Vermont Legislature SmartTranscripts:

[Michael Marcotte (Chair)]: Good morning, everyone. This is the Vermont House Committee on Commerce and Economic Development. It is Tuesday, 01/27/2026 at 09:10 in the morning. So we're beginning our week with H two zero five, which is an act of raising to agree that you're not going compete. This is a strike all amendment that our legislative counsel, Sophie Levy, has been putting it together for us, and she's ready to walk us through it. Sophie, good morning. Thank you for joining us.

[Sophie Zdatny (Office of Legislative Counsel)]: Good morning. Thank you for having me here. Sophie Zidatney for the Office of Legislative Council. And just to sort of set the scene, there were two bills last session. So one was H. Two zero five that was in this committee, one was H. Three thirty four that was in general and housing. And what I was asked to do was essentially combine the two. So this is a strike amendment to H. Two zero five. And I did a little chart just to make it easier for folks to see. Although you never had the walk through on H. Three thirty four, the reason I've included it is because what the strike all amendment does is it strikes out section one of h two zero five, which was dealing with franchise agreements, and it adds in the final section from h three thirty four, which dealt with stay or pay provisions. And then it just lists out on the right hand column just what the main changes are. So I will go through that with you, if I have permission to go ahead and share my screen. Is that large enough for folks to see? Yeah. Okay. So this would essentially add this stricel amendment would add two new sections to Vermont's Fair Employment Practices Act. So it would add them at 21 VSA four ninety five, and then this would be I think we're on R and Q, whatever. Anyway, it's adding. Q and R, yes, we're way down the alphabet. So the first section deals primarily with agreements not to compete, and the second section deals with stay or pay provisions. So this first section here is new. This sets forth the legislative intent and provides that it's the intent of the General Assembly to discourage the use of agreements not to compete except in rare circumstances, where the agreement is the result of bargain for exchange that furthers legitimate commercial interests. The second sentence here is essentially to rule out agreements not to compete with the lowest paid workers, hourly workers. So it provides agreements not to compete between an employer and a nonexempt employee under the Fair Labor Standards Act, a presumptively coercive and a restraint on trade. So the reference to the FLSA was passed in 1938. It provides, at the federal level, the minimum wage, overtime, child labor restrictions, and the provisions that when it says nonexempt, that means that employees that are nonexempt are entitled to receive overtime. Again, those tend to be your hourly workers and the lower paid workers. I just flag that again if if if that is the legislative intent of of this committee. There are other other states do things other ways. They have, you know, 200% of the minimum wage, an amount over the federal poverty level. There are other ways you could frame this, but I included nonexempt employees, which is another route that other states have used. Going into this, the agreement not to compete, this language is the same. It hasn't changed from when it was in 2005. Essentially, an agreement not to compete is one that restricts employees, after they leave a position, from working with these things: working for another employer for a specified period of time, working in a specified geographical area, or working for another employer in a capacity similar to the one that they were working in before. And then there's the what an agreement not to compete is not. So it's not an agreement that prohibits the disclosure of trade secrets. It's not a non solicitation agreement, and that's defined further down. And then it adds in this stricel amendment adds in a definition of executive employee. We will get to the reason for that in a moment. But essentially, there's a wage threshold in here that permits agreements not to compete. So it's a wage threshold plus job function, and the job function relates to executive employees. So executive employee is defined here as a senior executive at the highest level of the employing entity with access to proprietary information critical to the employer's business interests. So again, this is retaining the 100,000 wage threshold that was in the original H205. I know there was concern that has been raised around startups, So it might be possible to reframe this in terms of lower amounts on the wage threshold, but still targeting those people that are at the very center of the business and have that critical information that's so important to a new startup. I don't know.

[Unidentified Committee Member]: We may want to do this after, but could we do something where it's a percentage of the gross sales of the company or something like that? Yeah. Some sort of percentage. I've seen that done in other situations, have key people and it helps the startups because you may only be making $50,000 a year, but you'd still be a key person if you were taking half that for your salary.

[Sophie Zdatny (Office of Legislative Counsel)]: Yeah, I mean, there ways to play with it. So, is the concept that's in it would be permitting agreements not to compete. But again, it's trying to rule out sort of the lower paid folks and the ones that really don't have access to critical information to the company while still protecting those where you do have a key employee that's at the very center of a startup.

