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Companies can protect their competitive edge from former employees

New Hampshire employees have a duty of loyalty while they are employed by the company which generally, even absent an agreement, prevents an employee from working for a competitor or funneling potential company business to the employee’s own side business. New Hampshire also has a statute addressing trade secrets that prevents employees from misappropriating confidential information.

That said, agreements between a company and employees that have access to confidential information or interface with customers can verify what is confidential information and put some restrictions on the ability to compete with the company when the employee resigns or his fired. An agreement with a confidentiality provision can help the employee understand exactly what the company expects the employee not to use or disclose when he leaves the job. Defining what is confidential information can also be a critical component of enforcing a claim under the trade secret statute since the company claiming the information is confidential has to show that it has taken reasonable steps to prevent its disclosure to the public. Having employees sign agreements to that end is an important part of that process. Other steps such as password protecting information in the company computer system and locking file cabinets can also be prudent. If a company, however, defines confidential information in an employment agreement as so broad that it prohibits the use of any information an employee learned while employed even if it is available to the public, it is quite possible that a court in an action to enforce the confidentiality provision will find that it is a thinly disguised non-competition agreement that was required in bad faith and therefore not enforceable.

A non-competition provision in an employment agreement basically is a provision declaring the employee cannot work in this industry after he or she leaves the company for a period of time, often one or two years. Under New Hampshire law, non-competition provisions between a company and an employee are narrowly construed to only protect the legitimate business interests of the company. If they are overly broad, the court can, rather than reforming that agreement to what is reasonable, just throw out the non-competition provision in total. Companies that have employees in Massachusetts have greater restrictions on when an employee can be required to sign a non-compete and what consideration has to be provided for a non-compete, yet those employees can still be subject to confidentiality and non-solicit provisions. New Hampshire employees who have not previously been employed by the company must have a non-compete provided to them prior to their acceptance of the offer of employment in accordance with RSA 275:70. It is not good enough to put in an offer letter that the company will require the candidate to sign a non-competition agreement. The company must provide that non-competition provision with the offer letter. While certain occupations in New Hampshire are prohibited from having non-competition agreements, most occupations can be subject to a non-competition provisions.

Notwithstanding all the restrictions on non-competition provisions in an employment agreement, New Hampshire allows companies to restrict the former employee for a reasonable time from soliciting or accepting customers he worked with while at the company to enable the company a reasonable time to have another employee interact with the customer. New Hampshire likewise permits the company to prohibit a former employee from soliciting its other employees to switch employers.

Such employment agreements that contain confidentiality, non-compete, and non-solicit provisions can also contain a provision that clarifies that the employment relationship remains at will meaning that either the company or the employee may terminate the employment relationship at any time for any reason, with or without notice or cause, and that the post-employment restrictions of confidentiality, non-compete, and non-solicit still apply regardless of whether the employee quit, was fired because he did something wrong, or was laid off because business was down. Some companies may decide to not bother with a non-compete provision given its legal limitations and just rely on the confidentiality and non-solicit provisions which simply stated say to the employee: do not steal our secret information, customers you dealt with, or employees.

The company may also, when suspicious, monitor its employees’ use of the company computer system is to see if the employees are diverting business from the company or working with a vendor, customer, or co-employee to start up their own business or otherwise taking steps to compete while still employed by the company.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Marr is licensed and practices in both New Hampshire and Massachusetts. Marr can be reached at dmarr@nashualaw.com.