New Hampshire Enacts New Law That Could Invalidate Non-Competition and Other Restrictive Covenants

New Hampshire Enacts New Law That Could Invalidate Non-Competition and Other Restrictive Covenants

Publications

New Hampshire recently enacted new legislation which, despite its brevity, may have significant repercussions for the unwary employer seeking to enforce a restrictive covenant. The law (RSA 275:70), which took effect on July 14, 2012, reads:

“Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable.”

Accordingly, employers must be timely in providing a non-compete, non-solicitation or non-disclosure agreement prior to or at the time of the offer of employment or change of job to the applicant or employee, or else it will be unenforceable. Clearly, the law's purpose is to provide adequate notice to applicants and employees so they can make informed decisions.

The statute leaves several critical questions unanswered. For example, it does not define what constitutes a “non-piracy agreement,” a phrase which is not typically used in the context of employment agreements. The term “piracy” conjures up images of economic espionage and employees stealing their employers' trade secrets and other proprietary information. However, a “non-piracy agreement” more typically refers to restrictive covenants against poaching the employer's employees and/or customers.

Likewise, the statute does not provide any clarification as to what change in the terms and conditions of a current employee's position constitutes a “change in job classification” under the law. This ambiguity creates uncertainty as to how broadly courts will interpret the term. Former employees seeking to evade their post-employment obligations are likely to argue that the phrase should be read to apply to a promotion, a new title, or any change in the employee's duties with a corresponding change in nomenclature.

Although a mere salary increase will probably not be enough to trigger the statute, for the avoidance of doubt an employer which includes a new non-competition provision as part of a stock option or similar agreement would be well advised to comply with the statute, to avoid a reviewing court deeming the restriction “void and unenforceable.” The statute will also apply in the context of mergers and acquisitions if the acquired employees are required to execute a new non-competition or non-piracy agreement for the benefit of their new employer.

Until the Legislature provides additional guidance, employers doing business in New Hampshire should ensure that any applicant who will be required to sign any type of restrictive covenant as a condition of employment (whether it be a non-competition, non-solicitation, non-disclosure, or similar type of agreement) receives a copy of the agreement at the same time the applicant receives the offer letter. Employers should also ensure that an existing employee who will be required to execute a new non-competition or similar agreement in connection with any type of change in job status also receives a copy of such agreement before or when the offer is made.

Offer letters should reference the attached agreement as additional evidence that the agreement was provided in compliance with the statute. Employers should also maintain records of all offers of employment made to prospective and current employees that require the execution of a restrictive covenant to evidence the date on which the agreement was provided.

So long as the procedural safeguards in the new law are followed, the legislation does not affect New Hampshire law regarding the enforcement of restrictive covenants. Employers are encouraged to consult with employment counsel for additional guidance regarding how to increase the likelihood that these agreements will be upheld.

Contributors