[Unidentified Committee Member]: I feel like it should be connected more to non exempt exempt employees. If you can't put your employee on salary, then you really should be doing non compete.

[Sophie Zdatny (Office of Legislative Counsel)]: So that's what's covered in that original, that legislative intent where it references the nonexempt. It's basically saying no to you you cannot be doing this for nonexempt employees.

[Michael Marcotte (Chair)]: Sofia, on that definition, when you say a senior executive at the highest level is employing the Internet, to me that just spells out the CEO. But I think we're looking at level down below the CEO as well.

[Sophie Zdatny (Office of Legislative Counsel)]: Well, again, that's up to I think the goal here was to capture your chief information officer, your chief technology officer, someone that's central to the Again, who may have a big title but a very low salary when you're starting up. So that's just the concept. Again, there could be adjustments moving forward. The non solicitation agreement, so again, these would be permitted. And essentially, again, the subdivision 3A here is not really a change. Just those are agreements where you, when you leave, you're not going to solicit or recruit the employer's employees or solicit business with the customers or clients of your previous employer. This does take out the language before it was solicit or transact business, so this takes out the or transact language because there was concern around what that would mean in terms of actually working If a customer chooses to follow a departing employee, they would then be transacting business with them. So it took out that language. And then this adds in this subdivision B. So notwithstanding It shall not be a violation of a non solicitation agreement for a separating employee to provide notice of the employee's change of employment to clients with whom the separating employee had a direct attorney client, patient medical provider or fiduciary relationship. So in other words, if you're the lawyer, the doctor, the accountant, whatever, that you can at least notify the folks that you previously worked with that you've had a change of employment. Severance agreement is not changed in this from what was in H. Two zero five. There wasn't a definition of severance agreement in the original H. Three thirty four. Again, subsection C, the prohibition, that is still the same. But then you get into the exceptions. So again, an agreement not to compete is void and non enforceable, but then you have the exceptions listed out below. And these are not changed: the sale of substantially all of the individual's ownership interest in a business or operating assets, dissolution of a partnership, dissolution of a limited liability company, or a severance agreement. Again, the severance agreement has limitations on it. Again, these are the same limitations from before. Again, the time provided further that the limitation on time cannot exceed the number of weeks or months of pay, however appropriately calculated, that the employer offers to the employee in consideration to sign the agreement, the geographical area and the scope of activity to be restrained. The wage threshold, again, has not changed. It still is at $100,000 but it adds in that it again, the prohibition does not apply to an agreement not to compete between an employer and an executive employee to whom the employer pays $100,000 So again, there's those two: job function and wage threshold is the current test on that. The same notice piece as before. And then this adds in, in subdivision 2B here, that the employer may rescind the offer within three business days if the employer discovers information about the prospective employee that supports rescission of the offer. So there was a concern before that you have to give notice to an employee if you're expecting them to sign an agreement not to compete, And the language was that you couldn't rescind that within three business days. And there was a concern, well, what if in the course of due diligence you find something out about the prospective employee, and you do want to rescind it? So this additional language in this sentence here allows that rescission if the employer discovers some information that would support rescission. The employee rights has not changed. Again, these are the non retaliation provisions in the Fair Employment Practices Act, and the penalty and enforcement provisions in the Fair Employment Practices Act. So, that's all the non compete stuff. I'll put a place there if anyone has any other questions on the non compete. So the second section that would be added to the Fair Employment Practices ad Act is to do with stay or pay provisions. This is new. This is not what was in originally in h two zero five. This comes over from H334. And again, this would limitations on those kinds of agreements. And again, this is looking at situations I'm not aware of, and I'm not sure the group that looked at this were aware of situations specifically to Vermont. But nationally, there have been situations where lower paid employees are required to sign these stay or pay agreements. And then if they're terminated for any reason, they can be asked to repay the employer $5,000 or something, and it makes it very hard for employees to move, particularly if they're in an abusive work situation. So this language is defining what stay or pay provision is, can take many different forms, training repayment provisions, educational repayment contracts, quick fees, damages clauses, sign on bonuses, etc. That an employee must pay an employer in the event the employee leaves voluntarily or involuntarily. And then in B, it says it shall be unlawful to require an employee to pay the employer pursuant to one of those agreements following their separation, and then notwithstanding that, then these are the exceptions. So it is acceptable to have a stay or pay provision if the employee voluntarily and these are and, so you have to have all of these: the employee voluntarily agrees to the provision in exchange for a benefit the repayment amount is reasonable and does not exceed the cost to the employer of the benefit received by the employee. The repayment amount is specific and provided to the employee before the employee agrees to the provision. The length of the stay period associated with the provision is reasonable, and then there are some factors associated with that. So the cost of the benefit bestowed, the value of the benefit to the employee whether the repayment amount decreases over the course of the stay period, and that the provision does not require repayment if the employee is terminated without pause. Again, there is, in some states, terminated without pause, might be just terminated involuntarily. It could be a layoff, or terminated for any reason. So again, these are all things that can be reviewed. But these are factors in terms of is it reasonable? So again, normally these kinds of agreements, it has to be of a benefit to the employee that the employee can transfer somewhere else. It should be something that's voluntary, so the employee could choose not to do the training or the education. It's not critical to their current job. So those are just examples of the stay or pay. And then, again, same language as before in terms of no retaliation, again under the language that's currently in the Fair Employment Practices Act, and then the same penalty and enforcement provisions.

