New Hampshire Legislature Seeks to Restrict the Use of Non-Compete Agreements

Two notable bills aimed to further restrict non-compete agreements in employment relationships were introduced in the Senate this session – one seemingly with more support than the other.  Regardless of their outcome, these bills reflect another step down the path toward limiting non-compete agreements in New Hampshire.

Senate Bill 423, “AN ACT relative to non-compete clauses for low-wage employees” is currently before the Senate.  The bill prohibits an employer from requiring a “low-wage employee” to enter into a non-compete agreement.

So what is a low-wage employee?  In its most recent form, the bill defines the term as an employee who earns less than: (1) an hourly rate equal to 200 percent of the federal minimum wage; or (2) an hourly rate equal to 200 percent of the state’s tipped minimum wage.  A noncompete agreement is defined as an agreement that restricts a low-wage employee from performing: (1) work for another employer for a specified time; (2) work in a specified geographical area; or (3) work for another employer that is similar to such low-wage employee’s work for the employer who is a party to the agreement.  With these definitions in mind, Senate Bill 423 prohibits employers from requiring a low-wage employee to enter into a noncompete agreement and renders such a noncompete agreement to be void and unenforceable.  Thus, for low wage workers, the bill negates the current test used by courts that looks at an agreement’s reasonableness as applied to the particular circumstances of the parties.

Some policy makers have asked whether it makes sense to prohibit non-compete agreements just for low-wage earners and not all employees?  Proponents of this bill argue that non-compete agreements for low wage employees limit mobility and opportunity for workers.  They also maintain that the traditionally recognized reasons for needing a non-compete – protecting trade secrets, marketing, product development and sales plans – do not usually apply to low-wage workers who lack such sensitive information.

On March 8, 2018, the bill was nearly defeated in the State Senate, but a floor amendment was introduced to change the definition of a low-wage employee from being the lesser of the federal minimum wage or $15, to a percentage (200%) of the federal minimum wage or of the state’s tipped minimum wage.  A final vote in the Senate is expected by March 22.

In contrast, the Senate recently passed Senate Bill 473, relative to employment contract restrictions upon health care providers.  The bill builds upon New Hampshire’s current law which essentially disallows non-compete agreements for some health care professionals after the termination of a partnership, employment, or professional relationship.  See RSA 329:31-a.  If passed, Senate Bill 473 would expand the type of professionals covered by the law to include licensees regulated by a board, commission, or council under the division of health professions.  This could have a major impact on employers who use non-compete agreements for health care providers in nursing, ophthalmology, optometry, psychology, nursing, pharmacy and other areas.  The bill is now in the House of Representatives for consideration.

Whether or not these bills pass this session, they signal a move toward states like California where employee non-compete agreements are generally unenforceable.  For now, employers should review the terms of their non-compete agreements to ensure they are reasonable and will be upheld if challenged by an employee.  Likewise, employees should take note before signing a non-compete agreement.

 

About the Author: Lindsay Nadeau

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