New Hampshire recently enacted new legislation which, despite its brevity, may have significant repercussions for the unwary employer seeking to enforce a restrictive covenant. The law (RSA 275:70), which took effect on July 14, 2012, reads:
"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 the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable."
Accordingly, employers must be timely in providing a
non-compete, non-solicitation or non-disclosure agreement prior to
or at the time of the offer of employment or change of job to the
applicant or employee, or else it will be unenforceable. Clearly,
the law's purpose is to provide adequate notice to applicants
and employees so they can make informed decisions.
The statute leaves several critical questions unanswered. For
example, it does not define what constitutes a "non-piracy
agreement," a phrase which is not typically used in the
context of employment agreements. The term "piracy"
conjures up images of economic espionage and employees stealing
their employers' trade secrets and other proprietary
information. However, a "non-piracy agreement" more
typically refers to restrictive covenants against poaching the
employer's employees and/or customers.
Likewise, the statute does not provide any clarification as to
what change in the terms and conditions of a current employee's
position constitutes a "change in job classification"
under the law. This ambiguity creates uncertainty as to how broadly
courts will interpret the term. Former employees seeking to evade
their post-employment obligations are likely to argue that the
phrase should be read to apply to a promotion, a new title, or any
change in the employee's duties with a corresponding change in
nomenclature.
Although a mere salary increase will probably not be enough to
trigger the statute, for the avoidance of doubt an employer which
includes a new non-competition provision as part of a stock option
or similar agreement would be well advised to comply with the
statute, to avoid a reviewing court deeming the restriction
"void and unenforceable." The statute will also
apply in the context of mergers and acquisitions if the acquired
employees are required to execute a new non-competition or
non-piracy agreement for the benefit of their new employer.
Until the Legislature provides additional guidance, employers
doing business in New Hampshire should ensure that any applicant
who will be required to sign any type of restrictive covenant as a
condition of employment (whether it be a non-competition,
non-solicitation, non-disclosure, or similar type of agreement)
receives a copy of the agreement at the same time the applicant
receives the offer letter. Employers should also ensure that an
existing employee who will be required to execute a new
non-competition or similar agreement in connection with any type of
change in job status also receives a copy of such agreement before
or when the offer is made.
Offer letters should reference the attached agreement as
additional evidence that the agreement was provided in compliance
with the statute. Employers should also maintain records of all
offers of employment made to prospective and current employees that
require the execution of a restrictive covenant to evidence the
date on which the agreement was provided.
So long as the procedural safeguards in the new law are
followed, the legislation does not affect New Hampshire
law regarding the enforcement of restrictive
covenants. Employers are encouraged to consult with employment
counsel for additional guidance regarding how to increase the
likelihood that these agreements will be upheld.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.