Is Legislative Hostility to Non-Competes Heating Up?

Posted by Benjamin I. Fink on

As regular readers of this blog may recall, we have previously questioned whether greater enforcement of non-competes is good policy and good for economic development.  In 2009 when the Georgia General Assembly was considering legislation to make non-competes significantly easier for employers to enforce against former employees, we questioned whether the General Assembly had done its homework to determine whether this was good policy and whether it would enhance economic development as a whole in Georgia.  A link to our article on the topic can be found here.  While the legislation in Georgia initially passed in 2010 and then went into law in 2011, since that time, several states have considered a different path.  In 2013, legislation was introduced in seven states to limit or curtail the use of non-competes in various circumstances.  While ultimately none of the bills were passed, the introduction of the bills seems to indicate a trend towards greater awareness of the economic implications of strict enforcement of non-competes in an ever-increasingly competitive economic environment.  In 2013, bills were introduced in Maryland and New Jersey which would have rendered employee non-compete agreements unenforceable when the employee applied for and was found eligible to receive unemployment insurance benefits.  These bills were intended to help former employees obtain new jobs and to decrease unemployment benefit payments, as well as the associated unemployment tax passed on to employers.  Bills were also introduced last year in Michigan, Illinois, Connecticut and Massachusetts that would have established guidelines for when employee non-compete agreements would be enforced and for how long the non-competes could be enforced.  The Michigan and Connecticut bills would have required notice periods to employees who were required to sign non-compete agreements as a condition of their initial or continued employment.  In Michigan, legislation was considered that would have been similar to legislation enacted in New Hampshire in 2012.  The legislation would have effectively eliminated non-competes that were required as a condition of continued employment, unless the employer provided notice of the non-compete at or before the time of hire.  Bills were also introduced in Minnesota and Massachusetts last year that would have effectively banned employee non-compete agreements in an effort to encourage the same type of economic growth experienced in California where employee non-competes are prohibited by statute.  Significantly, the Governor of Massachusetts has recently introduced legislation that would ban employee non-competes as part of an overall economic development bill that he has introduced in the Massachusetts legislature.  This bill can be found at http://legiscan.com/MA/text/H4045/2013. There have been several studies done by various researchers to try to evaluate whether non-competes are good policy.  A summary of those studies can be found here.  We have been unable to find any studies reaching the opposite conclusion, i.e., that non-competes are good policy and are good for overall economic development in a particular state or region.  Admittedly, each of these studies has its flaws; however, the absence of any studies showing otherwise certainly suggests that more work needs to be done to determine whether greater enforcement of non-competes is good policy.