Report Title:

Restrictive Covenants; Post Employment Restrictions

Description:

Prohibits employers from requiring employees to enter into unreasonable restrictive covenants that bar a former employee from engaging in a similar working capacity within the former employee's profession.

HOUSE OF REPRESENTATIVES

H.B. NO.

853

TWENTY-THIRD LEGISLATURE, 2005

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to restrictive covenants.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that in order to promote the ability of Hawaii's citizens to seek new and further employment opportunities and to promote beneficial competition among businesses in the State, unreasonable restrictive covenants that prohibit future employment by an organization that competes with a previous employing organization should not be allowed. As such this Act amends section 480-4, Hawaii Revised Statutes, to generally prohibit post-employment non-competition clauses in employment agreements, or separate agreements not to compete after termination of employment, unless the non-compete agreement is reasonable in its scope and duration and supported by valuable consideration, in addition to consideration that supports the other terms of employment.

The legislature finds that this Act would not prohibit or affect the enforceability of restrictive covenants in employment agreements, or separate agreements incidental to employment agreements, that prohibit employees from disclosing trade secrets or other confidential or proprietary information to any other individuals or organizations, as currently allowed by section 480-4(c)(4), Hawaii Revised Statutes.

SECTION 2. Section 480-4, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) Notwithstanding the foregoing subsection (b) and without limiting the application of the foregoing subsection (a) it shall be lawful for a person to enter into any of the following restrictive covenants or agreements ancillary to a legitimate purpose not violative of this chapter, unless the effect thereof may be substantially to lessen competition or to tend to create a monopoly in any line of commerce in any section of the State:

(1) A covenant or agreement by the transferor of a business not to compete within a reasonable area and within a reasonable period of time in connection with the sale of the business;

(2) A covenant or agreement between partners not to compete with the partnership within a reasonable area and for a reasonable period of time upon the withdrawal of a partner from the partnership;

(3) A covenant or agreement of the lessee to be restricted in the use of the leased premises to certain business or agricultural uses, or covenant or agreement of the lessee to be restricted in the use of the leased premises to certain business uses and of the lessor to be restricted in the use of premises reasonably proximate to any such leased premises to certain business uses;

(4) A covenant or agreement by an employee or agent not to use the trade secrets of the employer or principal in competition with the employee's or agent's employer or principal, during the term of the agency or thereafter, or after the termination of employment, within such time as may be reasonably necessary for the protection of the employer or principal, without imposing undue hardship on the employee or agent[.]; and

(5) A covenant or agreement between an employer and a former employee not to compete with the employer's business entity; provided that the covenant:

(A) Is reasonable in its post-employment scope and duration; and

(B) Includes the provision of adequate valuable consideration to the employee in exchange for the former employee's acceptance and compliance with the covenant."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:

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