[Unidentified Committee Member]: Just for clarification, if I'm an employee and my employer sends me to a safety training so that I can be the trainer for the facility, that would not be something that they could They couldn't ask you to repay that, right? They ask me to repay that.

[Sophie Zdatny (Office of Legislative Counsel)]: Right, because they're asking you to do that for your job. That's something you need to do for your job. So these are more things where you're But if I wanted to get my bachelor's degree,

[Unidentified Committee Member]: and the employer had a provision where if I had worked there for a certain amount of time, they would pay for that, and I can use that to go anywhere, then I could be held responsible to pay them back as long as the amount decreased over time. Right. Essentially, long

[Sophie Zdatny (Office of Legislative Counsel)]: as it's reasonable So these are examples of what would make it reasonable. So they couldn't charge you more than whatever the cost to them was. So if it was costing them, say, 10,000, they couldn't charge you more than that. The amount is specific, so you know that going in. We're going to help cover your education costs, but this is the cost. And so you're aware of that. And then the repayment decreases. So, for example, if you stay for five years, maybe it just goes down. Five years. Right. Some sliding scale where the longer you are there, the less the repayment would be. But if you were to immediately leave, then the full amount. Question

[Michael Marcotte (Chair)]: percolating in there a A little bit.

[Unidentified Committee Member]: I'm just going through my head. How could you endorse something like this? I go get a job with an employer. I take a couple of classes in college, 10,000. So they pay $10,000 And then I I'm like, yeah, I've gotten a better job. How are you gonna get that money out of me? You know? You can't garnish my wages. I I just don't see I I think it makes sense, but I just don't see how it can be enforced.

[Sophie Zdatny (Office of Legislative Counsel)]: So people get sued. And again, depending on the amount, if it's a minimal amount, then you're going to weigh the value of doing that. But there definitely are horror stories that have been out there in the media in terms of people being charged significant amounts. So again, you then have the cost and expense, both for the employer and for the departing employee. So people have sought to enforce them.

[Unidentified Committee Member]: Yeah, and I I think it's a real issue we have here in Vermont. Have all these companies that invest money to train people and then they get a job out of state because they get paid more and it's less expenses. And so I think there's a need for something like this.

[Unidentified Committee Member]: I would take the opposite. I feel like you're going into a contractual relationship and disclosure is important and understanding it. To regulate it out, I'm not that is a lot of money. If an employer is willing to pay $10,000 for an education, and then you up and leave, that's

[Michael Marcotte (Chair)]: a huge problem.

[Unidentified Committee Member]: Right, which is the purpose of

[Unidentified Committee Member]: Yeah, exactly, that's what I'm saying.

[Unidentified Committee Member]: Yeah, I'm just, I think generally, I'm not very comfortable regulating just outcompete. I think that's still my issue. Could no compete? Just the contractual,

[Michael Marcotte (Chair)]: I don't know.

[Unidentified Committee Member]: I I think it's pretty hard, and as far as the no compete, I mean, you're non exempt, you can't sign it. And I think there's a lot of checks and balances, if you need to tighten that down. But I think you had mentioned in that last one, should be a non compete should be the exception, not

[Michael Marcotte (Chair)]: the rule, especially when we

[Unidentified Committee Member]: have no solicitation clauses and you have, all these other different things that can offer the same level of protection but still give that person the right to get a job.

