HR Hero iconby Matthew H. Parker

On July 15, 2019, Governor Gina Raimondo signed the Rhode Island Noncompetition Agreement Act into law. Beginning on January 15, 2020, the statute will place new limits on the enforceability of noncompete agreements in the Ocean State. Although the law is applicable only to certain categories of generally lower-level employees, this development warrants a closer look at where things stand in Rhode Island with respect to such agreements. State courts have always viewed noncompetes skeptically, and recent legislation in Massachusetts may also influence what kinds of agreements will be enforceable by Rhode Island companies that employ Massachusetts residents.

General requirements for noncompetes

Courts do not like to enforce noncompete agreements because of their tendency to stifle innovation and keep employees out of work. In fact, noncompetes are unenforceable if their sole purpose is to prevent competition. Generally speaking, they are also unenforceable if there are less drastic means to accomplish the same goal.

For example, if a company can effectively protect its trade secrets through a nondisclosure agreement, a court might not enforce a noncompete if its sole purpose is to prevent a former employee from disclosing those trade secrets to a competitor. Likewise, if a covenant to not solicit a company’s customers would effectively preclude a former employee from luring those customers to a competitor, a court might not enforce a noncompete that is intended to do the same thing.

Employers seeking to enforce noncompetes always carry the burden of proving they are reasonable in time and geographic scope, necessary to protect a legitimate business interest (e.g., customer goodwill or proprietary information), and supported by adequate consideration. “Consideration” means the employee needs to receive something in exchange for his promise to refrain from doing something that is ordinarily legal (competing).

Enforcing noncompetes

Noncompetes are contracts, and there are two ways to enforce most contracts. The first is after the fact. If an employee breaches a noncompete agreement, his former employer can sue him for monetary damages. The second is prospective. In other words, an employer can seek an injunction to stop a breach or to prevent one before it happens.

When judges are asked to issue injunctions, they weigh the request as a matter of “equity.” Generally speaking, a judge needs to conclude that it is fairer to enjoin (i.e., stop) the disputed activity than to let things play out and require the employer to sue the employee for money. The employer must convince the judge that it is likely to win the case at the end of the day, it is likely to experience “irreparable harm” without an injunction, an injunction would be less burdensome on the employee than a breach would be on the employer, and an injunction would not be contrary to the public’s interests.

In Rhode Island, courts have the ability to modify noncompete agreements. That means that if a judge believes an agreement is too restrictive to be enforceable, she has equitable power to dial it back instead of voiding the agreement altogether.

Special treatment for lawyers and doctors

In most jurisdictions (Rhode Island included), noncompetes are never enforceable against attorneys. The widely accepted reasoning for this is that members of the public have an interest in being represented by attorneys of their own choosing, and noncompetes would interfere with that. A cynic might suspect that lawyers write most laws, so they have written a nice little exemption for themselves.

At least one Rhode Island judge has also held that similar public policy precludes the issuance of injunctions to enforce noncompetes against healthcare providers. Given the imperative need for people to confide in their doctors, Judge Michael Silverstein concluded in a widely publicized 2016 case that patients should be free to consult with whomever they want, regardless of where their doctors previously worked. Massachusetts has a statute on the books that says the same thing, and our neighbor to the north also bans noncompetes for nurses, psychologists, social workers, and employees in the broadcasting industry.

2018: Massachusetts reins in noncompetes

On October 1, 2018, Massachusetts enacted a law that set out new limits for most noncompete agreements between employers and their in-state employees. In addition to imposing certain technical requirements about things such as (1) what needs to be in writing, (2) when employers need to provide new hires with draft agreements to review, and (3) which courts can adjudicate noncompete disputes, Massachusetts flat out precluded the enforcement, in most cases, of noncompetes that would last longer than one year following an employee’s termination.

Massachusetts also precluded the enforcement of noncompetes against:

  1. Nonexempt employees;
  2. Undergraduate or graduate students engaged in short-term employment (e.g., summer interns);
  3. Employees who have been terminated “without cause” or laid off; and
  4. Employees who are under the age of 19.

Significantly, the Massachusetts law attempts to preclude employers from drafting around its protections by stating that their noncompetes will be governed by the laws of other states. The statute provides that if an employee “is, and has been for at least [30] days immediately preceding his or her cessation of employment, a resident of or employed in Massachusetts at the time of his or her termination,” the employee is entitled to its protections.

Rhode Island employers with employees either living or working in Massachusetts should take note of that language. There is no guarantee that a Rhode Island court would enforce it in a dispute between a Rhode Island employer and a Massachusetts resident, but if the Massachusetts resident files a lawsuit in his home state first, a Massachusetts court is likely to enforce the statute against a Rhode Island company.

Rhode Island Noncompetition Agreement Act

Constantly jockeying against Massachusetts to recruit and retain qualified employees, Rhode Island recently passed its own (albeit more watered-down) legislation to limit the enforceability of noncompete agreements.

Effective January 15, 2020 (and with limited exceptions), Rhode Island employers will no longer be able to enforce noncompete agreements against:

  1. Nonexempt workers;
  2. Interns and short-term employees who are working while enrolled in college or graduate school;
  3. Anyone younger than 19; and
  4. Employees whose average annual earnings (not counting overtime, Sunday, or holiday premiums) are less than 250 percent of the federal poverty level for individuals as established by the U.S. Department of Health and Human Services. (As of today, that means anyone making less than $31,225.)

Unlike its Massachusetts counterpart, however, the Rhode Island statute does not set a per se limit on the duration of noncompetes, and it does not impose most of the Massachusetts statute’s procedural and drafting requirements.

With that said, Rhode Island courts do frequently consider the decisions of Massachusetts courts involving similar issues as persuasive authority. As such, Rhode Island employers should be wary of overreaching in their noncompete agreements far beyond what Massachusetts already deems reasonable. For the most part, Rhode Island employers can assume that if a noncompete is enforceable under Massachusetts law, it will be enforceable in Rhode Island. The same cannot be said for a broad Rhode Island agreement’s chances of success in Massachusetts.

Parting advice

In conclusion, Rhode Island employers should know where the limits lie. For the most part, the new statute should affect only new noncompete agreements signed after January 15, 2020, but you would be smart to review the status of the noncompetes you already have in place. If you are relying on noncompete agreements with nonexempt and other low-level employees to protect your trade secrets, customers, and goodwill, you should make sure you also have nonsolicitation and nondisclosure covenants in place. Consulting with legal counsel about other drafting strategies is also not a bad idea. Noncompete law is constantly evolving, and older forms are probably overdue for a tune-up.

Matthew H. Parker is a partner at Whelan Corrente & Flanders LLP in Providence, specializing in employment law and business litigation. He can be reached at 401-270-4500 or mparker@whelancorrente.com.

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