Will a Rhode Island court enforce this employee non-compete?
Against four named categories of worker, no; against anyone else, only so far as it is reasonable, and an overbroad covenant is rewritten rather than struck. R.I. Gen. Laws § 28-59-3(a) provides that “A noncompetition agreement shall not be enforceable against the following types of workers: (1) An employee who is classified as nonexempt under the Fair Labor Standards Act, 29 U.S.C. §§ 201-219;”, “Undergraduate or graduate students who participate in an internship or otherwise enter a short-term employment relationship with an employer, whether paid or unpaid, while enrolled at an educational institution; (3) Employees age eighteen (18) or younger; or (4) A low-wage employee.” A “low-wage employee” is one “whose average annual earnings, as defined in subsection (2), are not more than two hundred fifty percent (250%) of the federal poverty level for individuals as established by the United States Department of Health and Human Services federal poverty guidelines” (§ 28-59-2(7)), and “Earnings” means “wages or compensation paid to an employee in the first forty (40) hours of work in a given week, not inclusive of hours paid at an overtime, Sunday, or holiday rate” (§ 28-59-2(2)). For every covenant the Act does not kill, the test is the common law one: covenants not to compete “are disfavored and subject to strict judicial scrutiny” (Cranston Print Works Co. v. Pothier), and “since such provisions are not favored, they are subject to judicial scrutiny and will be enforced as written only if the contract is reasonable and does not extend beyond what is apparently necessary for the protection of those in whose favor it runs” (Durapin, Inc. v. American Products, Inc.). Before reasonableness is reached the promisee must show “(1) the provision is ancillary to an otherwise valid transaction or relationship, such as an employment contract or a contract for the purchase and sale of a business,” plus adequate consideration and a legitimate interest. And Rhode Island does NOT blue-pencil: Durapin chose “the route that permits unreasonable restraints to be modified and enforced, whether or not their terms are divisible, unless the circumstances indicate bad faith or deliberate overreaching on the part of the promisee.” That choice changed nothing for the covenant in front of it (“Here American’s only legitimate proprietary rights, the outstanding leases, were not in any way infringed upon by Durapin”), so the covenant was neither modified nor enforced and American’s appeal was denied and dismissed. Griggs & Browne, by contrast, affirmed the injunction. The Court applied that test to an employee covenant as recently as 2024 in Griggs & Browne Pest Control Co., Inc. v. Walls, affirming a preliminary injunction: “Generally, this Court disfavors the enforcement of covenants not to compete and subjects these contractual provisions to rigorous judicial scrutiny”, and “we will refuse to enforce covenants not to compete unless the litigant seeking their enforcement demonstrates that the contractual provision is ancillary to an otherwise valid transaction or employment relationship, that the contract is reasonable, and that it does not extend beyond what is apparently necessary to protect the party receiving the provision’s benefit.” Continued at-will employment is consideration enough there: the covenant was “a product of a lawful, bargained-for exchange” in which, “In consideration for continued employment with plaintiff, as well as plaintiff’s promise to train and qualify Mr. Walls as a licensed exterminator in Rhode Island, Mr. Walls agreed not to solicit business from, or perform pest-control services for, any of plaintiff’s current or former clients for a period of twenty-four months.” Two professions are out entirely: a restriction on a physician’s right to practice medicine, or on an APRN’s right to practice, is “void and unenforceable with respect to said restriction” (§§ 5-37-33(a), 5-34-50(a)), except in the purchase and sale of a practice for no more than five (5) years.
The trap
The Act polices a label, not a restraint. § 28-59-2(8) defines “Noncompetition agreement” and then excludes nine things from it, so the four-category ban in § 28-59-3(a) does not reach an employee-nonsolicit, a customer/client/vendor nonsolicit, a sale-of-business covenant given by a significant owner, a covenant originating outside an employment relationship, a forfeiture agreement, a nondisclosure or confidentiality agreement, an invention assignment, a no-reapply covenant, or a non-compete “made in connection with the cessation of or separation from employment if the employee is expressly granted seven (7) business days to rescind acceptance”. Handing a low-wage employee a separation agreement with a seven-business-day rescission window therefore moves the same restraint outside the statute, where Durapin’s reasonableness test, not § 28-59-3, decides it. Second, § 28-59-3(b) is a limit on the section, not a nullity clause: it “does not render void or unenforceable the remainder of a contract or agreement containing the unenforceable noncompetition agreement, nor does it preclude the imposition of a noncompetition restriction by a court, whether through preliminary or permanent injunctive relief or otherwise, as a remedy for a breach of another agreement or of a statutory or common law duty”, so winning under the Act does not mean the worker cannot be enjoined from competing on some other ground. Third, because Durapin modifies instead of striking, drafting wide is not automatically fatal in Rhode Island, but bad faith or deliberate overreaching by the employer forfeits the modification, and even then the court “will go no further in granting relief than is reasonably necessary to protect a promisee’s legitimate interests.” Cranston Print Works applied this to covenants with no temporal or geographic limit, and did not enforce them: it reversed a hearing justice who had declared them "reasonable and enforceable" as written, vacated the injunction, and remanded for fact-finding, expressly declining to rule at that stage on the overall enforceability of the covenants not to compete in the settlement agreement: “Although such broad restraints are not unenforceable per se, courts should uphold them only to the extent they are necessary to protect the promisee’s legitimate interests.” Fourth, and the one that catches employees: in Rhode Island being fired does not release you. In Griggs & Browne the Court held the circumstances of the employee’s exit immaterial, because “There is no limiting language that conditions applicability on the circumstances of the termination from employment, whether voluntary or involuntary.” A Rhode Island non-compete that is silent on cause runs after an involuntary termination, and a Department of Labor and Training finding that the employer terminated him “has no bearing on the validity of the noncompetition agreement itself”. Fifth, a customer-based restraint with NO geographic limit is not the vice a geographic overreach would be: the twenty-four-month covenant in Griggs & Browne survived because it “extends only to plaintiff’s current and previous clients, rather than to a geographic area”.
