On February 21, 2019, the New Hampshire Senate, in a bipartisan voice vote and without debate, passed Senate Bill 197, which would prohibit employers from requiring low-wage workers to enter into non-compete agreements, and makes such agreements void and unenforceable.

The Bill applies to “Low-wage employees,” which is defined to include (i) employees who make less than or equal to twice the federal minimum wage, i.e., $14.50 per hour based on the current federal minimum wage of $7.25 per hour; and (ii) “tipped employees” under New Hampshire Revised Statute § 279:21, who make less than or equal to twice the tipped minimum wage (statutorily set at 45 percent of the federal minimum wage), i.e., $6.54 per hour.  Continue Reading New Hampshire Senate Seeks to Ban Non-Competes for Low-Wage Workers

A recent New Hampshire decision serves as a reminder that courts may treat non-compete provisions differently in the context of independent contractor agreements compared to employment agreements.

Summary.  The Presiding Justice of the New Hampshire Superior Court held earlier this month that, under the circumstances of the case before him, a non-compete covenant imposed restraints on an independent contractor “greater than necessary to protect the legitimate interests” of the plaintiff.

The covenant.  Woodward was a personal trainer.  His relationship with Brian’s 1:1 Fitness, a training facility, began as an employee.  Subsequently, he executed annual independent contractor agreements.  He paid Brian’s a “rental” fee in exchange for use of the employer’s space and equipment for training his clients.  He alone determined the training regimen of his clients, he kept 100% of the fees they paid, and he was not subject to any control by Brian’s. 

Like each other trainer at Brian’s, Woodward was subject to a non-competition agreement.  It provided that for two years after the end of his relationship with Brian’s, he would not compete within 25 miles of places where it conducted business.  In addition, he was precluded from providing personal training services to any client who had been served by Brian’s within two years prior to his termination. 

The lawsuit.  Shortly after he resigned from Brian’s, Woodward opened his own facility.  Three trainers and a number of clients left Brian’s and joined him.  Brian’s sued him and asked the court to issue a preliminary injunction enforcing the non-compete.  The court refused.

Reasons for the ruling in favor of Woodward.  There is no New Hampshire Supreme Court precedent regarding the standards to apply in determining the reasonableness of a non-compete covenant in an independent contractor agreement.  According to a 2006 Delaware Chancery opinion cited by the New Hampshire Superior Court justice, the subject has not been discussed in many reported rulings, but most jurisdictions addressing it have held that those standards parallel the ones used in analyzing similar clauses in employer-employee contracts.  However, both the Delaware Chancery Court judge and the New Hampshire justice rejected those holdings.

According to the New Hampshire justice, as compared with employees, “[I]ndependent contractors have less access to legitimately confidential information of their employers.”  Moreover, according to the court, independent contractors are more likely to bring their own strengths and abilities to the enterprise, have a less intimate relationship with the employer (for example, an employee may be expected to perform other reasonable tasks as needed), and traditionally work with less supervision.  Also, the court reasoned that the employer typically would not be responsible for torts committed by an independent contractor but would be liable for damages caused to others in the course of an employee’s employment. 

In the justice’s view, the covenant Woodward signed exceeded Brian’s legitimate interests.  It was “simply a restraint of trade which is not in the public interest.”  Brian’s 1:1 Fitness v. Woodward, No. 2012-CV-00838 (Merrimack, SS (NH) Superior Court, 8/8/13).

Takeaways.  Not many reported cases deal with the standards to be applied in determining the enforceability of a non-competition clause in an independent contractor agreement.  Some judges simply state that the rules should be the same as for an employee and employer. 

Other courts analyze the relationship to determine how dissimilar it is to the employer-employee model.  In those jurisdictions, if the contractor truly is independent, receiving no salary, wages or benefits from the employer, and not subject to the employer’s control in any respect, a restrictive covenant is more challenging to enforce.  Thus, an employer whose agreement with an independent contractor contains a non-compete clause may be able to avoid the costs and risks that would be incurred if the individual were denominated an employee, but the price may be invalidation of the covenant. Accordingly, add non-compete enforcement to the checklist that companies should analyze when deciding between employee or independent contractor classification.

Please join us for our sixth trade secrets webinar of the year entitled Trade Secrets and Non-Compete Legislative Update.

The webinar will be September 20, 2012 from noon to 1:00 p.m. central.

The past year has seen significant statutory changes to several jurisdictions’ laws regarding trade secrets and restrictive covenants and pending legislation proposed in additional jurisdictions. As trade secrets and non-compete laws continue to evolve from state to state in piecemeal fashion, companies should continually revisit their trade secrets and non-compete strategies in light of the evolving legal landscape and legislative trends.

Topics will include:

1) Judicial opinions on Georgia’s Restrictive Covenant Act one-year after its adoption in 2011;

2) Recent and proposed statutory changes to restrictive covenant laws (including recent statutory changes in New Hampshire and proposed legislation in Massachusetts);

3) Recent and proposed statutory changes to trade secrets laws (including passage of the New Jersey Trade Secrets Act, amendments to Idaho’s trade secrets statute, and proposed federal legislation); and

4) Practical tips for anticipating trends in trade secrets and non-compete law.

