If you are starting a New Hampshire business or if you own an existing one and your business has or will have employees, you should consider whether to protect your business by requiring your employees to sign written non-competition agreements as a condition of their employment. Similarly, if you are acquiring a New Hampshire business owned by a third party, you should consider requiring the seller and the employees of the seller’s business to sign non-competition agreements.

New Hampshire non-competition statutes and case law are complex. So if the stakes for your business are significant, you should consider retaining a lawyer with non-competition expertise to draft any non-competition agreement you may you want to propose in the above situations.

However, the following brief guidelines under New Hampshire law may be helpful to you whether or not you retain a lawyer to draft a non-competition agreement for your employees:

In general, non-competition agreements mean agreements that prohibit employees during their period of employment with the employer and for a specified period thereafter from competing with the employer’s business in a specified geographical area. The purpose of these agreements is, of course, to protect the goodwill of the business and thus the employer’s business income. Goodwill generally means the intangible asset of an employer in the form of the favorable attitude of the employer’s customers toward the employer as a result of the customers’ favorable past business experience with the employer.

A non-competition agreement is likely to be valid if it meets a three-part test: (1) The agreement is necessary in order to protect the employer’s legitimate business interests; (2) it does not impose undue hardship on the employee; and (3) it is consistent with the public interest. However, all three of these tests are very general and may be hard to interpret in specific employment situations without a knowledge of the relevant New Hampshire case law.

 Non-competes between an employer and a “low-wage” employee are invalid. A low-wage employee means an employee who earns an hourly rate less than or equal to 200% of the federal minimum wage (which is presently $7.25/hour).

Similarly, non-competition agreements with physicians, podiatrists, nurses, lawyers and, in many cases, aestheticians are invalid.

 Non-competition agreements that prohibit former employees from competing against an employer’s business by doing business with merely potential customers of the employer are likely to be invalid.

Non-competition agreements are likely to be invalid if any of their provisions are unreasonable. This may be the case, for example, if the term of the non-competition period under the agreement or the territory covered by the agreement are excessive. However, two-year terms with employees are often valid. So, true are for five-year non- competition periods imposed by buyers of third-party businesses on sellers.

When you are considering changing the job classification of an existing employee or hiring an individual as a new employee and you want the affected individual to sign a non-competition agreement, New Hampshire law requires that you provide the individual with a copy of the proposed agreement for his or her advance review.

 In litigation of the validity of a non-competition agreement, the burden of proof will very probably be on the employer to provide the agreement’s validity rather than on the employee to provide its invalidity. This is because, in general, New Hampshire courts disfavor non-competition agreements.

 The validity of a non-competition agreement will generally be the same whether the employer or the employee terminates the relevant employment relationship.

A non-competition agreement will be held invalid if the affected employee receives no “consideration” (e.g., salary or retirement benefits) for signing the agreement.

 If a court holds that an employee has breached a non-competition agreement, the employer may receive injunctive relief (i.e., an order that the former cease the breaching conduct), money damages, including return of any relevant severance package or possibly the employer’s attorney’s fees.

Non-competition agreements sometime contain provisions requiring the affected employees to agree to maintain in confidence employer trade secrets and other employer confidential information, and a court may well hold confidentiality requirements in a non-competition agreement valid even if they “blue pencil” (i.e., delete) other provisions of the agreement. In general, however, it may be wise for you to address your confidentiality concerns with your employee in a confidentiality agreement that is separate from any non-competition agreement.

I’m indebted to Griffin Kmon, a law student at UNH Law School, for his excellent assistance in the researching and writing of this column.

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