New Hampshire Invalidates Non-compete Clause in Independent Contractor Agreement

The New Hampshire Supreme Court recently upheld a ruling by a lower court that refused to enforce an non-compete clause in an independent contractor agreement. The case involved a personal trainer and a gym: the trainer started out as an employee before switching over to an independent contractor arrangement — the trainer paid rent to the gym to use the space and equipment, kept 100% of the money paid by clients, and was not subject to any control by the gym. The independent contractor agreement between the trainer and the gym contained a non-compete clause that, upon the departure of the trainer, prohibited him from competed within 25 miles of any of the locations of the gym or serving any clients who had been clients of the gym within the two years prior to the trainer’s departure. The trainer ultimately left the gym, opening his own location and taking a number of trainers and clients from the gym, who subsequently sued for a preliminary injunction that was denied by the trial court. The issue was one of first impression for the New Hampshire Supreme Court. While other courts across the country apply the same standards for employer-employee non-compete matters, the New Hampshire Supreme Court was persuaded by a Delaware Chancery Court opinion, which found that independent contractors have a less intimate relationship than between employers and employees, do not generally have access to the same confidential information of the employer, which meant that the restraint of trade imposed by the non-compete agreement (at least in this instance) outweighed the protection to the employer and therefore did not serve the public interest. Another argument against enforcing non-competes against independent contractors is the notion that contractors are separate businesses unto themselves — it seems counterintuitive to hire a contractor for the services they provide, then restrict them from providing those services elsewhere, especially since the IRS guidelines for determining contractor status include the factor that the contractor is providing services not normally performed by the employer itself. If your business is interested in enforcing a non-compete agreement against a worker that is classified as an independent contractor, but could be classified as an employee, it is perhaps to take on the additional costs of employee classification in order to ensure that the enforcement standards of employer-employee non-competes is applied, in light of the trend of the Delaware courts, now picked up by New Hampshire, to apply a different, stricter standard.

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