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Changes to New Hampshire Non-Compete Law

Posted by Christopher Cole

On July 14, 2012, the New Hampshire General Court’s first foray into legislation relating to non-competition agreements will go into effect.  The law, formerly known as H.B. 1270, is succinct:

“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.”

Two things are pretty clear: It is clear that the intended scope of the law is narrow. The law does not supplant the traditional role of the courts in refereeing disputes concerning these types of agreements. Second, the law is focused on fairness to applicants. The legislature wanted advance disclosure of these sorts of agreements so that the applicant would understand what she or he was getting into before burning a bridge with an old employer. But the new law raises three obvious questions: (1) in view of the fact that the statute does not define “non-compete or non-piracy agreement,” what sorts of contractual restraints fall within the statute’s advance disclosure mandate; (2) how far in advance of employment or “an offer of job change classification” must the agreement be disclosed, in order to avoid rendering the agreement “void and unenforceable;” and (3) under what employment circumstances does the statute’s requirement of advance disclosure due to “an offer of change in job classification” come into play.  

What Agreements? For lawyers, the term “non-compete” is typically understood to mean an agreement that contains a provision prohibiting all employment in a specific industry, for a specific amount of time, in a specific geographic area. Most lawyers of my acquaintance don’t use the term “non-piracy” to describe any provision of an agreement. Typically, these sorts of agreements fall into or include up to three categories: non-competition agreements, as described above; non-solicitation agreements, aimed at preventing the solicitation or diversion of customers with whom an employee has meaningful contact in the course of employment, and solicitation of fellow employees; and non-disclosure agreements (NDAs), aimed at identifying and protecting information that the employer believes to be “confidential” or “proprietary” or a “trade secret.” Piracy can be defined as robbery (diversion or theft of a client or customer), misappropriation (theft of property or information owned by the employer) and unauthorized use (use of another’s information, copyrights, broadcast signals and the like). Although an argument can be made that NDAs are not non-piracy provisions, an employer that fails to disclose such an agreement is faced with it being rendered “void and unenforceable,” a risk too great when the subject matter is ownership and control of the employer’s sensitive business information. Without a statutory definition, then, it simply makes sense for employers and their counsel to assume that all of these traditional agreements – non-competition, non-solicitation and non-disclosure agreements – are subject to the statute’s advance disclosure mandate.   

When? The Legislature originally envisioned H.B. 1270 as protecting certain employees who were offered new employment, left their previous job on those assurances, and were presented with a “non-compete and anti-piracy agreement” on their first day, without advance disclosure or notice that such an agreement was a condition of employment. Testimony by the bill’s sponsor indicates that the law was tailored narrowly to remedy these “duress” or “unfair surprise” situations. Amendments extended this advance disclosure protection to an “offer of change in job classification.” One thing is clear: an employer that presents an agreement for the first time on Day One will not be able to enforce that agreement. Employers need to be able to demonstrate that an applicant received the agreement itself (“every employer shall provide a copy….”) in advance of or contemporaneous with an offer of employment and with time enough to actually consider the ramification of signing the agreement, time enough to speak with a lawyer. At a minimum, therefore, employers should provide actual copies of these restrictive agreements prior to or at the time an offer of employment is made, with sufficient time to review and understand the consequences of signing the agreement. In a “belt and suspenders” sense, it may make sense to reference the need to execute such an agreement in the job posting (allowing the prospective employee an opportunity to ask about it during any interviews) and provide the agreement with any letter extending a job offer. It may also be wise to document that the agreement was delivered in advance of the start of employment. 

What is a “change in job classification? The degree of change in an existing employee’s job duties that would constitute a “change in job classification” is unclear from the text of the new law. This ambiguity is partially resolved by statements of Rep. William Infantine of the House Labor, Industrial, and Rehabilitative Services Committee in connection with amendments to H.B. 1270. In its original form, the law applied only to “offers of employment.” The amendment expanded the law’s scope beyond new hires to include “internal promotions subject to a non-compete or non-piracy agreement.” The legislative history suggests, therefore, that an “offer of change in job classification” does not encompass scheduled salary increases for any given employee, and that the act’s advance disclosure requirement is only triggered when an existing employee moves from a position that did not require a “non-compete or non-piracy agreement” into a position that requires one (or a position that required, say, only an NDA to one that, in management’s judgment and practice, requires the additional protection of a non-competition or non-solicitation agreement). The stakes are high – the law contemplates the invalidation of agreements that prevent unauthorized disclosure and use of information useful to competitors; that prevent sales and marketing personnel from poaching the employer’s customers on behalf of a competitor; and that prohibit the use of goodwill and confidential information on behalf of a competitor. Employers need to speak with their counsel about how to manage these changes to make certain the agreements can be enforced as necessary.

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