The COVID-19 pandemic brought unprecedented changes to the labor market, with workers more willing to change jobs on a regular basis. With that level of worker mobility, restrictive covenants in employment agreements are arguably more important than ever to protect businesses’ legitimate interests in their confidential and proprietary information, trade secrets, intellectual property, and customer relationships.
There are three primary types of restrictive covenants in employment agreements: non-compete agreements, non-solicitation agreements, and non-disclosure agreements/confidentiality agreements. While this article discusses NH law, state laws on these issues can vary significantly, so businesses should be mindful that the analysis can become complex when they have locations across multiple states and/or employees working remotely.
Non-Compete Agreements
Non-compete agreements typically prohibit employees from working for or starting a competing business after leaving their current employer. Such covenants are generally enforceable under NH law so long as certain conditions are met. (There is a pending regulation adopted by the Federal Trade Commission (FTC) that would ban and render unenforceable most non-compete agreements, but the FTC’s rule has been enjoined by a federal court as of the publication of this article, and litigation surrounding the enforceability of the FTC’s rule is expected to continue for the next several months.)
To be enforceable under NH law, non-compete agreements generally must be no greater than necessary for the protection of the employer’s legitimate interests, must not impose undue hardship on the employee, and must not be injurious to the public interest.
Courts typically review the reasonableness of the restriction’s scope as to geography and duration. While the reasonableness of any given non-compete agreement is a fact-dependent inquiry based on the industry and totality of circumstances, courts typically uphold non-compete agreements that last six months to a year after employment, with a two-year non-compete sometimes being enforceable. One important caveat, though, is that non-compete agreements executed in connection with the bona fide sale of a business may justify a broader geographic scope or duration than normally allowable, given that non-competes in that context are often considered part of the buyer’s investment in purchasing the business. New Hampshire law also allows courts to reform an overbroad non-compete agreement, if needed, to make it enforceable.
Beyond the case law, the NH Legislature has enacted certain key statutes that codify public policy concerns in this area. Specifically, RSA 275:70 provides that for a non-compete agreement to be enforceable, the employer must provide a copy of such agreement to the potential employee prior to the employee’s acceptance of an employment offer.
RSA 275:70-a prohibits non-compete agreements for low-wage employees, who are defined as earning an hourly rate less than or equal to 200% of the federal minimum wage. RSA 329:31-a makes most post-employment non-compete agreements for physicians void and unenforceable, as they can interfere with patients receiving the health care they need.
Non-Solicitation Agreements
There are two types of non-solicitation agreements typically used in employment agreements. The first is a client non-solicitation agreement, which prohibits an employee from contacting or otherwise soliciting clients for a set duration after their employment ends. Such provisions may include current and prospective clients. The more focused that a client non-solicitation agreement is, for example, by identifying specific clients name, rather than relying on general descriptions of the company’s clients, the more likely a NH court would be to enforce the provision as being reasonably tailored to protecting the company’s legitimate interests.
The other type of non-solicitation provision is an employee non-solicitation agreement. This covenant requires that once an employee departs to work in a competitor’s business, she may not contact or otherwise solicit the company’s other employees for a certain period, so that they do not also leave and join her at that competitor. Most employee non-solicitation agreements are enforceable, so long as the employer has acted in good faith.
Non-Disclosure Agreements/Confidentiality Agreements
NDAs and confidentiality agreements are the types of restrictive covenants that NH courts are most likely to uphold, as they normally require employees to maintain the confidentiality of trade secrets, intellectual property, and/or other information that is proprietary to the organization. Where a former employee had access to this type of sensitive information, however, policing her use of that sensitive information post-employment can be difficult, unless the company’s trade secrets and intellectual property are so unique that her reuse or misuse of that information cannot be disputed.
Chris J. Walsh is a member of McLane Middleton’s Litigation Department where his practice focuses on white collar criminal defense, government and internal investigations, and other high-stakes
commercial litigation. He can be reached at christopher.walsh@mclane.com.
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