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Enforcability Of Non-Compete Agreements Against Former Employees

On Behalf of | May 20, 2014 | Employment Law

New Hampshire has long recognized that employment non-compete agreements are narrowly construed to protect only the legitimate business interests of the employer. If an employer seeks to enforce one of these agreements, the court has the power, if it finds that the agreement is overreaching, to not enforce any of it or if it finds that it needs to be narrowed, the court may enforce the agreement only as so narrowed. By way of example, forbidding an employee to work in the industry within a certain geographical and time parameter may not be enforceable against a sales representative, but it may be enforceable against that same sales representative solely as to customers that he had contact with while employed by that company.

On July 14, 2012, a new law came into effect, RSA 275:70, which states that employers are required prior to or concurrent with making an offer; or a change of job classification, to provide an employee with a copy of any non-compete or non-piracy agreement that is part of the employment with the employer / potential employee. Any contract that was not in compliance with requirement is considered void and unenforceable. For example, if an employer made an oral job offer on August 1, 2012 and the employee accepts that and on the first day of employment the employee is presented for the first time with a copy of the non-compete, that non-compete contract is probably void and unenforceable. The term non-piracy is not defined, yet those in the industry generally consider it to mean not pirating of employees or customers; what is traditionally called a non-solicitation provision in an employment agreement.

On April 23, 2014, the New Hampshire legislature revised RSA 275:70 and it only addresses non-compete agreements and states that an employer who requires an employee who has not previously been employed by the employer to execute a non-compete agreement as a condition of employment shall provide a copy of the agreement to the potential employee prior to the employee’s acceptance of the offer of employment, otherwise it will not be enforceable. However, other provisions of the agreement such as confidentiality, non-disclosure, trade secret, and intellectual property assignment provisions would be enforceable. The practical effect of that provision is that if there is a non-compete or a non-solicitation agreement that is provided to the employee between July 14, 2012 and April 22, 2014, the old statute applies. For any agreement provided to the employee on or after April 23, 2014, the revised statute applies. Therefore under the current status of the law, if an employer is to provide a non-compete to an employee not as a condition of their new employment but after the employee has been employed with that employer for a while, the pre-disclosure of that agreement does not appear to be necessary. Of course, if an employee waits a month after hiring an employee to present a non-compete, that employer should expect that the employee through counsel will argue, among other defenses, that the employer was attempting to get around the provisions of the statute. However, if an employer can show that it was, in fact, requiring non-compete of all of its employees due to a particular event, such as perhaps it planning to sell its business, the employee’s defense that non-compete violates the statute may not be available.

For employers looking to protect their interests, what the courts generally do is to enforce confidentiality provisions that are truly aimed to protect confidential and proprietary information of the employer from being disclosed and prohibition of the employee after leaving the company from soliciting or accepting business from a customer or potential customer that the employee recently worked with while at his former company. A focus on these goals in an employment agreement is more likely achievable than prohibiting a former employee from working in that industry.

Lastly, Massachusetts non-compete agreements may ultimately be banned within the Commonwealth in exchange for an adoption of a trade secret law already in many states, including New Hampshire, which prohibits former employees and others from misappropriating confidential or proprietary information and using it as a competitor.

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].