New Hawaii Law Bans Non-Compete/Non-Solicit Agreements With Tech Workers

In our June 23, 2015 Tip Tuesday post on our social media pages, we suggested that companies that routinely hire "professional employees" should always ask new employees to acknowledge in writing that they are not subject to any agreements that would interfere with their ability to perform their job, such as non-competition or non-solicitation agreements.  While we continue to maintain this is still a good practice generally, as of July 1, it will not be necessary when the prospective employee(s) is a technology worker.

On June 26, Governor Ige signed Act 158, which essentially prohibits non-compete or non-solicit clauses in any employment contract relating to an employee of a technology business.   In particular, the legislature found that:  "[e]liminating restrictive covenants for employees of technology businesses will stimulate Hawaii's economy by preserving and providing jobs for employees in this sector and by providing opportunities for those technology employees to establish new technology companies and new job opportunities in the state."

Under the new law, the following are relevant definitions:

• Technology Business:  A trade or business that derives the majority of its gross income from the sale or license of products or services resulting from its software development or information technology development, or both.
• Noncompete Clause:  A clause in an employment contract that prohibits an employee from working in a specific geographic area for a specific period of time after leaving employment with the employer.
• Nonsolicit Clause:  A clause in an employment contract that prohibits an employee from soliciting employees of the employer after leaving employment with the employer.

 As a result of this new law, Hawaii becomes the 4th state to restrict noncompete clauses (joining California, North Dakota and Oklahoma).  However, unlike those other jurisdictions, Hawaii's law applies only to technology workers.  Noncompetes for workers other than technology workers remain enforceable as long as they are considered "reasonable" as that term has been defined by Hawaii case law.

While many were in favor of this law, there has also been some criticism.  Interestingly, Fortune put out an article on July 8 titled "Hawaii ban on noncompetes leaves out a huge chunk of workers", where they discussed the fact that employees in all industries (not just the tech industry) are being asked to sign noncompetes and that noncompetes for low-wage jobs "are thought to deplete workers' earnings by preventing them from jumping to a job that offers higher pay."  

The new law took effect on July 1 but it does not impact existing noncompete or nonsolicit clauses entered into prior to July 1, 2015.  If you have a question about this new law and whether it applies to your business, please contact us today at:  info@holomuaconsulting.com or (808) 369-9710.