Non-Compete and Non-Solicitation Clauses Void in Tech Employment Contracts in Hawaii

Hawaii’s Governor David Ige recently signed a bill  into law making “a non-compete or a non-solicit clause in any employment contract relating to an employee of a technology business… void and of no force and effect.” 

Under the law, effective July 1, a “technology business” is defined as a “trade or business that derive 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.”  It excludes businesses that are part of the broadcast industry or any telecommunications carrier.  There are exceptions, such as when the restrictive covenant is in connection with the sale of a business or partnership.  Furthermore, agreements to protect trade secrets are still valid.

With this bill, Hawaii joins California and a few other states in invalidating non-compete clauses in employment agreements.  In doing so, it has made clear that it has a “strong public policy” in promoting the growth of new businesses and recognized the “special hardship on employees of technology businesses” who are unduly restricted given the unique and limited geographic area of the state. 

Important to note is how this will affect not just those contracts where the choice of law clause selects Hawaii, but those where the governing law is one other than Hawaii’s (or California’s).  In those cases, it’s likely that a Hawaiian court will not enforce the governing law clause if it would defeat this important state policy in favor of tech worker mobility — i.e. an employer probably won’t be able to get around Hawaii’s law by selecting another state’s law in the governing law clause.  (I’m currently working on a book about contract clauses and hope to write a short post on governing law clauses in the near future).