Practice Area: Business Law and Business Litigation
By Douglas M. Mansfield
Business clients frequently seek to protect the goodwill they have created through customer and employee relationships. Restrictive covenants such as non-compete agreements, non-solicitation agreements, and confidentiality/non-disclosure agreements are the legal means (among others) for protecting a business’s hard-earned goodwill. What follows is a brief discussion of recent changes the landscape of non-compete agreements.
Of the three restrictive covenants, New Hampshire Courts typically are the most restrictive when it comes to interpreting and enforcing non-compete agreements. For example, New Hampshire Courts will generally not enforce a non-compete agreement that prohibits a prior employee from competing for new customers. Such restrictions must be limited, not just in duration and geographic scope, but also to those customers that the employee has established goodwill or about whom confidential information was gained while employed by the company. The scope of such restrictions was spelled out in the case of Merrimack Valley Wood Products, Inc. v. Glen Near, 152 NH 192 (2005).
In 2014, New Hampshire enacted RSA 275:70, establishing a disclosure obligation on the part of an employer seeking to implement a non-compete agreement with a new employee. This law requires that the employer provide a copy of a non-compete agreement to a potential new employee prior to the employee’s acceptance of an offer of employment. Failure to comply with this requirement would render the non-compete agreement unenforceable, although all other provisions concerning employment, confidentiality non-disclosure, trade secret, or intellectual property assignment would remain in full force and effect.
Two years later in 2016, New Hampshire enacted a further restriction on the use of non-compete agreements — his time as they relate to use with physicians. RSA 329:31-a makes unenforceable contracts that impose post-employment geographic restrictions on where a New Hampshire physician may practice medicine. This restriction applies to terms of a partnership, employment, or any other form of professional relationship with a physician. The remaining provisions of the agreement unrelated to the post employment restriction, however, would remain unaffected by this law.
This growing trend to restrict the use of restrictive covenants in the employment context can also be seen in the adjacent states of Maine and Massachusetts. Both states have recently enacted restrictions on the use of non-compete agreements. In 2018, the Massachusetts Non-Competition Agreement Act was signed into law, which among other things prohibits enforcement of non-compete agreements against employees who are classified as non-exempt under the Fair Labor Standards Act, employees who have been terminated without cause or laid off, and those employees who are 18 years of age or younger. In addition, this law requires an employer to follow various procedural and consideration requirements before implementing a non-compete agreement with eligible employees.
In June of this year, Maine also enacted a law restricting the use of non-compete agreements. The Maine law, which applies to contracts entered into or renewed after September 18, 2019, put in place various restrictions on employment type agreements, including: banning the use of non-compete agreements with lower wage employees; mandating disclosure of non-compete agreements by employers (at least three business days before the employer requires the agreement to be signed); and prohibiting no-poach clauses of employees in agreements between employers. The law authorizes the Maine Department of Labor to impose monetary civil fines of “not less than $5,000” on employers who enter into non-compliant agreements.
New Hampshire has also enacted a law this year prohibiting non-compete agreements for lower-wage workers. The New Hampshire law (RSA 275:70-a) took effect on September 10, 2019. This law prohibits an employer from entering into a non-compete agreement with a low-wage employee and renders any such non-compete agreement void and unenforceable. A low-wage employee is defined as an employee who earns an hourly rate of less than or equal to 200 percent of the federal minimum wage. (Presently that equates to $30,160/year ~ $7.25/hr. x 2080 hours, which is 40 hrs./week x 52 weeks/year.)
The statute defines a “non-compete agreement” as an agreement that restricts such a low-wage employee from performing work for another employer for a specified period of time; working in a specified geographic area; or working for another employer that is similar to the work done by the employee for the employer who is a party to the non-compete agreement. This definition is broad in its scope, providing alternative definitions, capturing a breadth of agreements however varied they may be in their drafting.
With the varied limitations that have been enacted regarding the use of restrictive covenants, attorneys should consider counseling their business clients on reviewing on-boarding procedures in implementing non-compete agreements, reviewing the organization’s use of separation packages with exiting employees and consider revising multi-state agreements to ensure they are in compliance with jurisdictions for which they may be used.
A member of Donahue, Tucker & Ciandella, PLLC, Attorney Douglas Mansfield’s practice focus on corporate/business and employment law. Additionally, Attorney Mansfield’s practice includes data privacy issues.