House bill would upend current non-compete statutes, Senate panel warned
CONCORD — Business representatives told the Senate Commerce Committee Tuesday a House-passed bill would turn the current non-compete laws upside down.
They said the legislature spent considerable time 10 years ago involving all stakeholders to develop a non-compete statute.
“The statute as enacted achieved what it should be,” said Andrea Chatfield, of the HR State Council of NH, “practical, reasonable and balanced and his bill is none of those.”
House Bill 1089 would make non-compete agreements between employers and employees, which are common in many competitive industries, unenforceable “if an employer makes any material change in the terms of employment.”
David Juvet, vice president of the Business and Industry Association said the term “material change of employment” is not defined in the bill and could mean change in office or salary or moving to another location, He noted the bill does include the phrase “medical intervention,” but that could mean emergency surgery or or an operation not necessarily a vaccine.
“It will lead to litigation between employers and employees,” Juvet said. “We hope you will kill the bill, we don’t think it is good.”
He noted about eight to 10 years ago lawmakers worked with both labor and business to redefine non compete agreements, because the thought was they benefited employers over the employee, and the compromise hit the right spot.
He noted the bill before the committee originally applied to requiring a COVID-19 vaccination as a condition of employment, which his organization was not particularly happy about, but did not oppose.
Without consultation an amendment, which is now the bill, was brought to the executive session and quickly passed that greatly broadened the scope of the bill, Juvet said.
He said it would turn the current statutes upside down.
The prime sponsor of the bill Rep. Jim Kofalt, R-Wilton, said the bill was simple, if there is a material change in employment and the worker has a noncompete agreement, then it would be unenforceable for something like a required medical intervention.
All other agreements like those for non-disclosure would not be affected, he said, just the agreement that forbids the employer from competing with the company in another position or business.
“It just states that a non compete agreement is unenforceable under those circumstances,” Kofalt said.
He said there is legal precedent in other states that would make the agreement null and void, including in some cases when the company changes hands.
But Chatfield called the bill a nightmare for human resource workers who would have to determine what a material change would be without a definition.
Would it be something like the move to remote work when the pandemic hit, she asked, or if an employee has a new boss?
“How do you know what is a material change and what is not,” she said “and when it is invalidated and what to do about that?”
Chatfield said the bill undermines the purpose of noncompete agreements, noting at will employees do not have a contract and anyone who is with a company for a year or more will experience many changes.
From a business perspective, a non-compete agreement protects confidential information, the good will of the employer and its competitiveness, she said.
“Those are valid business interests,” Chatfield said, “and this law would turn them upside down.”
The bill as written would allow an employee who leaves with an unenforceable non compete agreement to violate non-solicitation agreement to steal their customers, she noted.
She could understand the concern about mandatory testing or vaccination for COVID-19, but what if an employee is acting erratically and the employer wants him tested, would that trigger the non compete provision, Chatfield asked.
“This would really hamper employers in this state,” Chatfield said. “Business is not going to want to come here because it will not (viewed as) a business friendly state.”
Juvet said his organization is working with Senate Majority Leader Jeb Bradley, R-Wolfeboro, on an amendment to fix the problem, but the bill really ought to be killed.
The Senate Commerce Committee did not make an immediate recommendation on the bill that passed the House on an unrecorded voice vote.
Garry Rayno may be reached at email@example.com.