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This High-Tech State May Make it Harder to Use Non-Compete Clauses

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Fort Point Channel, BostonBoston Globe via Getty Images

Massachusetts state representatives on Wednesday voted unanimously in favor of a bill that would reform the use of non-compete agreements.

These contracts are used by employers to ensure that workers cannot go to a direct competitor for a year (or two or three, in some cases) after resigning or being terminated. Prospective employees have been expected to sign these contracts as a condition of employment and are on the books in 47 of the 50 states, although terms and enforcement vary widely.

The bill includes a “Garden Leave” provision that would require an employer to pay a former worker half salary for the duration of the agreement’s term once the employee leave the company if the agreement prevents him from working.

Non-compete contracts have been a burning issue in Massachusetts for years. Some local tech companies, including EMC (EMC), have invoked non-competes when employees decamp to competitors. Proponents argue they help companies protect their investments in training and educating employees. Opponents retort they restrict the free flow of labor and have cost Massachusetts jobs as hot young techies decamp to California where non-competes are not enforced.

This revised bill also would exempt interns, grad students, workers under 18 years old, hourly employees, and workers who are fired or laid off. It would also require that employers explicitly inform new employees about the clause. The term of non-competes would be limited to 12 months, according to BostInno and other reports.

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Reform advocates appear generally pleased with the outcome—although Jody Rose, head of the New England Venture Capital Association, sent out a mass email warning constituents that the bill as written contains a major loophole that employers can use to get around the Garden Leave penalties.

For more, read: Non-Competes Are Bad for You, Bad for Me, Bad for the Economy

The bill now heads to the Massachusetts State Senate. If that body has changes, the differing versions of the bill would have to be worked out between chambers. The current legislative year ends July 31.