Hawaii Bans Non-Compete and Non-Solicit of Employee Covenants in the High Tech Industry

Posted by Kenneth N. Winkler on

Hawaii recently enacted legislation that voids non-compete and non-solicitation of employee covenants for employees in the high tech sector.   The new law applies to Hawaii employers engaged in “a trade or business that derives the majority of its gross income from the sale or license of products or services resulting from its software development or information technology development, or both.”

The Act’s stated purpose is to “stimulate Hawaii’s economy by prohibiting non-compete agreements and restrictive covenants that forbid post-employment competition for employees of technology businesses.”  More specifically, the legislation found that:

“[R]estrictive employment covenants impede the development of technology businesses within the State by driving skilled workers to other jurisdictions and by requiring local technology businesses to solicit skilled workers from out of the State.  Eliminating restrictive covenants for employees of technology businesses will stimulate Hawaii’s economy by preserving and providing jobs for employees in this sector and by providing opportunities for those technology employees to establish new technology companies and new job opportunities in the State.

In passing the Act the legislature also found that:

  1. restrictive covenants impose special hardships on employees in technology businesses because they are highly specialized professionals trained to perform specific industry jobs;
  2. because Hawaii’s geography  creates unique challenges for the state’s economy, non-compete agreements for employees working in Hawaii unduly restrict future employment opportunities for technology workers and have also a chilling effect on the creation of new technology businesses within Hawaii; and
  3. “Hawaii has a strong public policy to promote the growth of new businesses in the economy, and a ‘noncompete atmosphere’ hinders innovation, creates a restrictive work environment for technology employees in the State, and forces spin-offs of existing technology companies to choose places other than Hawaii to establish their businesses.”

The law went into effect on July 1, 2015, but does not apply to covenants entered into before that date.

Hawaii’s new Act should be of interest to all employers in the High Tech industry, even those who do not operate within Hawaii, as the issue of whether non-competes stifle innovation in the high tech industry is becoming a national debate. Georgia’s legislature has concluded the opposite, that greater ability to enforce non-compete covenants fosters an environment that is favorable to attracting new business to the state and keeping existing business within the state. This premise is debatable, as evidenced by the number of states that have laws that favor employees.  Other jurisdictions may pass legislation in the future that also curtails the viability of restrictive covenants in the high tech industry based on the belief that non-competes stifle the mobility of workers and innovation.