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Should My Company Require Non-Competes Of Employees?

On Behalf of | Jun 27, 2012 | Employment Law

This question is asked regularly by my business clients. I have negotiated, drafted, and litigated these types of agreements for both the employer and employee. Under New Hampshire law, employment non-competes are treated differently than non-competes in the sale of a business. In the sale of a business, the seller is selling her business and the good will of her business and, in fairness, the buyer is entitled to a non-compete often for 5 years or more stating that the seller’s owner is not going to be working in this industry so that the buyer can reap the full value of the good will that he bought. In such a transaction, the court will fully enforce a non-compete against the seller and the seller’s owner in favor of the buyer.

In an employment situation, non-competes are considered a restraint on trade in that they prevent the employee from obtaining gainful employment after working for their current employer. Therefore, the courts will only enforce them in New Hampshire if they are entered into in good faith by the employer and are narrowly construed to only protect the legitimate business interests of the employer. The courts have found protecting confidential information and the good will of the company are legitimate business interests. For example, if you are a high-level engineer in a company that could not really help but use the company’s confidential and proprietary information as to its product at a competitor developing a competitive product, the courts could find that a non-compete against you for a reasonable period of time to allow that technology to get “old and cold” be legitimate. In some circumstances, as in developing software, as little as 6 months might be enough to allow the technology to get “old and cold”. Often, the courts find one year is appropriate.

As to a non-compete for protecting a company’s good will, this generally applies to people who have interaction with the company’s customers. The purpose is to prevent an employee from being able to use his work for your company to get additional business for his new employer who is your competitor. For example, the court is unlikely to find a customer support person whose prior job with your company was merely doing back-room customer support and not in contact with customers to have a non-compete restriction on his work after leaving your company’s employment. The court is more likely, however, to find a non-compete enforceable for a customer service person that is regularly having face-to-face contact with the customer. The court will also generally enforce a non-compete preventing the employee from working for a competitor while working for your company so long as his job knowledge give him a competitive edge. Such an example would be doing customer support rather than janitorial services.

The court in addressing good will as a legitimate business interest may find that a non-solicitation provision in an employment agreement should be enforced after the employees leaves your company rather than a non-compete. A non-solicitation provision prohibits soliciting or accepting customers of your company. For example, a non-solicitation provision might state that for a period of one year after the employee quits, is laid off, or is fired, the employee will not solicit, directly or indirectly, or accept any business in your industry of your company’s customers he had interaction with within the year prior to his leaving. That would give your company an opportunity to put a new face in front of that customer and have a year to develop that relationship before your former employee gets a shot at taking that business away from you.

All such agreements should also have a confidentiality provision which clarifies that the employee is expected during his employment and forever after not to disclose proprietary and confidential information while it remains proprietary and confidential and addresses inventions the employee creates during his term of employment with your company and who owns them.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].