Following in the footsteps of its neighbors Maine, Massachusetts, and New Hampshire, Rhode Island recently enacted legislation that restricts the use of non-competition agreements with certain types of employees. The Rhode Island Noncompetition Agreement Act, which becomes effective on January 15, 2020, prohibits non-competes without regard to geographic location and duration for the following types of employees:
- Non-exempt employees under the FLSA;
- Undergraduate or graduate students participating in an internship or short-term employment;
- Employees aged 18 or younger; and
- Low-wage workers (defined as earning 250% or less of the federal poverty level ($31,225 per year under current data).
The Act applies to “an agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer, after the employment relationship has ended.” It also makes clear that it excludes the following agreements:
- Non-solicitation agreements concerning customers, vendors, and employees;
- Forfeiture agreements (except for forfeiture for competition agreements);
- Non-disclosure, confidentiality, and invention assignment agreements;
- Non-competes made in connection with a sale of a business where the employee is a significant owner, member, or partner in the entity sold and is receiving significant consideration or benefit as a result of the sale of the business;
- Non-competes originating outside of the employment relationship (such as independent contractors);
- Non-competes made in connection with the separation from employment if the employee is expressly granted seven business days to rescind acceptance; and
- Non-competes under which the employee agrees not to reapply for employment with the employer after termination.
The Act creates Rhode Island’s first comprehensive statutory scheme addressing non-compete agreements. Employers should spend the next few months reevaluating their employment agreements to ensure compliance come January 15, 2020. Notably, while Maine, New Hampshire, and Rhode Island will all soon restrict the enforcement of non-competes agreements against low-wage employees (and Massachusetts did so last year), each state defines the term “low-wage employee” differently.