October 18, 2013
New Hampshire: Was noncomepte agreement for independent contractor enforceable?

New HampshireBy Christopher J. Pyles
The New Hampshire Supreme Court has yet to consider whether “non-competes” are enforceable against independent contractors instead of employees, but a recent Superior Court decision holds that such agreements may not be, since the interests at stake are limited.

For a Limited Time receive a FREE HR Report "Critical HR Recordkeeping." This exclusive special report covers hiring records, employment relationships, termination records, litigation issues, electronic information issues, tips for better recordkeeping, and a list of legal requirements.   Download Now

What happened
In Brian’s 1:1 Fitness v. Woodward, the Superior Court denied a company’s petition for injunctive relief and enforcement of a non-compete against an independent contractor. Brian’s operated a personal training fitness center, and hired trainers on a contract basis; Woodward was one of several trainers training clients at the facility. As independent contractors, trainers paid Brian’s a facility fee, and kept money paid by individual clients.

In 2007, Woodward signed an agreement identifying him as an employee, but subsequent agreements identified him as an independent contractor. In 2008, he also signed a non-compete, agreeing not to engage in similar services for two years after he left Brian’s, and restricting competition within 25 miles of the facility.

Over the next few years, Brian’s maintained a newsletter and advertised facility services. The company also gave trainers some general business training, but did not train or control Woodward when it came to personal training services. Brian’s did not use any customer lists other than the newsletter list, which was not accessible by Woodward. Most of Woodward’s clients came to him directly rather than through referrals from Brian’s.

What the court said
Woodward left Brian’s in 2013, and the company sought a preliminary injunction to stop him from working as a trainer. That request was denied, in part because New Hampshire’s test for the reasonableness of a restrictive covenant was fact sensitive, and no facts had been established. The Court later held an evidentiary hearing.

In addition to the facts above, Brian’s identified 15 clients it alleged came to Woodward through the company’s marketing. None of the disputed clients ever paid Brian’s after becoming Woodward’s clients.

Brian’s claimed that it had legitimate business interests in marketing and good will protected by the non-compete. In rejecting that argument, the Superior Court reviewed the test to determine the reasonableness of a non-compete: (1) if the restriction was greater than necessary to protect legitimate interests of the employer; (2) if the restriction imposed an undue hardship upon the employee; and (3) if the restriction injured any public interest.

The Court noted that typical interests of an employer included things like trade secrets, confidential information, special business methods, and customer lists.
None of that information was at issue at this situation. The Court concluded that the company/contractor relationship minimized the protected information between the parties, in contrast with a much closer employer/employee relationship. Since Brian’s did not give Woodward special training, information about confidential procedures, or access to customer lists, there was not any confidential information to protect.

What to remember
New Hampshire Courts view non-competes with disfavor and interpret them narrowly. The initial threshold for the legitimacy of such agreements depends on a protectable interest of the business. Those interests are more exposed in an employer/employee relationship.

Under the facts of this case, the employer and independent contractor did not have a relationship close enough to involve the exchange of protectable information. While the appeal period has not run on this decision, businesses should be wary if they rely on similar agreements with independent contractors.

Christopher J. Pyles is a member of the litigation team at Sulloway & Hollis. He has been litigating cases for more than fifteen years, and has significant trial experience in several jurisdictions, including state and federal courts in New Hampshire and Massachusetts.


Twitter  Facebook  Linked In
Follow Us
WEBARRAY6
Copyright � 2014 Business & Legal Resources. All rights reserved. 800-727-5257
This document was published on http://HR.BLR.com
Document URL: http://hr.blr.com/HR-news/Compensation/Independent-Contractors/New-Hampshire-Was-noncomepte-agreement-for-indepen