31 authorities
- statuteR.I. Gen. Laws § 28-59-3enactment date not established
The words that state the rule
A noncompetition agreement shall not be enforceable against the following types of workers: (1) An employee who is classified as nonexempt under the Fair Labor Standards Act, 29 U.S.C. §§ 201-219;
- statuteR.I. Gen. Laws § 28-59-3enactment date not established
The words that state the rule
Undergraduate or graduate students who participate in an internship or otherwise enter a short-term employment relationship with an employer, whether paid or unpaid, while enrolled at an educational institution; (3) Employees age eighteen (18) or younger; or (4) A low-wage employee.
- statuteR.I. Gen. Laws § 28-59-3enactment date not established
The words that state the rule
This section does not render void or unenforceable the remainder of a contract or agreement containing the unenforceable noncompetition agreement, nor does it preclude the imposition of a noncompetition restriction by a court, whether through preliminary or permanent injunctive relief or otherwise, as a remedy for a breach of another agreement or of a statutory or common law duty.
- statuteR.I. Gen. Laws § 28-59-2enactment date not established
The words that state the rule
“Low-wage employee” means an employee whose average annual earnings, as defined in subsection (2), are not more than two hundred fifty percent (250%) of the federal poverty level for individuals as established by the United States Department of Health and Human Services federal poverty guidelines.
- statuteR.I. Gen. Laws § 28-59-2enactment date not established
The words that state the rule
“Earnings” means wages or compensation paid to an employee in the first forty (40) hours of work in a given week, not inclusive of hours paid at an overtime, Sunday, or holiday rate.
- statuteR.I. Gen. Laws § 28-59-2enactment date not established
The words that state the rule
Noncompetition agreements include forfeiture for competition agreements, but do not include: (i) Covenants not to solicit or hire employees of the employer; (ii) Covenants not to solicit or transact business with customers, clients, or vendors of the employer;
- statuteR.I. Gen. Laws § 28-59-2enactment date not established
The words that state the rule
Noncompetition agreements made in connection with the cessation of or separation from employment if the employee is expressly granted seven (7) business days to rescind acceptance; or
- statuteR.I. Gen. Laws § 5-37-33enactment date not established
The words that state the rule
Any contract or agreement that creates or establishes the terms of a partnership, employment, or any other form of professional relationship with a physician licensed to practice medicine pursuant to this chapter that includes any restriction of the right of such physician to practice medicine shall be void and unenforceable with respect to said restriction
- statuteR.I. Gen. Laws § 5-34-50enactment date not established
The words that state the rule
Notwithstanding the foregoing, the prohibition on advanced practice registered nurse covenants shall not apply in connection with the purchase and sale of a practice; provided the restrictive covenant and non-compete covenant is for a period of time of not more than five (5) years.
The words that state the rule
However, since such provisions are not favored, they are subject to judicial scrutiny and will be enforced as written only if the contract is reasonable and does not extend beyond what is apparently necessary for the protection of those in whose favor it runs.
The words that state the rule
We believe this is the appropriate time to choose the route that permits unreasonable restraints to be modified and enforced, whether or not their terms are divisible, unless the circumstances indicate bad faith or deliberate overreaching on the part of the promisee.
The words that state the rule
Even under this approach a court will go no further in granting relief than is reasonably necessary to protect a promisee’s legitimate interests.
The words that state the rule
It is well settled that covenants not to compete are disfavored and subject to strict judicial scrutiny.
