Assessing NH’s new noncompete law

Effective Sept. 8, all noncompete agreements entered on or after that date will be invalid and unenforceable for “low-wage” employees in New Hampshire.

The new law primarily defines “low-wage” employees as those earning hourly rates less than or equal to 200% 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 new 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 another article published on April 24, 2016 in the NH Union Leader, “Noncompete, non-solicit and related agreements in New Hampshire — Understanding the Basics and Avoiding Common Traps,” lawyers, non-lawyers and judges don’t all use the same language to describe the same or similar employment restrictions.

Some use “noncompete” 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 working at all for a competitor or 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 using or disclosing confidential information, or soliciting other employees to leave their employment in order to compete with the employer. Those kind 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 effective date. Before employers rush in the coming days 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, president and managing director of Sheehan Phinney, is an employment law attorney.

Categories: Legal

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