On July 15, 2019, Governor Gina Raimondo signed into law the Rhode Island Non-Competition Agreement Act.
With the stroke of a pen, Rhode Island joined the growing list of states seeking to regulate non-competition agreements by statute.
Although the law does not take effect until January 2020, Rhode Island employers should begin familiarizing themselves with the requirements of and exceptions to the new law.
Employees covered by the law
Beginning in January 2020, Rhode Island employers will no longer be able to use non-competition agreements with the following employees:
1. Employees classified as “non-exempt” under the Fair Labor Standards Act (FLSA);
2. Undergraduate and graduate students participating in an internship or other employment relationship of short duration, whether paid or unpaid;
3. Employees age 18 or younger; and
4. Low wage employees earning no more than 250% of the federal poverty level (currently $31,225).
If a contract with one of the above-described employee types contains a non-competition agreement, only the non-competition agreement language will be treated as void and unenforceable. The non-competition agreement does not make the entire contract void.
Agreements covered by the law
The new law defines a “noncompetition agreement” as “an agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer, after the employment relationship has ended.”
The law specifically excludes from this definition many types of agreements commonly used by Rhode Island employers to protect their goodwill and their intellectual property, including:
• Agreements not to solicit or hire employees of the employer;
• Agreements not to solicit or do business with customers, clients, or vendors of the employer;
• Non-competition agreements made in connection with the sale of a business or with the sale of all or substantially all operating assets of a business;
• Non-disclosure or confidentiality agreements;
• Invention assignment agreements (i.e. “work for hire” agreements);
• Non-competition agreements made in connection with a separation from employment where the employee has seven (7) days to revoke his or her acceptance (e.g. a severance agreement containing release of claims under Age Discrimination in Employment Act (ADEA); and
• Agreement by the employee not to reapply for employment after termination.
For more information on this new non-compete reform law and how it may impact your organization, please contact Jean Harrington.