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Employee Non-Competes Have Limits

On Behalf of | Nov 9, 2016 | Employment Law

Employers want to protect confidential and propriety information as well as their going concern value often referred to as “good will.”  As part of a plan to achieve that goal, employers may enter into employment agreements with employees that address confidentiality, inventions, non-solicitation of employees and customers and possibly a general non-competition prohibition. Most of these agreements also clarify that the employee remains an employee at will and both the employee and employer may terminate the relationship with or without notice and/or with or without cause. I have seen a lot of litigation between former employers and employees about breaches of these agreements and the content of the agreements are important to employer and employee alike.

Generally, provisions as to inventions and not disclosing confidential information are strictly enforced by the courts as long they have the practical effect of making a non-competition agreement.  By way of example, if a re-seller of computer hardware identifies as confidential the pricing information not only it, but all its competitors share from a wholesaler, not only is that information truly not confidential and proprietary to that company, but it is possible a court would find that to really be a disguised non-competition agreement intended to keep the employee from working in the industry.

Non-solicitation agreements that state for a period of time the former employee cannot solicit other employees to quit and join the former employee at his new work place are also generally considered reasonable if they are for a period of time usually ranging between six months to one year.  A prohibition on solicitation of customers the former employee worked with while at the company may be considered reasonable as well if the time period is reasonable. Allowing the company a reasonable time to put a new face in front of the customer to re-establish the company’s relationship with that customer is often found enforceable against the former employee by the New Hampshire judges.

Non-competition agreements prohibiting a former employee from working in competition against the employer in a certain geographical area for a certain time period are becoming tougher to enforce in New Hampshire and employers should have a backup non-solicitation provision in the agreement that may stand a better chance being enforced.

Also in New Hampshire, if a copy of the non-compete is not provided to the job candidate before she accepts an offer of employment, the non-compete portion of the agreement may be considered invalid under New Hampshire statute, RSA 275:70. Merely stating that there will be a non-compete provision in an employment agreement referenced in an offer of employment letter is not enough; the copy of the actual agreement has to be provided before the job candidate accepts employment. The statute does not prohibit providing a non-compete to existing employees yet if an employer was to hire an employee, wait one month and then give him the non-compete, it is possible the judge would find that to be a violation of the statute.  In a circumstance where the owner of the company is considering selling his business and realizes that the human resources are a valuable asset of the company, this statute does not prohibit the employer from providing a new employment agreement that has a non-compete provision to the existing employees.  However any employment non-compete provision would under New Hampshire law be narrowly construed to only protect the legitimate business interest of the employer.

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].