[Michael Marcotte (Chair)]: I also think it's different, the type of employee you are. There are plenty of you know, setting aside the wage level, I think, who are pretty sophisticated in terms of how they go into something. And then there are a lot of folks that that are not they don't really have the ability, I guess, to bargain for.

[Unidentified Committee Member]: Yeah. And you get into the weeds with, like, if you're talking about those higher position. Like, you had mentioned CEO is there, but after that, it could be anything. I mean, depending on a company's makeup, you can have a VP, you can have a director, you can have all these different job titles. And, you know, if we were to say, okay, well, you have to if you're a CIO or CFO, well, then you just change the title to something different, and then they can evade the law.

[Michael Marcotte (Chair)]: I don't I don't know. So if you can talk about that I don't think you it would be that easy to make the law there if it the definition talks about access to provide to information critical to the employer's best interest. So Yeah. I mean, there could be a lot of folks in the company that fit that description. I wouldn't see it as applying to, you know, floor manager or something like that, no matter what the type of thing. Right. But that's just my. Jonathan?

[Jonathan Cooper (Member)]: Good morning. My question pertains to establishing $100,000 How does the legislature typically account for inflation? Is it benchmarks? Is it can you share more about that?

[Sophie Zdatny (Office of Legislative Counsel)]: Yeah, so the $100,000 was in the original H. Two zero five bill, but again, as I noted, there are other states that have done it in terms of a percentage of a multiple of the federal poverty level or minimum wage, or something, so that that would then move accordingly. So there are other approaches that could be used rather than a flat amount, because over time, do you then come back and revisit it? Do you put in an inflator in the in the bill? So, yeah, I I think there are different approaches. So you're not it doesn't get out of date.

[Jonathan Cooper (Member)]: And in terms of defining some of the key personnel, is had other states use terms around, like, directors or those covered by, like, D and O? I'm just curious. Thank you.

[Sophie Zdatny (Office of Legislative Counsel)]: Yeah. They there are definitely other states that do the same thing in terms of you you can't have them for for nonexempt employees, And then it varies. I mean, there's a bill currently pending in New York that has a $500,000 cash compensation measurement in it. So states go in different directions. Are different Again, there's a whole variety, and I think that was in the report that was shared with the committee of wage thresholds in other states. And again, you're trying to balance between having a wage that's high enough that it's only going to apply to more senior people, but at the same time, then how do you address a startup or a small business? And that's where the notion of job function comes in. So yeah, I mean, can certainly look and see. I don't remember off top of my head if there's specific language that folks have used around those positions, those senior executive positions.

[Unidentified Committee Member]: What if we were to do, like, a percentage of payroll? Because it seems to me like your highest paid people, they're gonna be, you know, like you say, like, about 10% of the payroll or something like that. Would that be a better way to tackle? I'm just throwing an

[Michael Marcotte (Chair)]: idea out here to leave.

[Sophie Zdatny (Office of Legislative Counsel)]: I mean, it could be. I don't again, I don't know how easy it would be to draft something that would, you know, that would stop people from playing games around it or that would capture what you're looking for. But it's certainly something that could be looked at.

[Michael Marcotte (Chair)]: So why don't, instead of throwing hypotheticals out, why don't we wait until we get some testimony from the business community, and maybe we can find people that have suffered under non competes to better understand the dynamics there, and maybe understand a little bit better about this pay to day, what kind of additional people are going through there. Well, it might be easier on us once we start hearing it, we can start generating some thought. I don't know that we're ever going to get to a complete okay from everyone, but let's see if we can get to a point where people can live with everything.

[Unidentified Committee Member]: One question. When we write laws, legislative intent is separated out from the law, right? That's our white books and our green books.

[Sophie Zdatny (Office of Legislative Counsel)]: You can do it different ways. You can have it in session law, or you can have it specifically in the statute. And the request here was to put it specifically statute, so it remained in there. And that's not unusual. But you can do it either way. Often there are legislative findings that are cession law that are just there as legislative history if people go back. I think the goal here was to express right up front that the intent was that these be used rarely and that they not be used for the lowest paid workers.

[Unidentified Committee Member]: Lots of questions, but they're not for you.

[Michael Marcotte (Chair)]: Is that the language, Michael?

[Unidentified Committee Member]: My ignorance. Would this cover teachers?

[Sophie Zdatny (Office of Legislative Counsel)]: In what way?

[Unidentified Committee Member]: Because it's my understanding, and I'll look over there. If a teacher quits midstream, the teacher cannot go to another district. Is that that's not correct? Something was like some

[Unidentified Committee Member]: Because if they wanna get out of the contract. They have to give permission to get out of their contract.

[Unidentified Committee Member]: Right. That's what I mean. And if they don't get permission out of their contract, they cannot work at another school. Would this apply?

[Unidentified Committee Member]: It's a contract.

[Sophie Zdatny (Office of Legislative Counsel)]: It's a contract.

[Michael Marcotte (Chair)]: This is a union contract. Okay. Yeah, this doesn't get in.

[Unidentified Committee Member]: Just wanted to make sure.

[Unidentified Committee Member]: That is the question we're so happy. Collective bargaining, this doesn't impact that or this doesn't?

[Sophie Zdatny (Office of Legislative Counsel)]: It doesn't address it directly. But I think there's I'd have to look into that specifically. But I haven't seen anything in looking at this across the country where there's been discussion around, well, how would this interact with teachers' collective bargaining agreements? And again, you'd notice you're voluntarily entering into it. I mean, some of those factors would come into play.

[Unidentified Committee Member]: And also, when you're teaching and you're getting more education, and your school is paying for it, the education that they're paying for is to benefit you in your job with the school. So that wouldn't even lie in that re. If they approve it, they've decided, they did, but it benefits you and it's Right, if they want you to have those skills and they're paying for it, right?

[Michael Marcotte (Chair)]: The question is, if they want you to have those skills that they paid for, then you turn around and leave, take those new skills that they paid for and apply them within another business.

[Unidentified Committee Member]: Then the way we have it written, still wouldn't apply, I think, right? Because as long as it would benefit you in your current job, it doesn't matter that it would benefit you also

[Sophie Zdatny (Office of Legislative Counsel)]: to me. Right. I mean, if it's something You gave the example before of a safety training or something. If that's something the employer wants you to have, they want you to be the safety officer or whatever, that's part of your job, that's a job skill that they're giving to you. If you then leave to take a safety officer job somewhere else, that's not covered by this. This is more if it's an extra thing, like, again, encouraging employees to improve their education level, or develop a skill that they're not required for their job right now, that's the voluntary piece. Any time you're being asked by the employer to get the training or to do it, That's different than making an opportunity available to an employee.

[Unidentified Committee Member]: But I would imagine that, let's say you're in your current job, and they say there is this external training where you can get certified to be a safety training officer. It's not required. You can take this, and we'll pay for it. But we're going to do a stay or pay agreement to stay a year and deliver this. Versus them saying, You must take this training.

[Sophie Zdatny (Office of Legislative Counsel)]: And then it's voluntary, because then you could And choose like, okay

[Unidentified Committee Member]: there's a certificate. Right,

[Sophie Zdatny (Office of Legislative Counsel)]: a certificate I can take somewhere else. And I know that if I leave, I'm going to have to repay the employer $2,000 or whatever the cost is.

[Michael Marcotte (Chair)]: And in that situation, they would have to reveal that upfront.

[Sophie Zdatny (Office of Legislative Counsel)]: Right. They would have to Again, this is

[Unidentified Committee Member]: making that deal.

[Sophie Zdatny (Office of Legislative Counsel)]: I think a lot of this is about transparency and making sure people are aware what it is they're agreeing to upfront, and not finding out later, Oh, by the way, we gave you this training and now you need to pay us back.

[Unidentified Committee Member]: So in that situation, a teacher, if they knowingly agree, it's in their contract somewhere, if they have to pay it back or not.

[Sophie Zdatny (Office of Legislative Counsel)]: The abuses that have happened nationwide are not these kinds of examples. They're things like people working for pet grooming businesses and being told, you know, they're not leaving with any sort of transferable skill or certificate, but being told, We trained you and you owe us this amount. There have been some really egregious situations. And again, you're dealing with people that don't have the resources to fight back, or don't have the sophistication to know. So, that's really what this is looking to prevent, is those kinds of abuses.

[Unidentified Committee Member]: Those kinds of positions are not salaried positions.

[Sophie Zdatny (Office of Legislative Counsel)]: Right. So again, having that language in around the non exempt is helpful in the legislative intent.

[Michael Marcotte (Chair)]: Maybe we're on the floor at ten. At one. Question.