Rhode Island recently joined a growing list of states with laws limiting the ability of employers to use non-compete agreements in the workplace. Employers often insist that employees sign non-compete agreements which would restrict an employee’s ability to work in the same field and geographic area as the employer for a limited period of time, such as six months to a year after the employment relationship ends. Although courts have always required such agreements to be limited in scope and reasonable in their effect, many employers continued to insist that their employees sign such agreements anyway, even if the terms were overly onerous on the employee.
This summer, the Rhode Island General Assembly passed the “Rhode Island Noncompetition Agreement Act” (Act). The Act is primarily aimed at protecting so-called “non-exempt” employees, graduate students, underage workers, and workers earning less than 250% of the poverty level (i.e., $31,225 for 2019). A non-exempt employee is generally one who is eligible for overtime, is paid hourly (not salary), and earns less than $455 per week. Clearly, the Act is intended to relieve lower-paid and younger workers from the effects of non-compete agreements and to permit non-compete agreements only where they are truly and reasonably necessary to protect an employer’s legitimate business interests, such as in connection with the sale of a business or where the employee is highly compensated.
However, the Act is not all bad news for employers. The new law does not apply to independent contractors. Also, it allows employers to insist that a former employee not solicit other employees, customers or clients or use the employer’s trade secrets. Employers should familiarize themselves with the Act and take a look at how they are using non-compete agreements to ensure compliance with the Act when it becomes effective in mid-January, 2020. For further information on this new law or other business or employment matters, please contact PLDO Partner Brian J. Lamoureux at 401-824-5100 or email [email protected].
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