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Do the Hawaii courts uphold non-compete agreements?

On Behalf of | Oct 18, 2023 | Employment Law

Employers traditionally prioritized promoting from within and offering regular raises to those who stayed at any given company for years. Those practices have become far less common in recent decades. Workers often need to move to another company if they want a significant promotion or pay increase. As a result, it is common for people to move jobs multiple times throughout their careers in pursuit of better pay and opportunities.

Those who are particularly ambitious might even head out on their own to start a business. Yet, the decisions of a worker planning to leave a company can potentially affect that business’s market share and profitability. Therefore, some companies seek to limit workers’ movements after leaving a job by imposing economic restrictions on them via employment contracts.

A non-compete agreement is a common inclusion in employment contracts that can prevent a worker from going to work for a direct competitor of their current employer or starting a business in the same industry that competes with their employer. Workers seeking new opportunities may worry that they could trigger such clauses by seeking a new job or starting a business.

The courts sometimes uphold restrictive covenants

Non-compete agreements have become a hot topic in recent years, and every state has its own approach to these contract inclusions. As a general rule, restrictive covenants are enforceable in Hawaii. However, there are both important state statutes and prior state court rulings that limit non-compete agreements.

Typically, employers have to demonstrate that they are necessary for the company’s protection. Workers should receive something of valuable consideration for giving up the right to compete, and the agreement should only apply to a certain area for a set amount of time. The broader a non-compete agreement is, the less likely it is to hold up under scrutiny in civil court.

Although such agreements are technically enforceable in Hawaii at this time, that may possibly soon change. The Federal Trade Commission (FTC) will very likely vote on a possible federal ban for non-compete agreements in 2024. A change to federal rules might drastically alter the approach to such contract inclusions in Hawaii.

Understanding what risks there in leaving one’s current employment situation may help someone better evaluate a job opportunity or a business idea when they’re subject to a restrictive covenant in Hawaii. Seeking legal guidance is a good way to get started.