Removing the Innovative Shackles of Non-Compete Agreements in MA

Massachusetts’ enforcement of Non-Compete Agreements is stifling innovation. Why has the state been reluctant to do away with these laws? Help change this!

Boston is a bustling hub for startup and expansion stage companies, and has been for some time, specifically in the technology and life science spaces. In fact, in November 2012, Startup Genome actually ranked it the 6^th best startup ecosystem in the world.
This should come as no surprise. Boston boasts of being the higher education capital of the world and is home of two of the world’s top universities — Harvard and MIT. As a result, the city is the home to one of the youngest and most educated populations in the United States, which creates a breeding ground for new ideas and opportunities to recruit great talent. It is also the home of one of the largest venture capital communities in the world, and also a place with many different vehicles to finance entrepreneurial endeavors and/or encourage people to take those risks.
In addition, Boston has many mature, market-leading life science and technology companies headquartered in and around the city (i.e. EMC, LogMeIn, Thermo Fisher Scientific ,Vertex, Demandware, TripAdvisor, etc.) that are great breeding grounds for its educated youth to learn and inspire innovative ideas. These pillars provide Boston with great infrastructure to facilitate entrepreneurship and innovation.
However, from a public policy standpoint, Boston is a less than an ideal startup or innovation ecosystem (at least in its current state).  That is because Massachusetts still enforces non-compete agreements, which limit employee mobility and as a result make it more difficult for entrepreneurs to take risks and young companies to exploit success and scale rapidly.

The Biggest Roadblock to Startup and Innovation Growth in Boston

This is a shame given all of the time and public policy efforts the city has invested in trying to take itself to the next level. In the past few years, Boston has introduced the Mass Challenge Awards for entrepreneurship and renamed the Fort Point area the innovation district. However, it has continued to enforce non-compete agreements. This isn’t to say there have not been efforts to revoke or limit the scope of non-compete agreements in Massachusetts. In fact, in January, Senator Will Brownsberger and Representative Lori Ehrlich proposed legislation to limit non-compete agreements in Massachusetts to six months.
But the fact remains non-compete agreements are still enforced in the state of Massachusetts, and this is probably the single most debilitating public policy issue in the state when it comes to improving the startup ecosystem and encouraging entrepreneurship.
So why isn’t there a bigger push to get rid of this law? A few years back, two notable venture capitalists in the technology space, Bijan Sabet and Brad Feld, came out publicly against non-compete agreements and campaigned for them to be eliminated in the state of Massachusetts. However, their efforts have not been successful as of yet.
Here are three ways non-compete agreements can have a staggering effect on the dynamics of a region’s startup ecosystem:

1. Decreasing the available workforce for high-tech jobs by limiting the types of opportunities that employees can consider when leaving an employer.
2. Making it more difficult and more expensive to hire to scale during critical growth periods because the talent pool is constrained.
3. Increasing the likelihood of brain drain and relocation of startups to areas without non-competes like California or Washington because they facilitate better rapid growth conditions. Facebook is the headline story of many companies that have made this decision. This is not to say that this was the only driver, but it certainly could not have helped with the way it was scaling.

Who Knows the Heights Boston Could Reach as a Startup and Innovation Ecosystem Without these Constraints?

So why then is Massachusetts so reluctant to revoke this law or at least limit its coverage, when it is willing to go at long lengths otherwise to bolster its startup ecosystem?
The only answer I can come up with is that the state fears that the risks of higher employee turnover and the societal externalities that come with it outweigh the benefits of innovation and entrepreneurship that result from free employee mobility.
That concern, however, this is far from the truth. Competition is the force that drives innovation and growth. Having employees free to leave to start their own businesses or join others that compete with their current companies enables the free market to control who the innovators will be and should lead to an optimal outcome.
There is no place better to look than the Silicon Valley. In that area there are many mature and fast-innovating institutions in the technology space like Google, Oracle, and Facebook, and they continue to innovate at unbelievable paces to stay relevant. A big part of what makes that possible is the competition around them and the ability to access talent freely.
I hope to someday soon see Boston waive its banner as a city free of the shackles of non-compete agreements.

Please share your thoughts on this matter in the comment section below. I am interested to hear your take.