A Hawaii Non-Compete Agreement is a contract between an employer and an employee to prevent the employee from competing with the employer during employment or for some time after resignation in Hawaii.
Reasonable Uses and Objections
- Enforceable when terminated without cause? – Not decided.
- Employee non-solicitation agreement permitted? – Not decided.
- Customer non-solicitation agreements permitted? – Not decided.
- Does continuing employment equal sufficient consideration? – Yes.*
*The Hawaii Supreme Court has not ruled on state law regarding additional consideration for a non-compete agreement imposed on an employee mid-employment. A federal judge in Standard Register v. Keala held in 2015 that the court likely would, but this is not the final word on state law.
Legally Enforceable In Hawaii?
A non-compete is legally enforceable in Hawaii but must be related to a legitimate business purpose.
On February 17, 2022, the Supreme Court of Hawaii in Prudential Locations, LLC v. Lorna Gagnon and Prestige Realty Group, LLC established that to be enforceable in the State of Hawaii, a non-compete agreement must have a legitimate purpose. Under the ruling in Prudential v. Gagnon, non-compete and non-solicitation agreements cannot be enforced if their sole purpose is to prevent competition.
In Hawaii, non-compete agreements can only protect a legitimate business interest and must be reasonable. This is defined under the Prudential v. Gagnon decision as including trade secrets, confidential information, and specific training involving knowledge beyond a general nature.
Hawaii applies a reasonableness test to non-compete agreements to determine their enforceability. A non-compete is reasonable if it:
- Is not greater than what is required to protect the employer
- Does not impose an undue hardship on the person restricted
- The benefit of the non-compete provision outweighs its injury to the public.
This three-part test is further restricted in that information protected by the non-compete must meet the tests fitted in the Hawaii Uniform Trade Secrets Act § 482-8, which defines a “trade secret” as information that:
- Derives independent economic value from not being generally known or readily ascertainable by those who can obtain economic value from its disclosure or use and
- Is subject to reasonable efforts to maintain its secrecy.
Reasonable Use and Exemptions
Hawaii specifically prohibits non-compete clauses in any employment contract to an employee of a technology business. Under HB1090 CD1, a technology business is “a trade or business that derives most of its gross income from the sale or license of products or services resulting from its software development and/or information technology development.” Because these clauses are”forbidden for technology businesses, employers should rely on other methods to keep trade secrets hidden.
Hawaii courts put a maximum limit on non-compete agreements of 6 years and prefer shorter periods. One year is relatively unlikely to be challenged, but 5-6 years may have to pass a more stringent application of the reasonableness test.
Hawaii defines a non-compete clause as “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.” Unless your non-compete agreement has a legitimate business purpose, it’s likely to be unenforceable.
Below, you can download a Hawaii Non-Compete Agreement in PDF or Word format: