Rhode Island Nondisclosure Agreements Bill Moves to Governor; Senate Passes New Noncompete Ban

Editor’s Note: After this article went to press, the Rhode Island legislature’s website was updated to indicate that Governor Daniel McKee signed Senate Bill 0342 on June 22, 2023.

The Rhode Island legislature recently moved two bills forward that would limit employers’ use of restrictive covenants with employees. On June 19, 2023, the Rhode Island House of Representatives passed a bill, Senate Bill (S) 0342, that would prohibit the use of nondisclosure or non-disparagement agreements regarding civil rights abuses, sending it to the governor’s desk for signature. The move comes one week after the state Senate passed Senate Bill (S) 0888, which is being considered by the House now, to expand the state’s ban on noncompete agreements to apply to agreements with nearly all employees.

Quick Hits

• Rhode Island’s bill to prohibit nondisclosure and non-disparagement provisions regarding civil rights abuses was sent to the governor’s desk.
• Rhode Island’s Senate passed a separate bill to expand the ban on noncompete agreements except for reasonable noncompete agreements reached as part of the sale of a business.

Nondisclosure Agreements

Both chambers of the Rhode Island legislature have passed S0342, which would prohibit employers from requiring “as a condition of employment” to enter into a nondisclosure or non-disparagement provision “concerning alleged violations of civil rights or alleged unlawful conduct, or any agreement with a clause that requires alleged violations of civil rights remain confidential.” The bill would make any contractual provision that violates this “void as a violation of public policy.” The bill would take effect upon full passage.

Noncompete Agreements

Rhode Island S0888 would ban noncompete agreements with employees except for noncompete agreements with a “significant owner” of a business as part of the sale of a business or an equity interest in a business that are reasonable in “scope, time-frame and application.” The bill was transmitted to the Rhode Island House for consideration and would take effect upon passage. If enacted, the bill would place far more stringent limits on the enforceability of noncompete agreements in the state.

Notably, S0888 would remove the exclusion in Rhode Island’s current ban on noncompetition agreements for “covenants not to solicit or transact business with customers, clients, or vendors of the employer.” Nevertheless, despite this removal, it is not clear whether the bill would ban the use and enforcement of such provisions.

The bill expressly allows employers and employees to enter into agreements that would prohibit employees’ sharing of employers’ trade secrets, customer lists, or future business plans. Moreover, the bill permits employers to file civil suits against employees who disclose or wrongfully utilize trade secrets. If successful, employers may be awarded injunctive relief, compensatory damages, punitive damages, attorneys’ fees and costs.

The current Rhode Island Noncompetition Act, which became effective in 2019, prohibits noncompetition agreements entered into by employers and the following:

• non-exempt employees under the Fair Labor Standards Act (FLSA);
• undergraduate and graduate students;
• employees age eighteen or younger; and
• “low wage employees,” which the act defines as employees whose average annual earnings are not more than 250 percent of the federal poverty level for individuals established by federal guidelines.

Ogletree Deakins will continue to monitor developments and will provide updates on the Rhode Island and Unfair Competition and Trade Secrets blogs as additional information becomes available.

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