State

Law Governing Restrictive Covenants

Requirements for Enforcement of Restrictive Covenants

Effective September 8, 2019, any noncompete agreement entered into between an employer and an employee who makes 200% of the federal minimum wage or less (i.e., employees currently earning $14.50 per hour or approximately $30,160 annually) is void and unenforceable.

Otherwise:

• Employers must provide potential employees with a copy of any noncompete agreement prior to the employee’s acceptance of an offer of employment, otherwise, the agreement will be unenforceable.
• Post-employment restrictive covenants valid and enforceable if the restraints are reasonable and:

1. The restriction may not be greater than is necessary to protect the employer’s legitimate interests;
2. The restriction may not impose an undue hardship on the employee; and
3. The restriction may not be injurious to the public interest.

• Restrictive covenants are not favored and are narrowly construed by New Hampshire courts.

1. Reasonable; and
2. No broader than necessary to protect one or more of the following legitimate business interests:
   • The employer’s trade secrets;
   • The employer’s confidential information that does not qualify as a trade secret; or
   • The employer’s goodwill.

An employer may not require or permit an employee earning wages at or below 400% of the federal poverty level to enter into a noncompete agreement.

An employer must (1) inform a prospective employee prior to offering them employment that a noncompete agreement will be required, and (2) provide the employee a copy of the noncompete agreement not less than 3 business days before the agreement is to be signed.

• In writing;
• Signed by both the employer and employee;
• State that the employee has the right to consult with counsel prior to signing;
• No broader than necessary to protect one or more of the following legitimate business interests of the employer:
  • The employer’s trade secrets;
  • The employer’s confidential information that otherwise would not qualify as a trade secret; or
  • The employer’s goodwill
• Restricted period cannot exceed 12 months from the date of cessation of employment;
  • Unless employee has breached a fiduciary duty to the employer or stolen employer’s property, in which case the duration may not exceed 2 years post- employment.
• Reasonable in geographic reach in relation to the interests protected.
  • A geographic reach that is limited to only the geographic areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence is presumptively reasonable.
•  Reasonable in the scope of proscribed activities in relation to the interests protected.
  • A restriction on activities that protects a legitimate business interest and is limited to only the specific types of services provided by the employee at any time during the last 2 years of employment is presumptively reasonable.
•  Supported by a “garden leave” clause or other mutually-agreed upon consideration.
  • A garden leave clause requires the employer to pay the employee for the duration of the noncompete period at least 50 percent of the employee’s highest salary within the last 2 years of employment.
  • Employer’s obligation to pay the garden leave is relieved only if the employee breaches the agreement.
•  Consistent with public policy
• In compliance with notice requirements
  • If agreement is entered into in connection with the commencement of employment:
    • The agreement must be provided to the employee either before a formal offer is made, or 10 days before the employee starts working (whichever is earlier)
  • If agreement is entered into after commencement of employment
    • Notice of agreement must be given to employee at least 10 business days before agreement becomes effective
    • It must be supported by fair and reasonable consideration independent from the continuation of employment

Noncompetition agreements are not enforceable against:

• Physicians, nurses, psychologists, social workers, broadcasting industry, and lawyers;
• Employees classified as non-exempt under the federal Fair Labor Standards Act;
• Undergraduate or graduate students in an internship or short-term employment relationship;
• Employees that have been terminated without cause or laid off; and
• Employees that are 18 years of age or younger.

• Must be in writing
• Employer must have a legitimate interest to protect his business and agreement must be drafted so as to not impose any limitations beyond those needed to protect the interest.
• Restrictions on employee must be circumscribed to activities similar to those the employee is engaged in. A noncompete that restricts a former employee from working in other capacities is invalid.
• Time span of the restrictions may not exceed twelve (12) months after the employee’s termination date. Any additional term is deemed excessive and illegal per se.
• The geographic scope of restriction must be strictly limited to that necessary to prevent actual competition between employer and employee.
• Should only cover clients who were personally serviced by the employee for a reasonable period of time, and were still the employer’s clients at the time employment ended.
  • The Puerto Rico Supreme Court has further suggested that restrictions applicable to potential clients would be considered to be excessively broad and, therefore, invalid. See PACIV, Inc. v. Pérez Rivera, 159 D.P.R. 523 (2003).
• Employer must provide valid and sufficient consideration in exchange for employee signing a noncompetition agreement.
  • Newly hired employees → the offer of employment is deemed adequate consideration,
  • Current employees → additional consideration must be provided, such as a promotion or additional employment benefits.

• Classified as non-exempt under the federal Fair Labor Standards Act;
• Undergraduate or graduate students in an internship or short-term employment relationship;
• 18 years of age or younger; or
• Low-wage earners (defined as earning less than 250% of the federal poverty level).

The Act does not apply to agreements with independent contractors.

The Act does not apply to noncompetition agreements outside the employment relationship or to noncompetition agreements entered into with the sale of a business or substantially all of the operating assets of a business.