New Hawaii Legislation Bans Noncompete and Nonsolicit Clauses in Employment Contracts of Technology Business Employees

• Jurisdiction: Hawaii,United States
• Citation: Vol. 19 No. 12
• Publication year: 2015

New Hawaii Legislation Bans Noncompete and Nonsolicit Clauses in Employment Contracts of Technology Business Employees

by Eaton S.K. O'Neill

Hawaii courts have traditionally enforced noncompete agreements, provided that such agreements are not unreasonable or broad in scope. See e.g., Technicolor, Inc. v. Traeger, 551 P.2d 163, 166 n. 2, 170 (Haw. 1976) (post-employment restrictive covenant, which prohibited employee from competing with business or associating with competitors in the State of Hawaii for three years after termination of employment agreement, was allowable under applicable Hawaii law).

In Technicolor, the Hawaii Supreme Court stated that courts will find a restrictive covenant, such as a noncompete provision, unreasonable if "(i) it is greater than required for the protection of the person for whose benefit it is imposed; (ii) it imposes undue hardship on the person restricted; or (iii) its benefit to the covenantee is outweighed by injury to the public." Id. at 170. In conducting a "reasonableness analysis," courts consider the "geographical scope, length of time, and breadth of the restriction placed on a given activity." Id. (citing Harvey J. Goldschmid, Antitrust's Neglected Stepchild: A Proposal For Dealing With Restrictive Covenants Under Federal Law, 73 COLUM. L. REV. 1193, 1196 (1973)).

On June 26, 2015, however, Governor David Y. Ige signed into law Hawaii's noncompete ban bill (HB1090 HD2 SD2 CD1) ("Act 158"). Effective July 1, 2015, Act 158 amends section 480-4 of the Hawaii Revised Statutes ("HRS") to prohibit the inclusion of "a noncompete clause or a nonsolicit clause in any employment contract relating to an employee of a technology business." HRS § 480-4(d). New subsection (d) of HRS § 480-4 also provides the following definitions:

"Information technology development" means the design, integration, deployment, or support services for software.
"Noncompete clause" means a clause in an employment contract that prohibits an employee from working in a specific geographic area for a specific period of time after leaving employment with the employer.
"Nonsolicit clause" means a clause in an employment contract that prohibits an employee from soliciting employees of the employer after leaving employment with the employer.
"Software development" means the creation of coded computer instructions.
"Technology business" means a trade or business that derives the majority of its gross income from the sale or license of products or

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