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OpenDocumentA Hawaii non-compete agreement is used by employers to define an area and time period in which an employee may not engage in competitive business activities post-termination. The contract outlines the activities that the restricted party is prohibited from engaging in, such as contacting former clients, disclosing trade secrets, or engaging in the same industry either as an employee or a business owner. The geographical area limited by the non-compete must be limited to where the employer can prove that they have a protectable interest.
To prevent potential misuse, courts uphold a contract’s restrictions if they can be proved necessary and reasonable, and do not inflict undue hardship on the signing party.
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Enforceability in Hawaii
Non-compete agreements are enforceable in Hawaii if they comply with § 480-4 of the Hawaii Revised Statutes. The contract must be limited in duration and must not cause undue hardship on the restricted party
Furthermore, the agreement must be executed in support of a “legitimate purpose,” such as an employment contract or another agreement that does not violate state code.[1]
When it IS Enforceable
- Trade secrets. A non-compete agreement may prevent an employee or agent from using their employer/principal’s trade secrets to their own benefit.[1]
- Partnerships. A partner may be prohibited from competing with a partnership after leaving it.[1]
- Sale of a business. A person transferring ownership of a business to another party may agree to refrain from competitive activity against the new owner.[1]
When it’s NOT Enforceable
- Lawyers. A lawyer is prohibited from entering into an agreement to prevent them from practicing law (unless the restriction is part of an agreement involving retirement benefits).[2]
- Information technology. A non-compete may not restrict a person working in the information technology or software industry (unless it is for the protection of their employer’s trade secrets).[1]
- Create a monopoly. The effect of executing a restrictive covenant cannot contribute to forming a monopoly or significantly diminishing competition.
Maximum Time Period
Hawaii statutes do not define any maximum duration for non-compete agreements. The courts will deem a restriction unenforceable if it meets any of the following criteria (known as the “reasonableness analysis”):
“1. It is greater than required for the protection of the person for whose benefit it is imposed;
2. It imposes undue hardship on the person restricted; or
3. Its benefit to the covenantee is outweighed by injury to the public.”[3]
In previous rulings, the courts have found three (3) years to be a reasonable restriction.[3]
Geographical Area
There are currently no state statutes governing how geographic scopes of non-compete agreements should be construed. Similar to a non-compete agreement’s duration, a restriction’s geographic scope must pass the court’s “reasonable analysis” for it to be enforceable. A restriction encompassing Hawaii and one (1) other state has been enforced in a previous case.[4]
Consideration
Employment is sufficient consideration for a court to uphold a non-compete agreement.[4] In one case, a federal district court stated that an employer providing an at-will worker continued employment is satisfactory consideration for a post-employment restriction.[5]
Sources
- Haw. Rev. Stat. § 480-4
- Haw. R. Prof. Cond. 5.6
- 7’S Enterprises, Inc. v. Del Rosario, 111 Haw. 484, 143 P.3d 23 (Haw. 2006)
- Technicolor, Inc. v. Traeger, 57 Haw. 113, 115-22, 551 P.2d 163, at 166, 170 (1976)
- Standard Reg. Co. v. Keala, No. CIV. 14-00291 JMS-RL, 2015 WL 3604265, *10 (D. Haw. June 8, 2015)
Related Forms (2)
Hawaii Non-Disclosure Agreement – Ensures an employer’s proprietary information is kept confidential by the document’s recipient.
Download: PDF, Word (.docx), OpenDocument
Hawaii Non-Solicitation Agreement – Used to limit an employee’s capacity to contact or solicit their employer’s clients or staff after their employment has ended.
Download: PDF, Word (.docx), OpenDocument