Businesses may be cheering about the new non-competition law, but the news is not all good.
For the past two years, businesses have struggled with a law that unintentionally prohibited the use of non-competes in a host of legitimate situations. In attempting to correct the problems with the law, the Legislature may have just created different problems.
Problems, Part I
The old law, adopted in 2012, invalidated non-piracy agreements, unless the employer gave the prospective employee a copy of the agreement with the offer of employment, or gave the existing employee the agreement when offering the employee a new job. The purpose of the old law was to prevent an employer from hiring an employee and then, shortly thereafter, requiring the employee to sign a non-compete as a condition of continued employment.
However, because the old law did not define a non-piracy agreement, it prohibited employers from entering into confidentiality and other appropriate employment-related agreements with existing employees without a job change. It also prohibited employers from entering into non-competes with existing employees even if the two parties negotiated the agreement, the employer compensated the employee for the agreement, or the agreement was a part of bargained for severance.
The new law states that a non-compete is invalid if the employer “requires an employee who has not previously been employed by the employer to execute a non-compete agreement as a condition of employment” unless the employer gives the agreement to the “potential employee prior to the employee’s acceptance of an offer of employment.”
The new law also makes clear that it applies only to non-competes, and does not invalidate employment, confidentiality, trade secret, or intellectual property assignment agreements.
The problem is that, in attempting to fix the old law, the new one eviscerates the entire purpose of the law, without establishing any meaningful rule.
If an employer gives a potential employee a non-compete two days before the person accepts the offer of employment, the employer has complied with the law and the non-compete is valid. But, if an employer gives a new employee a non-compete on the second day of employment, the non-compete is still valid, because the employee has “previously been employed by the employer,” even though for just two days. This unintended evisceration of the old law may lead judges to try to give the new law some meaningful effect and will confuse businesses about how to apply the law.
Though New Hampshire’s old non-compete law was certainly bad for businesses, and the new one is almost certainly better, the uncertainties will continue to create problems. So, businesses should not cheer yet. The jury is still out.