A Hawaii non-compete agreement is a provision in a contract that restricts an employee or agent from working in a particular field. Non-compete agreements can be part of an employment contract or may be part of the sale of a business or partnership interest.
The law regarding non-compete agreements in Hawaii is less clear than in most states, and there is relatively little guidance from statutes or cases about what valid agreements should contain.
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Yes, reasonable non-compete agreements stemming from the sale of a business or partnership may be enforceable if they
- Have a legitimate purpose
- Do not substantially lessen competition or create a monopoly, and
- Cover a reasonable geographic area and reasonable period.
A non-compete agreement that restrains an employee’s ability to work after leaving a job is valid only if the court deems it reasonable. (Technicolor, Inc. v. Traeger (1976)).
A non-compete agreement is likely to be considered unreasonable if it
- Is more substantial than is needed to protect the interest of the party seeking to have it enforced,
- Imposes an undue hardship on the party it restrains, or
- The benefit to the party seeking enforcement is outweighed by the agreement’s negative impact on the public.
Agreements by an employee not to use the trade secrets of an employer after employment has been terminated are enforceable, so long as they last only so long as to be reasonably necessary for the protection of the employer’s interest and do not impose an undue hardship on the employee. The same standard applies to trade secrets arising from a principal-agent relationship. Haw. Rev. Stat. Ann. § 480-4(c)(4).
Hawaii’s Uniform Trade Secrets Act defines trade secrets.
Contact lists and customer lists are treated as trade secrets for non-compete agreements. (BlueEarth Biofuels LLC v. Hawaiian Electric Co. (2011)).
Non-compete agreements intended to protect trade secrets may be enforced only so long as the underlying information remains secret. (Uarco, Inc. v. Lam (1998)).
Training that provides specialized skills is a legitimate interest that may be considered in weighing the reasonableness of a non–compete agreement. (7’s Enterprises, Inc. v. Del Rosario (2006)). In that case, the employee received a prepared script from the employer, was critiqued by the employer, and received ongoing additional training throughout the employment.
Attorneys may not enter employment or partnership agreements that restrict their right to practice once the agreement has concluded, except for agreements concerning retirement benefits. Attorneys may also make reasonable accommodations to protect interests in the sale of a law partnership. Rule 5.6, Hawaii Rules of Professional Conduct.
Attorneys also may not settle cases in a way that restricts their right to practice. Rule 5.6, Hawaii Rules of Professional Conduct.
It is uncertain whether terminating an employee makes a non-compete agreement unenforceable.
There is no general rule for Hawaii about which party has the burden of proof in disputes surrounding the enforcement of non-compete agreements. However, if one party claims that the non-compete agreement should not be enforced because it creates a monopoly, that party has the burden of proof. (Hawaii ex rel. Anzai v. Gannett Pacific (1999)).
It is not clear whether continued employment alone is sufficient consideration to make a non-compete agreement enforceable.
In Technicolor, Inc. v. Traeger (1976), the court held that a non-compete agreement was enforceable when contained in an employment agreement with the same company where the employee was already working. However, that worker also received a salary increase and a more prestigious job title, so it is uncertain whether an agreement allowing an employee to keep the same position is enforceable.
No maximum term for non-compete agreements is set out in either statutes or cases. However, three-year limitations have been upheld in the following cases:
- Technicolor, Inc. v. Traeger (1976): An agreement prohibiting competing with the employer or “associating” with any of the employer’s competitors throughout the state after employment had concluded
- 7’s Enterprises, Inc. v. Del Rosario (2006): An agreement that prohibited an employee from working in the same field on the island of Oahu after employment had concluded
There is no clear rule about whether Hawaii allows judicial modification of non-compete agreements.