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A friend of mine works at a skin care and retail store as an esthetician (dealing with skin care and other spa related treatments). Her boss has had her sign a non-compete agreement that would bar her from working as an esthetician in the local area if she were to leave. I would like to confirm if this is legally binding, and to what degree.

I am under the impression that non-competes are difficult to enforce if they prevent you from making a lively in your chosen field, particularly since there would no proprietary knowledge being taken to another organization. What vulnerability is she open to?

*This question pertains to New Hampshire, USA

**I will not use any guidance here as legal council. I am looking for some initial information.

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Such a clause must be presented before or at the same time the offer is made. The (somewhat new) law NH RSA 275:70 says

Any employer who requires an employee who has not previously been employed by the employer to execute a noncompete agreement as a condition of employment shall provide a copy of such agreement to the potential employee prior to the employee's acceptance of an offer of employment. A noncompete agreement that has not been disclosed to an employee as required by this section shall not be enforceable against the employee, but all other provisions of any employment, confidentiality, nondisclosure, trade secret, intellectual property assignment, or any other type of employment agreement or provision shall remain in full force and effect

The question is whether such an agreement would mean you can't set up shop on your own and take a bunch of customers with you (it seems that such clauses are enforceable), or does it mean you can't work in that trade (competing for new customers, or as an employee of a competitor) – such an interpretation would not be enforced, in the analysis of this article. The clause must be "drafted narrowly to protect only a company's legitimate business interests, like customer goodwill and confidential information". A specific case of this interpretation is Merrimack Valley Wood Products v. Near, 152 N.H. 192, which finds that

the law does not look with favor upon contracts in restraint of trade or competition...Such contracts are to be narrowly construed. Nonetheless, restrictive covenants are valid and enforceable if the restraint is reasonable, given the particular circumstances of the case

In assessing reasonableness, three tests must be passed (must be answered "no"):

first, whether the restriction is greater than necessary to protect the legitimate interests of the employer; second, whether the restriction imposes an undue hardship upon the employee; and third, whether the restriction is injurious to the public interest.

As an example of a reasonable restriction:

When an employee is put in a position involving client contact, it is natural that some of the goodwill emanating from the client is directed to the employee rather than to the employer. The employer has a legitimate interest in preventing its employees from appropriating this goodwill to its detriment.

But restricting a person from working with any customers of the company (not just the employees work-related contacts) is unenforceable, because the company

had no legitimate interest in protecting its entire client base from its former employee, because he had no advantage over any other complete stranger, possessing no special hold on the goodwill of the majority of Technical Aid's customers.

See also Brian's Fitness v. Woodward for reaffirmation ("valid only to the extent that it prevents an employee from appropriating assets that legitimately belong to the employer"), and additional citations.

The question arises whether there is a distinction between the former employee approaching former customers, versus those same customers approaching the former employee. I have not located any case that directly addresses that, but Technical Aid v. Allen, 134 N.H. 1 says

A restrictive covenant must unreasonably limit the public's right to choose before it will be found to be injurious to the public interest.

I think it is likely that the courts would find it to be an unreasonable limit on the public's right to choose, if a customer were prevented from choosing a different company to provide the desired service simply because the customer happened to have previously had a business relationship with the former employee. This "right to choose" is asymmetrical – the public has a right to choose any service provider, an employee does not have an equivalent right to pursue (seek out, woo) a customer, in light of a restrictiveness covenant.

  • Thank you very much for the information. One thing is still unclear. Would the restriction based on acquired good will restrict an employee who has left from servicing a client, if the employee did not solicit the client to come to her new job? That is to say, if a previous customer comes to her new place of work, is she prohibited from servicing the client within the time the non-compete is in effect? I'd imagine to be safe she should have someone else service this client, but I'd like to know if there is a potential vulnerability. – PV22 May 28 '17 at 1:55
  • Thanks for the update! I edited your answer because I believe the following phrase read as comparing the same circumstance. The previous statement read, "The question arises whether there is a distinction between a former employee approaching former customers, versus former employees approaching former customers". I believe the comparison was meant to address employee approaching former customers vs customers approaching former employee. If I am incorrect, would you mind clarifying? – PV22 May 28 '17 at 15:00

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