Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained.  In general, courts decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.

The Law In New Hampshire

New Hampshire courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect certain business interests of the employer such as good will, trade secrets and customer lists.  Such agreements are valid “only to the extent that they prevent employees from appropriating assets that are legitimately the employers’.”  Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, its effect on the general public and the restrictions placed on time, territory and activity of the former employee.

Consideration

With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. New Hampshire courts have determined that the offer of initial or continued employment is sufficient consideration or benefit to the employee in exchange for agreeing to not compete with the employer should the employment relationship terminate.

Reasonableness in Time and Geographic Scope

Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of employment or line of business being restricted. If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former employee’s ability to work.

Examples of non-compete agreements that New Hampshire courts have found to be reasonable include:

• A 2-year, 25-mile radius restriction against a physician from treating existing patients of former employer.
• An 18-month restriction against a salesperson for a personnel placement firm from doing business with any customers “which became known to him through his employment.”
• A 5-year, 20-mile radius restriction against a veterinarian from competing with his former employer because the area was the same as the employer’s market and the veterinarian hospital was closely identified with the veterinarians who staffed it.

The courts have found the following restrictive covenants unreasonable:

• A 90-day restriction against light industrial laborers from accepting employment from the company at which the employer temporary staffing agency had placed them because they were not in a position to appropriate good will and did not have access to confidential information.  Such a restriction would place an undue hardship on the employees and therefore is contrary to public policy.
• An 18-month restriction against a former salesperson from competing within 100 miles of any office of former employer because the area was larger than the territory to which the employee had been assigned.
• A 3-year restriction against a certified public accountant from competing with former employer unless he received written permission because the CPA’s business was significantly smaller than that of the former employer.

Employers need to keep these issues in mind when asking employees to sign restrictive covenants. It is also important to know if potential new hires have a non-compete agreement with a former employer. In some cases, the new employer can be liable to the former employer if hiring the employee would put him or her in violation of the agreement. Different rules may apply to situations in which all or part of a business is being sold and a restrictive covenant is agreed to by the buyer and the seller.