The webinar will be led by Bob Stevens, Erik Weibust, and Daniel Hart.

You can register here for the webinar.

CLE credit will be available for participants.

By Ryan Malloy and Robert Milligan

The New Hampshire legislature recently passed a new state law that will require the disclosure of non-compete and non-piracy agreements to potential employees prior to making offers of new employment and to existing employees with an offer of change in job classification. Governor Lynch signed the bill on May 15, 2012. Under the new law, any agreement that is not in compliance with the law shall be void and unenforceable.

The new law is effective July 14, 2012. Employers using non-compete and/or non-piracy agreements must plan accordingly. We previously alerted our readers to this legislation after New Hampshire’s House recommended the bill in March. The full text of the law can be found here. The law has some similarities to Oregon’s non-compete statute which also has pre-offer disclosure requirements.

Some legal commentators have noted that New Hampshire courts generally look with disfavor on non-compete agreements and they have criticized the new law for its lack of clarity concerning the meaning of non-piracy agreements. Based upon the statutory language, it is unclear whether non-piracy agreements means non-solicitation clauses or also includes non-disclosure clauses. Additionally, “change in job classification” is not defined under the law. ” “Change in job classification” could mean promotion, lateral move, demotion, or change in title. Case law or additional legislation will need to further define the statutory language.

Employers conducting business in New Hampshire will want to take this new law into account and comply in the hiring and employment process with New Hampshire employees.  

 

In a recent decision, Wilcox Indus. Corp. v. Hansen, 2012 U.S. Dist. LEXIS 63668 (D.N.H. May 7, 2012), a federal judge for the District of New Hampshire interpreted the New Hampshire Uniform Trade Secrets Act’s (the “NHUTSA”) preemption provision to preempt all non-contract claims based on unauthorized use of information even if the information at issue is not a trade secret. 

In Wilcox Indus. Corp. v. Hansen, plaintiff Wilcox, a manufacturer of military equipment, filed a complaint against former consultant Mark Hansen and his new employer, Advanced Life Support Technologies, Inc. (“ALST”), alleging misappropriation of trade secrets, unfair competition, and other state law claims after Hansen incorporated Wilcox’s confidential and trade secret information into ALST’s competing life support device. Wilcox also alleged that defendants solicited its existing and prospective customers to purchase ALST’s competing product by using confidential information that Wilcox had entrusted to them, all in violation of a non-disclosure and nonsolicitation agreement and a royalty agreement. Defendants moved to dismiss all claims. The Court granted in part and denied in part the motion to dismiss, and found that plaintiff’s claims for unjust enrichment and breach of fiduciary duty were preempted by the NHUTSA.

By its plain language, the NHUTSA “displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.” The only exceptions are claims for contractual remedies, criminal remedies, and other remedies not based on misappropriation. 

The District Court adopted the Supreme Court of New Hampshire’s holding in Mortgage Specialists, Inc. v. Davey, 153 N.H. 764, 776 (2006), finding that a claim survives preemption only to the extent that it alleges wrongful conduct independent of any alleged unauthorized use of information, provided that the independent allegations are sufficient to plead all elements of the claim. In Mortgage Specialists, Inc. v. Davey, the Supreme Court of New Hampshire reasoned that the preemption provision was designed “to preserve a single tort action under state law for misappropriation of a trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information that may not meet the statutory standard for a trade secret.”

In essence, the District Court determined that the NHUTSA broadly classifies information either as a protected trade secret, as defined in the statute, or as unprotectabe information. The full text of the opinion can be found here. Ken Vanko’s Non-Compete Blog also has a nice overview of the decision and its implications.

Recently, state legislatures in both Idaho and New Hampshire have proposed significant legislation relating to trade secret and non-compete agreements. Each of these bills has the potential to significantly impact employers and their hiring processes.

Idaho

In the Idaho state senate, a bill was recently introduced to amend the Idaho Trade Secrets Act. The proposed bill clarifies that trade secret misappropriation requires acquisition, disclosure, use or physical retention of the information. As a result, memorization of a trade secret does not qualify as misappropriation. Whether trade secrets can be misappropriated via memory is very much an undecided issue, and there is much disagreement nationally. In Massachusetts, for example, some courts have found that a person, can, in fact, be held liable for misappropriation by memory, while others have found the exact opposite. As a result, this issue is likely to remain a contested topic throughout the United States.

In addition to requiring physical possession for misappropriation, the bill would also allow the prevailing party to recover reasonable attorney’s fees. Finally, the bill makes anyone acting in concert with a misappropriator jointly and severally liable for misappropriation if they turn a blind eye to the misappropriation.

New Hampshire

In New Hampshire, the House recently considered a bill requiring employers to disclose any non-compete and non-piracy agreements before hiring an individual. If this bill were to pass, any contract which does not comply with it would be void and unenforceable. On March 7, the House recommended that the bill be passed, but the vote has yet to occur. Such a policy would ensure that employees are fully aware of their future rights before accepting a new position.

We will continue to keep you apprised of relevant future updates in state trade secret and non-compete laws.