For now, the Rhode Island Noncompetition Agreement Act continues to operate as it did prior to the introduction of the vetoed bill to amend this act.
On June 26, 2024, Governor Daniel McKee vetoed and returned to the state Senate a bill to amend the Rhode Island Noncompetition Agreement Act (Senate Bill 2024-S 2436A/2024-H 8059A). As reported in our prior Alert, if signed into law, the bill would have banned and voided existing and future post-employment noncompetition and customer nonsolicitation covenants with essentially all employees.
In vetoing the bill, Governor McKee noted that the prohibitions in the bill would have gone beyond those set forth in the Federal Trade Commission's (FTC) final non-compete rule banning most noncompetition agreements (see our prior Alert), which is currently scheduled to take effect on September 4, 2024, but is the subject of pending legal challenges. Namely, unlike the FTC's final rule, the Rhode Island bill would invalidate existing noncompetition agreements with senior executives. Governor McKee further criticized the bill for "not address[ing] the valid concerns raised by the local business community," with the potential to bring unintended consequences. Governor McKee also expressed concern that the broad nature of the bill's prohibitions would make Rhode Island an outlier in comparison to other states' legislation on the subject, putting Rhode Island businesses at a national disadvantage.
What This Means for Employers Now
For now, the Rhode Island Noncompetition Agreement Act continues to operate as it did prior to the introduction of the vetoed bill to amend this act. As such, noncompetition agreements with nonexempt and "low-wage employees," undergraduate and graduate students, and employees age 18 or younger remain prohibited, while the new prohibitions within the vetoed bill remain null.
Moreover, employers need not be concerned, for now, that the Rhode Island Senate and House will attempt to ratify the bill by a roll call vote (which would require three-fifths' approval by each house), as the General Assembly's 2024 regular session adjourned on June 30, 2024.
What This Means for Employers in the Future
Although Rhode Island employers need not amend their agreements with employees for now, future legislative action in Rhode Island concerning restrictive covenants remains likely.
The vetoed bill was passed with ease in both houses, with all members of the Senate voting in favor and House members casting 67 yes votes and two no votes, and six members not voting. Governor McKee remains in office until January 5, 2027, and will likely veto another similar bill should one be introduced during the upcoming 2025 session. Nevertheless, the Rhode Island Senate and House currently have a strong majority exceeding the three-fifths majority threshold required to overrule such a veto. Alternatively, the Legislature could take heed of at least some of Governor McKee's criticisms of the vetoed bill and propose more narrow legislation.
For More Information
If you have any questions about this Alert, please contact Shannon Hampton Sutherland, Lawrence H. Pockers, Miranda S. Bovit, any of the attorneys in our Non-Compete and Trade Secrets Group, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.