New Hampshire's New Non-Compete Law

RSA 275:70 states as follows: "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. "The statute became effective July 14, 2012.

1. When must an employer give a prospective employee the non-compete?

   While employers often make offers of employment to prospective employees in a written offer letter, it is also common for employers (particularly small employers) to make offers of employment less formally, including orally. In both instances, employers (both large and small) frequently have not given prospective employees a copy of the non-competes that the employees will be required to sign until the employees' first day of employment. Sometimes employers have notified prospective employees in the offer letters that they will be required to sign a non-compete on their first day of employment, however, it is equally common, if not more common, that employers simply do not give prospective employees any such warning.

   The effect of RSA 275:70 is to require all employers to provide prospective employees with an actual copy of the non-compete that the individuals will be required to sign at or before the time that the employer makes the offer of employment to the prospective employees. It is no longer enough for employers to advise prospective employees in an offer letter or orally that they will be required to sign a non-compete when they start employment. The rationale for this rule is that individuals should have an opportunity to review all of the terms of their prospective employment, including the details of any non-compete, before they accept employment and, if applicable, before they leave their prior employment.

2. Does the law apply only to non-competes in employment agreements?

   An argument could be made that RSA 275:70 applies only to non-competes contained within or signed in conjunction with a formal employment agreement. This argument arises from the text of the statute, which states that employers must give employees or prospective employees a copy of the non-compete if it is "part of the employment agreement."

   The statute does not define the term "employment agreement," and the legislative history does not shed any light on the intended meaning of the term. However, construing the law to apply only to non-competes within or signed with a formal employment agreement would be inconsistent with common law notions of employment, and would undermine the apparent remedial purpose of the statute. Specifically, under common law, the entire relationship between an employee and employer is referred to as the "employment agreement" between these parties, particularly in the context of at-will employment. See Monge v. Beebe Rubber Co., 114 N.H. 130, 132 (1974) ("the prevailing common law rule" is that "an employment contract for an indefinite period of time ... is presumed to be at will.") See also J&M Lumber and Constr. Co., Inc. v. Symyjunas, 161 N.H. 714, 725 (2011) ("Employment at will refers to an employment contract that is for an indefinite period of time and is terminable at will."); Livingston v. 18 Mile Point Drive, Ltd., 158 N.H. 619, 624 (2009) ("The various good-faith obligations [include] termination of at-will employment agreements"); Centronics Corp. v. Genicom Corp., 132 N.H. 133, 139-40 (1989) (summarizing wrongful termination as follows: "an employer violates an implied term of a contract for employment at-will by firing an employee out of malice or bad faith in retaliation for actions taken or refused by the employee in consonance with public policy.") But see Porter v. City of Manchester, 151 N.H. 30, 39 (2004) (because "a wrongful termination action is not designed to protect the employee's interest in having promises performed," but rather "to protect the employee from the harms that result from a wrongful discharge, ... wrongful termination is a cause of action in tort," not contract).Thus, while use of the term "employment agreement" in this statutory context was inartful, it seems likely that the legislature meant to encompass any employment relationship, including at will employment, not just an employment relationship that involves a formal employment agreement.

   Moreover, construing the law to apply only to non-competes within or signed with a formal employment would undermine the remedial purpose of the statute by excluding the large number of situations (if not the majority of situations) in which employees and prospective employees are required to sign non-competes but are not offered employment agreements. Construing the law in that manner also would incentivizing employers to refrain from offering...