The words that state the rule
Although such broad restraints are not unenforceable per se, courts should uphold them only to the extent they are necessary to protect the promisee’s legitimate interests.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. WallsR.I.decided 2024
The words that state the rule
Generally, this Court disfavors the enforcement of covenants not to compete and subjects these contractual provisions to rigorous judicial scrutiny.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. WallsR.I.decided 2024
The words that state the rule
we will refuse to enforce covenants not to compete unless the litigant seeking their enforcement demonstrates that the contractual provision is ancillary to an otherwise valid transaction or employment relationship, that the contract is reasonable, and that it does not extend beyond what is apparently necessary to protect the party receiving the provision’s benefit.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. WallsR.I.decided 2024
The words that state the rule
In consideration for continued employment with plaintiff, as well as plaintiff’s promise to train and qualify Mr. Walls as a licensed exterminator in Rhode Island, Mr. Walls agreed not to solicit business from, or perform pest-control services for, any of plaintiff’s current or former clients for a period of twenty-four months.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. WallsR.I.decided 2024
The words that state the rule
Specifically, it limits its prohibition to a twenty-four- month period, and extends only to plaintiff’s current and previous clients, rather than to a geographic area. This Court has previously upheld similar, more restrictive noncompetition agreements and takes no issue with the language contained in this agreement.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. WallsR.I.decided 2024
The words that state the rule
There is no limiting language that conditions applicability on the circumstances of the termination from employment, whether voluntary or involuntary.
The words that state the rule
Because we conclude that the hearing justice was clearly wrong in his interpretation of the covenants not to compete contained in the settlement agreement, we reverse, vacate the Superior Court judgment and order issuing injunctive and declaratory relief, and remand this case for further proceedings consistent with this opinion.
The words that state the rule
In light of our remand to the Superior Court for further fact-finding, we need not expressly rale at this time on the overall enforceability of the covenants not to compete that are set forth in the settlement agreement.
The words that state the rule
Before a court reaches this question, however, the party seeking to enforce a noncompetition provision must show that (1) the provision is ancillary to an otherwise valid transaction or relationship, such as an employment contract or a contract for the purchase and sale of a business, Restatement (Second) Contracts § 187 (1981), (2) the provision is supported by adequate consideration, Wood v. May, 73 Wash.2d 307, 310-11 , 438 P.2d 587, 589-90 (1968); see also Central Adjustment Bureau, Inc. v. Ingram, 678 S.W.2d 28, 33 (Tenn.1984), and (3) there exists a legitimate interest that the provision is designed to protect.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. Brian WallsR.I.decided 2024
The words that state the rule
The noncompetition agreement at issue is a product of a lawful, bargained-for exchange based on Mr. Walls’s at-will employment relationship with plaintiff:
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. Brian WallsR.I.decided 2024
The words that state the rule
This determination has no bearing on the validity of the noncompetition agreement itself.
- statuteR.I. Gen. Laws § 28-59-2enactment date not established
The words that state the rule
Noncompetition agreements made in connection with the sale of a business entity or all or substantially all of the operating assets of a business entity or partnership, or otherwise disposing of the ownership interest of a business entity or partnership, or division or subsidiary of any of the foregoing, when the party restricted by the noncompetition agreement is a significant owner of, or member or partner in, the business entity who will receive significant consideration or benefit from the sale or disposal;
- statuteR.I. Gen. Laws § 28-59-3enactment date not established
The words that state the rule
Nothing in this section shall preclude an employer from entering into an agreement with an employee not to share any information, including after the employee is no longer employed by the employer, regarding the employer or the employment that is a trade secret.
- statuteR.I. Gen. Laws § 5-37-33enactment date not established
The words that state the rule
Notwithstanding the foregoing, the prohibition on physician covenants shall not apply in connection with the purchase and sale of a physician practice, provided the restrictive covenant and/or noncompete covenant is for a period of a time of no more than five (5) years.
- statuteR.I. Gen. Laws § 5-37-33enactment date not established
The words that state the rule
Restrictions rendered void under subsection (a) shall include, but shall not be limited to, the following: (1) The right to practice medicine in any geographic area for any period of time after the termination of such partnership, employment, or professional relationship; and (2) The right of such physician to provide treatment, advise, consult with, or establish a physician/patient relationship with any current patient of the employer; and (3) The right of such physician to solicit or seek to establish a physician/patient relationship with any current patient of the employer.
The words that state the rule
Here American’s only legitimate proprietary rights, the outstanding leases, were not in any way infringed upon by Durapin. Thus there was no need to modify and enforce the-restrictive covenant contained in the American-Durapin agreement. American’s appeal is denied and dismissed. The judgment appealed from is affirmed, and the case is remanded to the Superior Court.
- caseNo. 2022-356-Appeal.Griggs & Browne Pest Control Co., Inc. v. WallsR.I.decided 2024
The words that state the rule
Conclusion Based on the foregoing, we affirm the order of the Superior Court and remand the record in this case.
The words that state the rule
Indeed, the original order and the judgment declare that paragraph 1 of the settlement agreement is “reasonable and enforceable.” Thus, by declaring paragraph 1 of the settlement agreement to be enforceable — without reference to how paragraph 3 of that same agreement narrows or supersedes its scope — the hearing justice effectively declared that Nikoloff was barred from working with or for any chemical supplier providing prohibited products or services.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.