Ige signs law banning noncompete clauses

A bill that supporters believe will help attract high-tech workers to Hawaii and encourage growth in the local technology sector has been signed into law by Gov. David Ige.

Act 158 prohibits technology companies from requiring their workers to enter into "noncompete" agreements as a condition of employment, a change that is supposed to make it easier for technology workers to move from job to job. Ige signed it June 26.

Currently, noncompete clauses are common in Hawaii’s technology sector, according to testimony submitted to lawmakers.

The new law was supported by the High Technology Development Corp., which was created by the state to help develop high-technology businesses in Hawaii.

High Technology Development Corp. officials told lawmakers that prohibiting noncompete agreements would provide high-tech workers with more job options in Hawaii, which tends to encourage them to stay here.

Eliminating noncompete clauses might also encourage development of "spinoff" companies, which would enlarge the technology sector, according to the group.

But the new law was opposed by the Chamber of Commerce Hawaii, which said it might amount to government "overreaching" into the relationship between Hawaii employers and their employees.

"Some companies invest relatively large sums to recruit an employee, and they should be able to protect that investment," the chamber said in written testimony.

Companies such as PacRim Marketing Group Inc. and PRTech LLC also opposed the bill, arguing in testimony that they need to be able to use noncompete agreements to prevent "a financial nightmare."

Dave Erdman, who is president of both companies, said they began using noncompete agreements years ago after several management employees armed with delicate and potentially damaging proprietary information left to join competing companies.

"Our companies, both PacRim Marketing Group and PRTech utilize non-compete agreements as an important tool for protecting our investment in our team members, their skill development, best practices, processes, business strategy and pricing — which is all ‘intellectual property’ for small companies," Erdman said in an emailed statement. "We protect ourselves from staff who will leave to directly compete with our firm, or work with a client or a competitor."

As for the new law, Erdman said that "we will have to overcome this hurdle, as we have had so many hurdles to overcome as a small business in Hawaii, and to try to thrive in Hawaii in our hospitality, retail and tech-related industry for the past 25 years."

Federal law already includes provisions to protect "trade secrets," and the new state law still allows companies to prohibit their workers from departing from a job with trade secrets to use that information to compete against their old employers.

John Borland, chairman of the Institute of Electrical and Electronics Engineers Hawaii Section, supports the new law. Borland said high-tech companies should seek to retain their employees by using pay, stock options and other perks to reward them for their work.

"If they’re not really rewarding you to the competitive level, then you should be able to switch companies," he said.

Among the supporters of the bill was state Superintendent of Education Kathryn Mata­yo­shi, who said noncompete clauses make it harder for the public school system to recruit experienced technology workers to fill upper-level openings.

Some highly qualified tech workers employed by private companies have said they want to work for the Department of Education, but Mata­yo­shi said in written testimony those tech workers are sometimes unable to take state jobs because of their noncompete agreements.

The new law took effect Wednesday.