Know the Law: Non-compete agreements
Answered by Elizabeth Lahey of the McLane Law Firm.
Q.: I would like to require an employee who is planning to move to New Hampshire from Colorado to take the job to sign a non-competition agreement. I have told him I expect him to sign such an agreement. Can I wait to give it to him until he arrives?
A.: The enforceability of non-competition and anti-piracy agreements has traditionally been within the ambit of the courts.
The New Hampshire Legislature, however, recently weighed in on this issue, and by passing HB 1270, created a time limitation for when employers and employees may enter into non-competition and anti-piracy agreements.
The legislation requires employers to provide employees and potential employees with copies of all non-compete or non-piracy agreement that will be part of the employment agreement prior to or concurrent with making the ';offer of employment'; or ';change in job classification.';
The failure to do so will render the non-competition or anti-piracy agreement unenforceable.
Employers should state in an offer letter that the execution of a non-competition and/or anti-piracy agreement is a condition of employment. A copy of the agreement should also be provided. The employee';s signed offer letter will then serve as evidence that the employer complied with the statute.
Things become a little less clear when an employer asks an existing employee to sign a non-competition agreement.
Employers are required to give employees copies of such agreement at the time of ';an offer of change in job classification;'; yet, the term ';job classification'; has not been defined.
It is, however, reasonable to infer that a promotion or a change to a different job in a new department would constitute a change in job classification.
The waters become even murkier when an employer who has never asked employees to sign non-competition agreements decides to begin using them, or when a company wants to update its agreements.
Past practice has been for employers to offer the existing employee some consideration, such as a bonus or salary increase, in return for entering into the non-competition agreement.
Questions are now likely to arise as to whether agreements executed under these circumstances are enforceable.
Additionally, the statute only refers to non-compete and anti-piracy agreements. It is unclear as to whether the law applies to other restrictive covenants, such as non-solicitation or non-disclosure agreements.
The bill was signed on May 15, 2012 and will go into effect on July 14, 2012.
Lahey can be reached at email@example.com.
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