francisco. We each resigned from our then current jobs the same day. My partner started work the very next day on our new venture, a company that loans money to technology startups, allowing them to accelerate their growth and hiring. However, I was told by our previous employer that I would be sued if I did not wait one year before lending money to companies in Massachusetts and that I would be sued if I spoke to, even by phone, prospects if I was not physically located in California.
In addition to the noncompete clause, I had also signed a non-solicitation clause and a non-disclosure clause with my employer. These prevented me from approaching prior customers with my new business, and from revealing any trade secrets. I have no issue with these two standard clauses. They did not prevent me from engaging in my trade and building a Massachusetts office like the one my partner was building in California. However, because of my noncompete clause I spent a year frightened that I would be sued, and commuting twice a month back and forth to California – all because I chose to live in Massachusetts. Many high-growth California start-ups benefited from the capital I was able to loan them.
By the way, my previous company didn’t always have noncompetes in its Employment Agreements. I worked for four years there without the subject ever coming up. Then one day, I was told that if I wanted to keep my job, I had to sign a new agreement with the new paragraph embedded. Three years later, when I left to start my own company, my former employer used this noncompete language to prevent me from working in Massachusetts.
Noncompete clauses are simply non-enforceable in California. Due to the noncompete paragraph being enforceable here, Massachusetts has lost an untold number of new jobs, ideas, opportunities, companies, and industries over the past decades. Large companies regularly flex their muscles in blocking the formation of new, nimble competitors, often the companies that will take a technology or industry to the next level, and keep our technology community competitive. Numerous academic studies have demonstrated the negative effects noncompetes have on technology growth.
Notably, one big Massachusetts company, I-Robot, has taken the principled stand to ignore the noncompete clause. As a result, Massachusetts enjoys a growing $4 billion robotics industry that is one of the brightest lights in our tech scene. This is one area where we as a technology center are beating California for growth, talent, and jobs.
Other employers aren’t as brave as I-Robot. We need to structure the playing field in Massachusetts so that other management teams don’t need to voluntarily take such a courageous stand and allow the formation of the kind of new enterprises we need here in order to stay competitive. We must let employees in other industries build new centers of excellence here in Massachusetts. We need to stop enshrining the existing, and start encouraging the opportunities of the future. Today’s start-ups will become tomorrow’s major employers.
It is important to note that in a sale or merger where there is a clear change of control, those employees with access to and knowledge of trade secrets should continue to be subject to a noncompete as part of that transaction. Yet, we should acknowledge that the vast majority of the affected employees in Massachusetts do not fall into that category.
We do much in Massachusetts to create a great environment for the young new companies that will lead the future and retain and employ our talent. The innovation zones are just one example. But without this change to non-competition law, we are hobbling these efforts. It is time to ban the noncompete clause in Massachusetts and let our talented residents pursue their great new ideas here.
Gwill E. York
Founder and Managing Partner
Lighthouse Capital Partners