House General & Housing hears testimony on H.334, weighing noncompete and stay-or-pay limits

On Friday, April 18, the House General & Housing Committee heard testimony on H.334, an act "relating to limiting employer restrictions on individuals separating from employment," with particular attention to noncompete clauses and "stay-or-pay" provisions.

Austin Davis, director of government affairs for the Lake Champlain Regional Chamber, told the committee that while the subject is "important and complicated," he favored caution before adopting a broad statutory change. "I actually think, you know, more eyes on this this bill is probably better than, less," Davis said, arguing that Vermont already has "a rich body of case law" governing noncompetes and that courts have tools to keep agreements reasonable.

Davis said noncompete agreements serve several employer interests beyond protecting trade secrets, including guarding against use of undue influence and protecting investment in employee training. He told legislators that investors often expect noncompetes for early-stage startups, and warned that an immediate ban or overly broad restrictions could "cut the legs out from beneath some of our Vermont small businesses and startups." He urged the committee to "codify existing case law" and to consider phased or tailored approaches rather than an outright prohibition.

Megan Sullivan, vice president of government affairs for the Vermont Chamber, said her organization largely agreed with Davis. "We are in agreement with testimony provided by Austin from the Lake Champlain Chamber," Sullivan said, and urged careful drafting to avoid creating new uncertainty or litigation. She raised particular concern about retroactive effects on contracts and on benefits employees received in exchange for agreeing to restrictive covenants, and she urged the committee to consult attorneys and HR professionals when refining statutory language.

Witnesses and several committee members raised specific technical and policy issues the bill would need to address if it moves forward. Among the points discussed:

- Scope and terminology: Both witnesses recommended aligning any statutory language with how Vermont courts evaluate noncompetes so that legislation does not unintentionally create new grounds for litigation.

- Typical durations and enforcement: Witnesses recalled that Vermont case law and practice commonly treat one to two years as a presumptively reasonable duration in many contexts; one comment noted a 24-month term as a longest-seen example. Davis described the traditional judicial review as weighing factors such as the employer’s business interest, the employee’s role and compensation, and the geographic and functional limits of the restriction.

- Retroactivity and benefits: Witnesses warned that making restrictions retroactive could nullify agreements entered into with specific compensation or benefits attached. Sullivan said, referencing the bill text, that questions remain about how "reasonable repayment" would be determined when employees accepted sign-on bonuses, tuition assistance or severance in exchange for restrictive covenants.

- Stay-or-pay provisions: Both witnesses questioned whether the bill’s language around "stay-or-pay" (repayment obligations tied to leaving employment) is sufficiently clear and whether imposing repayment rules could reduce employers’ use of recruitment and retention tools such as sign-on or retention bonuses.

- Industry differences: Witnesses and members suggested the committee hear from venture capital firms and other industry stakeholders. Davis and Sullivan said venture capital backers commonly ask to see noncompetes for early-stage companies; removing those tools, they argued, could push some firms to locate or raise capital outside Vermont.

- Related precedents: Committee members referenced prior work on harassment and settlement clauses (including discussion of S.103 and the "Don't Darken My Doorstep" provisions) as a source of witnesses and precedent on how restrictive clauses can operate in settlements and employment agreements.

Committee members expressed interest in balancing protections for employees in Vermont’s relatively small labor market with business and investment concerns. Several members suggested more fact‑finding and stakeholder meetings rather than an immediate vote. Davis offered to convene HR professionals and member attorneys and proposed delaying substantive action until the committee could examine existing case law and draft language collaboratively. "We probably got about 4 weeks left in a typical session," Davis said, and he recommended further work over the summer or next biennium to produce a refined proposal.

No formal motions or votes on H.334 were recorded during the hearing. The committee scheduled additional public hearing time for Tuesday and indicated it would continue to take testimony and work with stakeholders before any committee decision.

Community members, business groups and legislative staff will likely remain engaged as the committee considers how to translate judicial standards into statute, whether to include a phased implementation or explicit nonretroactivity language, and how to address industry‑specific concerns such as franchising or employer‑to‑employer "no‑poach" agreements.

The committee’s next posted public hearing is set for Tuesday from 1 to 3 p.m.; nine people had signed up for public comment at the time of the meeting.