An employment non-compete agreement is an agreement between an employer and employee that states that during the period of employment and for a certain period thereafter the employee will not compete in a certain restricted area with the employer. The courts in both New Hampshire and Massachusetts understand that these provisions prevent employees from obtaining a job and therefore will narrowly construe them to only protect the legitimate business interests of the employer. Obviously the narrow construction of the non-compete provisions only apply when the employee has terminated her employment and the courts will find that it is abundantly reasonable to require an employee not to compete with her employer while still employed by that employer. The two types of legitimate business interests that courts frequently recognize are worthy of protection through non-compete provisions is protecting: confidential information; and the good will of the employer. For example, if a software designer is developing for her employer software to sell to customers with a very narrow application and is familiar with the source code of that software at the time she leaves to work for a competitor, it may be legitimately argued that that software designer will use confidential information from that software source code in creating a new software or enhanced software for the competitor to compete. Basic information contained in the software that is generally known and used in the industry would not be considered confidential information worthy of protection. While a confidentiality agreement in and of itself will prohibit the former software designer from using the confidential information, a non-compete agreement may enhance the likelihood of preventing that software designer from working for a direct competitor for a period of time.
In protecting good will, the courts will often find that a salesperson who has interacted with current and prospective customers in attempting to sell the product or services of the employer has established good will with those customers and prospective customers for herself which could follow her to a competitor and therefore the employer has the right by contract to prohibit the employee from soliciting or accepting business from them for a period sufficient for the employer to get a new salesperson to develop the sales relationship. Such a provision may also be referred to as a non-solicit provision.
The New Hampshire legislature is concerned about employees after negotiating terms of employment, giving notice to their former employer, and accepting a new job only to find out on the first day of the job that they are presented with a non-compete agreement that had they known about might have changed their employment acceptance. To address this issue, the New Hampshire legislature created a statute RSA 275:70 which states that any employer who requires an employee, who has not been previously employed by the employer, to execute a non-competition agreement as a condition of employment shall provide a copy of such agreement to the potential employee prior to the employee’s acceptance of an offer of an employment. Even if it is stated in an offer letter that there will be a standard non-competition agreement required to be signed, that should not be good enough under the statute. The employer needs to provide a copy of the non-compete agreement prior to the acceptance of employment. The question that comes about is what happens if the employer hires the employee, has them work for a few weeks, and then presents a non-compete. It could be argued under that circumstance that the employer was attempting to get around that statute and acted in bad faith. The court may very well consider, along with other facts, whether or not the employer should be able to enforce the agreement under such circumstances. An argument may be made that the term non-compete agreement does not include a non-solicitation agreement, however, telling an employee that they cannot accept business from certain customers who were customers or prospective customers of the employer is requiring the employee not to compete with the employer related to those customers. Therefore, it is likely that calling such a provision a non-solicitation provision will not sway a judge that that provision can still be enforced even though the employer did not provide a copy of the agreement prior to the employee accepting the job. Calling the provision a non-solicit provision is still prudent however since it is in fact emphasizing the truth that the provision is generally much narrowed than a prohibition from working in the entire industry of the former employer within a particular time and geographical parameter.
While a non-compete agreement that has not been disclosed to the employee prior to acceptance of employment is unenforceable, other provisions in the employment agreement, such as confidentiality, non-disclosure, trade secrets, and intellectual property assignment may remain in full force and effect. Employers who are seeking to enforce these non-competition agreements may choose to not only threaten to or, in fact, litigate with the former employee over the breach of the agreement, but threaten to or, in fact, litigate with the new employer claiming that they have wrongfully interfered with the contractual relationship. If the employer is able to show that the new employer knew of the non-competition provision and conspired with the employee to breach that agreement to the benefit of the new employer, the new employer could be liable for damages caused to the former employer. Under these particular circumstances, this may result in the new employer terminating the employment of its new employee to avoid a lawsuit.
Lastly, if an employee who has a non-competition agreement is laid off and provided with a severance agreement, he should carefully review it in that reaffirming the non-competition provisions of the prior employment agreement may result in a judge finding there to be new consideration for the non-competition provisions, being the severance payments offered, thereby enhancing the likelihood that the non-competition provisions will be enforced against the employee.
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].