Nowadays, it seems like non-compete legislation is being passed at a breakneck speed. We saw numerous new laws on the books in the last year, and dozens more are being considered in various states. Many citizens are in favor of tamping down on non-competes, and a fair number of practitioners (including many on the Seyfarth team!) agree that certain rules regarding restrictive covenants are reasonable and appropriate, including limitations on non-competes for low-wage workers and rules requiring some advance notice to incoming employees being asked to sign restrictive covenants. But some in the business community seem to be saying: not so fast.
Most recently, the New Hampshire legislature is debating a new bill introduced in January that, as originally drafted, would have invalidated non-competes if an employer required vaccination as a condition of employment and an employee refused to comply with the vaccine mandate. Introduced by a number of Republican representatives, this proposed law was an unsurprising reaction to the Biden administration’s vaccination push. While some in the business community weren’t happy with that proposed new law, they were willing to accept it—but are extremely unhappy with an amended and substantially broadened version of the bill that passed the House of Representatives just a few weeks ago. The amended bill would invalidate non-competes if an employer “makes any material change in the terms of employment,” perhaps a surprising move for Republican legislators, who are often pro-enforcement of restrictive covenants. This appears to be a clear nod to Massachusetts’ common law “material change” jurisprudence, a one-of-its-kind doctrine (at least for now) that requires employers to issue new agreements upon a material change in an individual’s employment—whether that be a promotion, demotion, change in compensation, change in responsibilities, or any other material change in the employee’s working conditions.
It should be noted that multiple Massachusetts courts have held that a contractual provision dictating that “material changes” will not invalidate an otherwise binding agreement is enforceable, leading many Massachusetts employers to include such language in their non-competes. However, the New Hampshire bill is silent on the issue of whether similar contractual language agreed to by an employee will be sufficient to defeat the statutory invalidation of non-competes upon a “material change.” Whereas Massachusetts’ material change doctrine comes from the common law (and thus contractual provisions forestalling a material change defense to enforcement is reasonable), arguably it would be difficult for a New Hampshire employer to prevail on a theory that a similar contractual agreement could invalidate a statutory rule.
According to those in New Hampshire’s business community, this new proposed change would be “a nightmare” for HR professionals, who will be left struggling with whether a particular change is a “material change” under the law. While the bill does provide some examples of what might constitute a material change—including “[n]ew requirements for medical testing, vaccination, or other medical intervention” deemed a condition of employment—employers are rightfully concerned that other modifications to working conditions may be considered a material change. For example, an attorney with the HR State Council of NH questioned whether the shift to remote work would constitute a material change under the law sufficient to invalidate an otherwise binding non-compete; the senior vice president of public policy at the Business and Industry Association wondered whether “a move from one side of town to another” would constitute a material change, and mused that employers might steer clear of the Granite State due to confusion as to what agreements will remain enforceable.
The bill also provides that “[t]ermination of employment resulting from the material change in terms of employment or the failure to agree to a new employment contract or noncompete contract shall be considered a termination at the will of the employer.” Arguably, if an employer requires vaccination (or some other requirement) as a new condition of employment, and an employee resigns in protest, such disruption of the employment relationship could be deemed a termination by the employer, not the employee—and an existing, enforceable non-compete will be immediately invalidated. This could lead to employees arguing that even relatively minor changes in their working conditions are “material changes,” and thus their non-competes are unenforceable. While such attempts may not ultimately prove successful in court, this opens the door to increased and more expensive litigation, as well as uncertainty as to an employer’s rights when an employee resigns to join a competitor. Finally, the bill only refers to “noncompete agreements” and explicitly exempts confidentiality/non-disclosure agreements, intellectual property assignment agreements, and “other agreement[s] between the employer and [an] employee,” which arguably includes customer non-solicit obligations, but the lack express reference to such agreements being exempted is giving some in New Hampshire’s business community heartburn.
The Business and Industry Association is apparently working with New Hampshire legislators to amend the latest version of the bill to address the concerns of its constituents, but time will tell whether those efforts bear fruit.