Employees and employers frequently wonder if non-compete agreements are enforceable in New Hampshire. You won’t like this, but the answer is, “It depends.”
One of the key reasons for seemingly conflicting messages about the enforceability of these agreements is that people often confuse the different types of post-employment contractual restrictions contained in the agreements. These include non-competition restrictions in which the employee promises – for a limited period of time and within a certain geographic area – not to work for a competing company after departure. Employers often obtain agreements that contain non-solicitation restrictions, which prohibit former employees for a period of time from trying to divert certain clients and/or employees from the company (these are also sometimes referred to as non-piracy restrictions). The restrictive time period for non-compete and non-solicit agreements varies, but is usually 6 months to 24 months in duration. Finally, many employers also require employees to sign agreements with nondisclosure restrictions, which prevent former employees from divulging or utilizing the employer’s confidential information.
Employers most often draft these agreements intending to protect customer and employee relationships. Because employees often work closely with customers, they naturally develop relationships that enhance business opportunities for the employer. This is commonly thought of as goodwill, and it is recognized as a valuable commodity for employers. In appropriate circumstances, employers may restrain former employees from utilizing this goodwill on behalf of another employer. The law does not favor restrictive covenants that impede an employee’s ability to work, but New Hampshire courts are receptive to appropriate, narrow restrictions designed to protect an employer’s goodwill and a company’s confidential information.
Generally, New Hampshire courts will not enforce a non-compete agreement that prohibits an employee from competing for new customers. So, for example, a restriction that purports to prevent an employee from working in a particular industry – even if limited to a certain area and for a certain period of time – would not be enforced beyond preventing the departed employee from doing business with those customers with whom he established goodwill or about whom he gained confidential information while employed with the company. Although courts will sometimes modify agreements that are too broad, employers should be cautious about including clearly over-broad restrictions to “send a message” to employees. In some instances, courts have sanctioned employers who had done so, punishing them for acting in bad faith. The safer practice is for employers to draft appropriately narrow (but sufficiently protective) agreements.
There are other nuances that further complicate things. For example, as of July 2012 when NH RSA 275:70 was enacted, employers are required to provide prospective employees with non-compete agreements prior to or with an offer of employment. If they fail to do so, even otherwise valid non-compete agreements are unenforceable. This is why employees now so often see these agreements for the first time attached to the offer letter. To make matters more complicated, in July 2014 the legislature changed the law in RSA 275:70 to make it clear that it would only apply going forward to incoming, new employees and not existing employees. But, at least one superior court has held that if a New Hampshire employee’s job changed significantly between July 2012 and July 2014, when the old version of the law was in effect, and the employee was not presented with the non-compete at the time of the job change, then any previously signed non-compete is invalid. So, employers must take great care in analyzing the timing of any significant changes in job classification. Further, the 2012 version of the law specifically mentioned “non-piracy” agreements, but the 2014 current version does not, referring only to non-compete agreements. What is clear is that until our NH Supreme Court clarifies certain aspects of this law, uncertainty will remain.
So, what does all of this look like in a real world situation? Assume Company A wants to hire a key salesperson from competitor Company B. Assume further that the key salesperson signed a non-compete agreement when she was hired in 2015 that prevented her for 12 months (from the time she leaves Company B for any reason) from (1) working as a salesperson within 20 miles of Manchester, N.H., her sales territory; (2) working with those customers she worked with or about whom she gained confidential information while employed at Company B; and (3) encouraging employees she used to work with to leave Company B to join her at Company A. Faced with this situation, a New Hampshire court would likely refuse to enforce the first restriction, but would enforce the second and third restrictions. Of course, this assumes Company B presented the non-compete agreement to the key salesperson when they made her an offer in 2015.
In summary, in limited circumstances agreements restricting an employee’s ability to compete with his or her former employer are enforceable in New Hampshire, but they must be (a) presented to prospective employees at or prior to the job offer; and (b) drafted narrowly to protect only a company’s legitimate business interests, like customer and employee relationships (goodwill) and confidential information.
Next time you hear someone declare that non-compete agreements are or are not enforceable in New Hampshire, you know the real answer: It depends.
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David McGrath is President and Managing Director of the firm and is an attorney in our Labor & Employment Group.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice.