NH Legal Perspectives: Are employee noncompete agreements worth the paper they're written on?

Employees and employers frequently wonder if noncompete 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 noncompetition 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 nonsolicitation restrictions, which prohibit former employees for a period of time from trying to divert certain clients and/or employees from the company. The restrictive time period for noncompete and nonsolicit agreements varies, but is usually six 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 restrictions designed to protect an employer's goodwill and a company's confidential information.

Generally, New Hampshire courts will not enforce a noncompete 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, employers are required to provide prospective employees with noncompete agreements prior to or with an offer of employment. If they fail to do so, even otherwise valid noncompete agreements are unenforceable. This is why employees now so often see these agreements for the first time attached to the offer letter.

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 noncompete 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 noncompete agreement to the key salesperson when they made her an offer in 2015.

In summary, in limited circumstances noncompete agreements between an employer and employee 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 goodwill and confidential information.

Next time you hear someone declare that noncompete agreements are or are not enforceable in New Hampshire, you know the real answer: It depends.

NH Legal Perspective is a biweekly column 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.

Monday, November 11, 2019