Committee reviews H.205 to void many franchise and employee noncompete agreements, with $100,000 carve‑out

The Vermont House Committee on Commerce and Economic Development on April 17 reviewed H.205, a bill that would render many noncompete agreements in franchise contracts and employer-employee contracts void and require written notice to affected parties, while exempting employees paid $100,000 or more annually.

Legislative counsel Rick Segal told the committee the bill has two sections: one that creates a new chapter in Title 9 addressing franchise agreements and one in Title 21 addressing employer-employee noncompete agreements. "Any agreement not to compete, including an agreement not to compete contained within a contract or franchise agreement, is void and unenforceable," Segal said as he summarized the draft language.

The franchise portion would define an "agreement not to compete" to mean a contract provision that (1) restricts the franchisee from operating in a geographic area, (2) restricts the franchisee for a specified period after separation, or (3) otherwise significantly limits the franchisee's ability to compete with the franchisor. Under the draft, those provisions would be void; franchisors would be required to notify current and former franchisees in writing, delivered to the last known postal and email addresses, that the noncompete provision is legally unenforceable.

The employer-employee portion, placed in Title 21 (labor and employment), uses a similar three‑part definition for an agreement not to compete: restricting the employee's work by time, geography or by barring employment in a like capacity with another employer. Segal said the bill preserves exceptions for trade‑secret nondisclosure agreements and for reasonable non‑solicitation agreements. "Non‑solicitation" is limited to refraining from recruiting the employer's employees or soliciting customers who were customers during the employee's tenure, and such clauses must be reasonable in time, geographic area and scope to be enforceable.

The draft includes a severance exception: a severance‑based noncompete may be enforceable only if its duration does not exceed the number of weeks or months of severance pay provided as consideration. The bill also carves out a wage threshold: the section would not apply to an agreement between an employer and an employee earning $100,000 or more in gross annual wages, meaning those agreements would remain enforceable.

For prospective employees, Segal said employers must provide any proposed noncompete at the time of the job offer and may not rescind the offer earlier than three business days after the prospective employee receives the agreement. For existing employer or franchise agreements that violate the draft, the employer or franchisor must provide individualized written notice to the affected employee or franchisee stating the agreement is void and unenforceable.

Committee members pressed the legislative counsel on several points. One member questioned whether the $100,000 threshold is appropriate in Vermont; another asked how courts will construe the statutory standard of "reasonable" time, geographic area and scope. Segal said reasonableness is fact dependent and will be determined by courts, and he noted the committee can alter the wage threshold or tie exceptions to other metrics during drafting.

Segal also highlighted that retaliation and enforcement provisions will apply to the section; he deferred detailed questions about enforcement to staff who will present the next draft. The bill as discussed would take effect July 1, 2025, if enacted.

The committee scheduled further work: Segal said staff will line up testimony and that the committee will have Sophie Zadadny walk through the new draft and hear from the Vermont Department of Labor at a subsequent session. Committee members indicated they expect to refine the draft after those hearings and follow up with additional amendments.

Next steps: the committee will solicit witnesses and review the revised draft at its next meeting, with testimony from legislative staff and the Department of Labor planned.