Report Title:

Technology; restrictive employment covenants

Description:

Prohibits restrictive employment covenants in order to provide full mobility and competition in the technology work force.

HOUSE OF REPRESENTATIVES

H.B. NO.

1985

TWENTY-FIRST LEGISLATURE, 2002

  

STATE OF HAWAII

  

 

A BILL FOR AN ACT

 

Relating to TECHNOLOGY.

 

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

SECTION 1. The purpose of this Act is to retain Hawaii’s entrepreneurs and technology workers who otherwise would be forced to leave Hawaii to continue their professions; encourage technology start-up and spin-off business formations; stimulate the Hawaii economy by preserving and providing jobs for technology employees; allow employment mobility for technology workers within Hawaii; provide a better work environment for technology employees by encouraging employers to provide job enrichment and job satisfaction to retain their employees; support creativity and motivation to grow the technology industry; and promote technology spin-off companies from non-compete states to relocate to Hawaii.

In the technology industry, a restrictive covenant not to compete with a former employer imposes an undue hardship on many employees and start-up businesses. Technology employees are specifically and narrowly skilled to perform jobs within their profession. Because the geographic area of Hawaii is unique and limited, subjecting these employees to a non-compete agreement within Hawaii for a specific amount of time will restrict their employment opportunities within the State and will force them to find jobs outside of Hawaii in order to financially survive. Moreover, employees with innovative ideas are bound to their current employer and are prohibited from exploiting their ideas by starting their own businesses in Hawaii. This non-compete atmosphere forces spin-offs of existing technology companies to choose other states to do business, hinders innovation, and creates a restrictive work environment for technology employees in Hawaii. As a consequence, the Hawaii economy suffers since technically skilled workers, entrepreneurs, and businesses are forced to leave the State or abandon their entrepreneurial goals. With the adoption of the Uniform Trade Secrets Act, employer’s trade secrets are protected under the current law. Thus, the benefit to the employer of a non-compete agreement is an over reaching protection that imposes undue hardship to the technology employees and the Hawaii economy. The injury to the public is outweighed by the benefit to the former employer or business.

In the case of Technicolor, Inc. v. Traeger, 57 Haw. 113, 551 P.2d 163 (1976), the Hawaii Supreme Court provided the authority in Hawaii for the enforceability of non-compete covenants and agreements in Hawaii. The purpose of this Act is to reverse this authority and to make void and unenforceable non-compete covenants or agreements between employees and employers where the employee is or will be engaged in or employed by a technology business.

SECTION 2. Chapter 480-4, Hawaii Revised Statutes is amended to read as follows:

"§ 480-4 Combinations in restraint of trade, price-fixing and limitation of production prohibited. (a) Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce in the State, or in any section of this State is illegal.

(b) Without limiting the generality of the foregoing no person, exclusive of members of a single business entity consisting of a sole proprietorship, partnership, trust, or corporation, shall agree, combine, or conspire with any other person or persons, or enter into, become a member of, or participate in, any understanding, arrangement, pool, or trust, to do, directly or indirectly, any of the following acts, in the State or any section of the State:

    1. Fix, control, or maintain, the price of any commodity;
    2. Limit, control, or discontinue, the production, manufacture, or sale of any commodity for the purpose or with the result of fixing, controlling or maintaining its price;
    3. Fix, control, or maintain, any standard of quality of any commodity for the purpose or with the result of fixing, controlling, or maintaining its price;
    4. Refuse to deal with any other person or persons for the purpose of effecting any of the acts described in (1) to (3) of this subsection.

(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. [L 1961, c 190, §2; Supp, §205A-2; am imp L 1967, c 49, §1; HRS §480-4; gen ch 1985]

(d) Subsection (c)(4) shall not apply to a covenant or agreement, or ancillary restrictive covenant or agreement which is similar, related, or subordinate to another agreement or valid transaction, by an employee or agent not to compete with the employee’s or agent’s employer or principal during the term of employment or agency or after the termination of that employment or agency where the employee or agent is or will be engaged in or employed by a technology business. Such agreements shall be void, unenforceable, and treated as unlawful under subsections (a) and (b) of this section.

(e) As used in this section:

"Technology business" is a trade or business the principal business activity of which involves one or more of the following: software development, biotechnology, physical sciences, sensor technologies, optic technologies, ocean sciences, astronomy, or nonfossil fuel energy-related technologies.

"Principal business activity" is the activity from which a trade or business derives its largest percentage of gross receipts or costs incurred if the gross receipts do not exceed the cost incurred for that activity.

(f) Subsection (d) shall apply to all written, binding restrictive covenants or agreements and ancillary restrictive covenants or agreements not to compete entered into after June 30, 2002 and to all amendments to existing written, binding restrictive covenants or agreements, and ancillary restrictive covenants or agreements not to compete created prior to July 1, 2002.

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and may be referred to as the Right to Innovate Act.

 

INTRODUCED BY:

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