Hawaii bans non-compete and non-solicit clauses between high-tech companies and their employees

PictureHawaii has signed a bill that bans the state’s high-tech companies from requiring their employees to sign “non-compete” and “non-solicit” contractual agreements as a part of their employment.
Act 158, which went into effect on July 1, 2015, will bar any future “non-compete clause or a non-solicit clause in any employment contract relating to an employee of a technology business.” 

The new law mainly applies to Hawaiian tech companies that “that derive[] a majority of [their] gross sales from the sale or license of products or services resulting from its software development or information technology development, or both.”

These companies will no longer be able to enforce these agreements with their employees that:

  • Prohibit an employee from working in a specific geographic area for a specific period of time after leaving employment; or
  • Prohibit an employee from soliciting co-workers after leaving employment.

However, the new law does not change the existing state and federal laws that allow companies to prohibit their employees from leaving with trade secrets that can be used to compete against their former employers.
Andrew Pepper, Partner at the Jackson Lewis Law Firm in Honolulu, wrote in a blog post about the old “grandfathering” clause and the existing non-compete agreements between companies and their employees:

“A grandfathering clause protects existing employment agreements of technology companies with “non-compete” and “non-solicit” clauses. However, if the agreements are amended, revised, or extended, it is unclear whether such clauses will be void.”

He continues, “Hawaii courts traditionally have been zealous enforcers of non-compete agreements and the state Supreme Court has held that a three-year ban is not unreasonably long. Therefore, Act 158 is a significant departure for the state.”

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