On June 26, 2024, Governor Dan McKee vetoed two bills (S2436 A and H8059 A) that were passed by the General Assembly in the late hours of its final day of the 2024 session. The bills were amendments to the Rhode Island Noncompetition Agreement Act that, if signed into law, would have made it illegal for employers to enter into non-compete agreements with employees. Further, the proposed law would nullify and void existing non-compete agreements that do not qualify for an exemption under the new law. One of those important exemptions was that a buyer and seller of a business could still agree that the seller will refrain from competing against the buyer after the sale.
Currently, Rhode Island bans non-compete agreements for particular categories of workers, such as low-wage employees, students, and underage workers. The proposed law would have gone much further and be applied much more broadly and generally to all employees. This legislation followed on the heels of the Federal Trade Commission’s (FTC) decision in April (by a partisan 3-2 vote) to ban virtually all non-compete agreements, except in certain circumstances, such as those involving the sale of a business or with “senior executives” making over $151,164 and who have power to make policy decisions for the business. The FTC rule – which is already being challenged in courts across the country – is slated to go into effect in September unless it is halted or curtailed by a court.
In addition to this “senior executive” exemption under the FTC – which was not in the proposed Rhode Island law – there is another significant difference: the FTC rule requires employers to affirmatively provide notice to employees with non-compete agreements that the non-compete clause cannot and will not be enforced against the employee. The proposed Rhode Island law would not have such an affirmative obligation.
Key Takeaways
The proposed law would not have been all bad for employers, however. It would have allowed non-solicitation agreements where employees agree not to solicit or hire other employees. It would also preserve the legality of agreements in which employees agree not to disclose the employer’s trade secrets, customer lists, or the employer’s future business plans. And, the proposed law would grant employers the right to bring a civil action against any employee who violates these provisions or wrongfully uses the employer’s trade secrets.
Although this law did not pass this session, it shows the General Assembly’s desire to significantly alter the non-compete landscape in Rhode Island. We expect this legislation – or some close version to it – to be reintroduced in next year’s session. We will continue to keep an eye out for developments in this area as well as the looming September deadline for implementation of the FTC’s rule.
If you have any questions, please contact Brian J. Lamoureux, a Partner on the Firm’s Litigation, Employment, and Cybersecurity team, at [email protected] or 401-824-5155.
