This article was originally posted by the New Hampshire Union Leader and can be found here.
NH Legal Perspective
New Law Prohibits Noncompete Agreements for Low-Wage Employees
By David McGrath
A new law that redefines the use of noncompete agreements in New Hampshire leaves some questions unanswered.
Effective Sept. 8, 2019, all noncompete agreements entered on or after Sept. 8, 2019, will be invalid and unenforceable for “low-wage” employees. The new law, which will amend New Hampshire RSA 275:70, primarily defines “low-wage” employees as those earning hourly rates less than or equal to 200 percent of the federal minimum wage — employees currently earning $14.50 or less per hour.
In basic terms, the new law defines “noncompete agreement” as an agreement between an employer and a low-wage employee that restricts the low-wage employee from performing work for another employer.
This may seem simple enough, but a closer look at the law reveals some unintended complexity that will likely lead to confusion. The central question is this: Does the new law invalidate noncompete agreements that entirely or only partially restrict a low-wage employee from working competitively? Stated differently, does the new law prohibit only those agreements that prevent an employee from working for a competitor, or did the Legislature intend to also prohibit agreements that allow an employee to work for a competitor, but which only limit a low-wage employee’s ability to compete by, for example, restricting the customers for which they can compete?
Unfortunately, we don’t get an easy answer by looking at agreement labels. As is explained in a previous article published by the Union Leader in April 2016 (“Are employee noncompete agreements worth the paper they’re written on?”) lawyers, non-lawyers and judges don’t all use the same language to describe the same or similar employment restrictions. Some use “non-compete” to cover an agreement that totally restricts a former employee from joining a competitor for some period of time, while others use it to include an agreement that has any significant partial restriction.
For example, some people use “non-solicit” or “noninterference” labels to describe partial restrictions, but others include those restrictions more broadly within the noncompete category. What we can safely assume, however, is that the Legislature intended a level of protection for low-wage workers that goes beyond labeling, and we can expect the courts, in time, to confirm that assumption. So, what is the new law most likely aiming at and how should employers and employees interpret it most reasonably?
It seems most reasonable to interpret the new law as prohibiting any agreement (regardless of label) that partially or totally restricts a low-wage employee from working competitively against a former employer. This prohibition would include agreements that prevent for some duration (often 12 months) a low-wage employee from (a) working at all for a competitor; or (b) doing business with, or attempting to do business with, customers that the employee worked with while employed at the prior employer.
It is most likely not intended to prohibit agreements that restrict a low-wage employee from (a) using or disclosing confidential information, or (b) soliciting other employees to leave their employment in order to compete with the employer. Those kinds of partial restrictions have much less effect on a low-wage employee’s ability to work for a competitor and, therefore, are likely still permissible even after the new law.
The new law does not prohibit any noncompete agreement entered into prior to the Sept. 8, 2019, effective date. Before employers rush in the coming days and weeks to sign low-wage employees to agreements, however, remember that agreements restricting an employee’s right to compete are still disfavored by New Hampshire courts and must be supported by legitimate underlying business interests that are protected by narrowly drafted restrictions.
David McGrath is an employment lawyer for Sheehan Phinney. NH Legal Perspective is sponsored by Sheehan Phinney Bass & Green PA. This column does not provide legal advice. We recommend that you consult an attorney for specific guidance on legal questions.