Noncompete Clauses Increasingly Pop Up in Array of Jobs

By Steven Greenhouse
June 8, 2014

Colette Buser couldnt understand why a summer camp withdrew its offer for her to
work there this year.

After all, the 19-year-old college student had worked as a counselor the three previous
summers at a nearby Linx-branded camp in Wellesley, Mass. But the company balked at
hiring her because it feared that Linx would sue to enforce a noncompete clause tucked
into Ms. Busers 2013 summer employment contract. Her father, Cimarron Buser,
testified before Massachusetts state lawmakers last month that his daughter had no idea
that she had agreed to such restrictions, which in this case forbade her for one year from
working at a competing camp within 10 miles of any of Linxs more than 30 locations in
Wellesley and neighboring Natick. This was the type of example you could hardly
believe, Mr. Buser (pronounced BOO-ser) said in an interview.

Noncompete clauses are now appearing in far-ranging fields beyond the worlds of
technology, sales and corporations with tightly held secrets, where the curbs have
traditionally been used. From event planners to chefs to investment fund managers to
yoga instructors, employees are increasingly required to sign agreements that prohibit
them from working for a companys rivals.

There are plenty of other examples of these restrictions popping up in new job
categories: One Massachusetts man whose job largely involved spraying pesticides on
lawns had to sign a two-year noncompete agreement. A textbook editor was required to
sign a six-month pact.

A Boston University graduate was asked to sign a one-year noncompete pledge for an
entry-level social media job at a marketing firm, while a college junior who took a
summer internship at an electronics firm agreed to a yearlong ban.

There has been a definite, significant rise in the use of noncompetes, and not only for
high tech, not only for high-skilled knowledge positions, said Orly Lobel, a professor at
the University of San Diego School of Law, who wrote a recent book on noncompetes.
Talent Wants to be Free. Theyve become pervasive and standard in many service
industries, Ms. Lobel added.

Because of workers complaints and concerns that noncompete clauses may be holding
back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that
would ban noncompetes in all but a few circumstances, and a committee in the
Massachusetts House has passed a bill incorporating the governors proposals. To help
assure that workers dont walk off with trade secrets, the proposed legislation would
adopt tough new rules in that area.

Supporters of the pending legislation argue that the proliferation of noncompetes is a
major reason Silicon Valley has left Route 128 and the Massachusetts high-tech industry
in the dust. California bars noncompete clauses except in very limited circumstances.

Noncompetes are a dampener on innovation and economic development, said Paul
Maeder, co-founder and general partner of Highland Capital Partners, a venture capital
firm with offices in both Boston and Silicon Valley. They result in a lot of stillbirths of
entrepreneurship someone who wants to start a company, but cant because of a
noncompete.

Backers of noncompetes counter that they help spur the states economy and
competitiveness by encouraging companies to invest heavily in their workers.
Noncompetes are also needed, supporters say, to prevent workers from walking off with
valuable code, customer lists, trade secrets or expensive training.

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Joe Kahn, Linxs owner and founder, defended the noncompete that his company uses.
Our intellectual property is the training and fostering of our counselors, which makes
for our unique environment, he said. Its much like a tech firm with designers who
developed chips: You dont want those people walking out the door. Its the same for us.
He called the restriction no competing camps within 10 miles very reasonable.

The ban to noncompetes is legislation in search of an issue, said Christopher P.
Geehern, an executive vice president of Associated Industries of Massachusetts, a trade
group leading the fight to defeat the proposed restrictions. Theyre used in almost every
sector of the economy to the seemingly mutual satisfaction of employers and
individuals.

The legislative fight here pits two powerful groups against each other: venture capitalists
opposing noncompetes and many manufacturers and tech companies eager to preserve
them.

John Hazen, chief executive at Hazen Paper, said his 230-employee company in
Holyoke, Mass., spends heavily to train workers on sophisticated machinery and
elaborate papermaking processes.

Noncompetes reduce the potential for poaching, said Mr. Hazen, whose company
makes scratch lottery tickets and special packaging. We consider them an important
way to protect our business. As an entrepreneur who invests a lot of money in
equipment, in intellectual property and in people, Im worried about losing these people
weve invested in.

The United States has a patchwork of rules on noncompetes. Only California and North
Dakota ban them, while states like Texas and Florida place few limits on them. When
these cases wind up in court, judges often cut back the time restraints if theyre viewed
as unreasonable, such as lasting five years or longer.

In most states there has to be a legitimate business interest, and it has to be narrowly
tailored and reasonable in scope and duration, said Samuel Estreicher, a professor at
New York University School of Law.

Daniel McKinnon, who had been a hairstylist in Norwell, Mass., lost a court battle with
his former employer who claimed that Mr. McKinnon had violated the terms of his
agreement when he went to work at a nearby salon. Mr. McKinnon said that he did not
think the original restriction to wait at least 12 months before working at any salon in
nearby towns still applied because he had been fired after years of friction with the
manager there. Shortly after being fired, he went to work at a nearby salon.

But a judge issued an injunction ordering him to stop working at his new employer.

It was pretty lousy that you would take away someones livelihood like that, said Mr.
McKinnon, who for the following year lived off jobless benefits of $300 a week. I
almost lost my truck. I almost lost my apartment. Almost everything came sweeping out
from under me.

He resisted the idea of traveling miles from his apartment to a new salon, saying that
would have meant an unpleasant and costly commute.

The salon where I worked was doing just fine I dont see why they needed to do this,
he said. I basically had to give up a year of working.

Wendi S. Lazar, an employment lawyer in Manhattan, said she saw an increase in
litigation to enforce noncompetes. Companies are spending money, hiring lawyers, to
go after people just to put the fear of death in them.

State Representative Lori Ehrlich, one of the main sponsors of the Massachusetts
legislation to bar noncompetes and vice chairwoman of the Joint Committee on Labor
and Workforce Development, said that many people had complained to her about the
restrictions being set for employees.

Its hurting growth in the economy by decreasing worker mobility and squelching start-
ups, Ms. Ehrlich, a Democrat, said. Theyre hurting families by making it so people are
unable to work for an extended period of time. This has increasingly become exploitative
to workers.

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Matthew Marx, a professor of entrepreneurship at the M.I.T. Sloan School of
Management, said a recent study he did found that half of the nations engineers had
signed noncompetes, with a third lasting more than a year, and some more than two
years.

Where noncompetes are not enforced, theres a more open labor market companies
compete for talent, he said. We used to have a saying at the Silicon Valley start-up
where I worked, You never stop hiring someone. They can go where they want. People
are free to leave and start companies if theyre not happy.

Professor Marx said Californias ban on noncompetes was a major reason Silicon Valley
was thriving. If a few employees there have an innovative idea and their bosses dont
want to pursue it, they can leave to found a start-up. But in Massachusetts, if employees
with noncompetes bring that innovative idea to their boss and it is rejected, they are
stuck or they would have to leave the company and wait a year before they could
pursue their new idea. (Or they could move to California, where the courts would not
enforce the Massachusetts agreement.)

Mr. Geehern of Associated Industries of Massachusetts denied that the California
economy, with a 7.8 percent jobless rate, was doing better than the Massachusetts
economy, with a 6 percent rate.

If noncompetes are so onerous and burdensome, why arent we seeing a significant
migration of talent away from the companies that use noncompetes toward the
companies that dont use them? he said. The companies that use noncompetes still
attract plenty of the best and brightest.

Michael Rodrigues, a Democratic state senator from Fall River, Mass., said the
government should not be interfering in contractual matters like noncompetes. It
should be up to the individual employer and the individual potential employee among
themselves, he said. Theyre both adults.