New Hampshire Enacts Non-Compete and Non-Piracy Legislation Effective July 14, 2012

New Hampshire has joined the ranks of numerous other states with non-compete statutes. On July 14, 2012, New Hampshire’s non-compete and non-piracy law became effective and aims to ensure that advance notice will be provided to employees who will be required to sign a non-compete or non-piracy agreement as a condition of their employment or change in job position:

Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of an employment agreement to the employee or potential employee.  Any contract that is not in compliance with this section shall be void and unenforceable.

Under the new law, an employer is prohibited from sandbagging a new employee by presenting him/her with a non-compete or non-piracy agreement on his/her first day of work after he/she has already accepted the offer, particularly in situations where the employee has quit a job to begin work with the new employer only to learn of the “surprise” agreement at that time.  Now, not only must the employee be informed that a non-compete or non-piracy agreement will be a term of his/her employment should he/she accept an offer, but also the employee must be provided with a copy of the actual agreement itself.  The employee then has an opportunity to review and consider the agreement and the impact thereof, and decide whether to accept the offer and the agreement and if employed, quit his/her current job.  This same analysis applies in the case of an employee who is offered an internal job change (e.g., lateral move, promotion, etc.) which will require him/her to sign a non-compete or non-piracy agreement.

New Hampshire courts will continue to handle “traditional” disputes as to the reasonableness of the geographic scope and duration of non-compete agreements and whether the employer has a legitimate protectable interest.  But, after July 14, those same courts will undoubtedly be asked to decide and handle a variety of debacles arising as a result of the new law and the questions it leaves unanswered, such as whether non-solicitation, non-recruitment, and/or nondisclosure agreements constitute “non-piracy” agreements.  That said, as the penalty for noncompliance with the new law is steep – i.e., invalidation of the entire agreement – employers would be wise to act conservatively and avoid any missteps by ensuring reasonable advance notice is provided, written acknowledgment of the notice is given by the employee, and non-solicitation, non-recruitment, and non-disclosure agreements are treated as non-piracy agreements subject to the new law.


Key Ingredients for an Effective Non-Compete Agreement

In increasingly competitive business environments consisting of mobile and tech-savvy workforces, employers need to take full advantage of the most important protection available against unfair competition by former employees: a comprehensive and effective non-compete agreement. Employers should have non-compete agreements reviewed and/or drafted by an attorney familiar with the laws of any state that the agreement will be active in (usually the states in which employees reside). This is especially important because the laws governing non-compete agreements vary from state to state.

However, regardless of state, the key ingredients to a successful and protective agreement include the following types of provisions:

  • Non-Competes — While a “Non-Compete Agreement” usually refers to an employment contract that includes many of the provisions in this list, an actual non-compete provision is the one that actually prohibits an employee from working for a competitor.  To be enforceable, this type of provision typically must be reasonable in terms of the duration, the territory, and the scope of prohibited activities.  What is deemed reasonable varies from state-to-state and is often fact-specific based on the circumstances of each particular employee.
  • Non-Solicitation of Customers — In a world where anyone on the globe is potentially accessible by email or cellphone, an employer’s vulnerability to competition is often defined not by geography but by customers.  Accordingly, a provision for the non-solicitation of customers is essential for most modern businesses.  A non-solicitation covenant does not by itself prevent an employee for working for a competitor, but rather it prohibits an employee from affirmatively soliciting the customers of the former employer.  A non-solicitation provision often works in tandem with a non-compete clause, but a non-solicitation term is a must where employees are reluctant to agree to an absolute prohibition from competing in a certain area.
  • Confidentiality/Non-Disclosure — These provisions limit an employee’s ability to use or disclose non-public information relating to the employer’s business and customers.  Even in the absence of a non-compete or non-solicitation provision, confidentiality agreements can be used to hinder unfair competition and solicitation of customers by a former employee if it can be shown that the employee is using the confidential business information from the former employer.  Additionally, confidentiality agreements are usually necessary, at minimum, to prove the key element of a claim for a trade secret violation: efforts to maintain the “secrecy” of a purported trade secret.
  • Non-Recruitment — A non-recruitment provision seeks to limit a former employee’s ability to recruit other employees away from the employer.  There are few common law and statutory restrictions on the recruitment of a company’s employees, so these types of covenants are an important tool for staving off mass defections.
  • Return of Property — Many post-employment problems can be avoided, or grounds for a remedy improved upon if there is a problem, by a contract requiring that an employee return all company-related property, information, or documents obtained or created by the employee upon termination of the employment relationship.

BURR POINTWhile there are multiple other terms that are a part of a well-drafted non-compete agreement, the list above provides the backbone terms that will serve as protection for the employer.