With companies’ use of noncompetes on the rise, whether to ban, restrict or encourage noncompetes has garnered attention from legislatures across the country. Legislatures in four states – Massachusetts, Michigan, Washington and Wisconsin – are currently considering legislation to modify the permissible scope of noncompete agreements. In three of these states – Massachusetts, Michigan and Washington – the proposed legislation would restrict or ban noncompetes, while in Wisconsin, the proposed legislation would make enforcement of noncompetes easier.
Massachusetts: Massachusetts’ Governor Deval Patrick has long been an advocate of an outright ban on noncompetes, including promotion of a bill to ban noncompetes. During the 2014 legislative session, he promoted a bill to ban noncompetes, which was the subject of much debate but ultimately did not pass. (See earlier commentary Massachusetts May Go Boldly and Update on this legislation). In January 2015, five different versions of anti-noncompete bills have been introduced or reintroduced in Massachusetts. All of these bills seek to ban, and not simply restrict, noncompetes. The various bills differ on whether and to what extent they embrace nonsolicitation agreements and whether they purport to apply to contracts executed prior to the enactment of the law.
Michigan: In February 2015, a Michigan legislator introduced a bill that would ban noncompetes in the employment context. The bill specifically provides for the survival of noncompetes in the sale of a business and even expands the potential for the enforcement of such agreements providing authorization for judicial modification of any terms deemed to be overly broad or unreasonable.
Washington: Legislators in Washington have introduced a variety of bills aimed at banning or restricting noncompetes. One bill generally follows California’s statutory language and would ban noncompetes except in the context of the sale of a business. A second bill would restrict the scope of permissible noncompetes by: (1) banning their use for low wage positions; (2) banning their use for workers who are laid off or terminated without just cause; and (3) creating a rebuttable presumption that a restriction period of more than six months is unreasonable. A third bill is more narrow, proposing to restrict noncompetes specifically in the medical field. This bill is intended to protect the physician-patient relationship and to ensure reasonable access to care.
Wisconsin: In March 2015, a Wisconsin Senator introduced a bill that would significantly change current Wisconsin noncompete law. Unlike the bills proposed in Massachusetts, Michigan and Washington, the Wisconsin bill would make it easier both to impose and to enforce employee non-competes. The bill provides that continued employment is valid consideration for a noncompete agreement and that legitimate business interests include protection of a company’s substantial “prospective” client relationships; clarifies that six months is presumed to be a reasonable period of restriction; empowers Wisconsin courts to modify otherwise unreasonable noncompetes and enforce them as modified; and permits a court to award attorney fees to the prevailing party.
The bills proposed in state legislatures reflect a vigorous debate regarding whether noncompetes encourage or stifle competition and innovation, and are generally considered to pit lean, high tech startups (who are generally against noncompetes) against larger, more established companies (who generally favor noncompetes). While some commentators argue that protecting company assets through the enforcement of noncompetes encourages investment in innovative technologies, others maintain that allowing free, unrestricted movement of employees between companies is the best way to encourage competition and innovation. There are data to support both sides of the argument, and the passage of one or more of the pending bills may help sway the debate in one direction or the other.
