On July 14, 2012, a new law went into effect in New Hampshire that will have consequences for any Massachusetts employer that extends into its northern neighbor.  Unfortunately, due to the vague wording of the law, extra caution is warranted.  This law changes how an employer may impose a covenant not to compete or a “non-piracy” agreement.

In short, the new RSA 275:70 states:

Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall  provide a copy of any non-compete or non-piracy agreement that is part of the employment agreement to the employee or potential employee.  Any contract that is not in compliance with this section shall be void and unenforceable.

That is the full text of the law.  Here are some of the problems with the law:

1)      It does not define a “non-compete” agreement.  While most employers contemplate the standard agreement that a departing employee not engage in competitive conduct for a period of years, in a particular field, for particular employers, in a particular area, it is uncertain if it also affects contemporaneous competition.  Contemporaneous competition is usually barred by the duty of loyalty: a newspaper writer cannot freelance for other publications; a real estate agent cannot sell her brother’s house on the side and take a commission; etc.  Whether the new law covers contemporaneous competition remains to be seen.

2)      It does not define “non-piracy” agreement.  To further complicate matters, that is an uncommon phrase.  It may relate to non-disclosure of trade secrets, such as use of client lists.  It may relate to non-solicitation of employees, customers, or vendors when taking a new position.  It may relate to assignments of copyrights and patent interests for works and inventions created during the employment.

3)      It does not define “change in job classification”.  Promotions, demotions, transfers, light duty/full duty assignments, reorganizations and other internal moves could all be considered changes in job classification.

4)      It does not contemplate whether prior non-compete or non-piracy agreements survive a change in job classification.  Thus, if an employee signed such agreements validly at the start of the employment, new agreements may need to be executed with every promotion.

5)      It does not address currently existing non-compete or non-piracy agreements.  Presumably it applies prospectively, as it is unworkable to obtain valid agreements from current employees whose job classifications will not be changes.

6)      It does not address the scenario where the geographic scope of a Massachusetts employee’s non-compete agreement extends into New Hampshire.  For example, if a journalist worked for a newspaper in Essex County, yet had a 20 mile non-compete agreement, it is unclear if that agreement, if not made at the offer of employment in Massachusetts, would be enforced in southern New Hampshire.

While “continued employment” is frequently cited as the consideration for any agreement during the course of employment that changes the terms: hour reassignments, arbitration agreements, duty modifications, etc., for New Hampshire non-compete and non-piracy agreements that is no longer the case.  The only valid consideration is the job offer or the classification change.

If you are an employer that uses non-compete or non-piracy type agreements, you should speak with an employment attorney.