Employee Non-Compete Agreement and Enforceability Memo — New Mexico

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NEW MEXICO Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

TO: [Hiring Manager / General Counsel]
FROM: [Drafting Attorney]
RE: Enforceability of Proposed Non-Compete — New Mexico Employee
DATE: [__/__/____]

1. Threshold Question — Is the Employee a "Health Care Practitioner"?

NMSA 1978, § 24-1I-1(B) defines "health care practitioner" as:

If the employee falls within this list AND is not a shareholder/owner/partner/director of the practice (§ 24-1I-5(A) carve-out), the non-compete is unenforceable upon termination of the agreement, any renewal, or the employment relationship. The 2023 amendment likewise renders post-termination patient/employee nonsolicitation provisions unenforceable.

Drafting note: For health care practitioners, do NOT include a non-compete or patient/employee nonsolicitation clause restricting post-termination practice. Use the Part B alternative (NDA, repayment of recruitment expenses, and liquidated damages) instead.

2. Non-Healthcare Employees — Reasonableness Analysis

For non-healthcare employees, New Mexico courts apply the common-law reasonableness test from Lovelace Clinic v. Murphy, 76 N.M. 645, 417 P.2d 450 (1966), and Bowen v. Carlsbad Insurance & Real Estate, Inc., 104 N.M. 514, 724 P.2d 223 (1986). A covenant in restraint of trade is enforceable only if it:

3. Blue-Pencil / Reformation

New Mexico courts have authority to modify (blue-pencil) overbroad covenants rather than void them entirely. See Insure New Mexico, LLC v. McGonigle, 2000-NMCA-018. However, courts disfavor extensive judicial rewriting; well-drafted covenants with severability and "step-down" language fare best.

4. Choice of Law / Forum

For health care practitioner agreements, NMSA § 24-1I-2(B) voids any provision making the agreement subject to another state's laws or requiring litigation outside New Mexico. For non-healthcare agreements, New Mexico courts generally honor reasonable choice-of-law clauses unless the chosen state's law conflicts with strong New Mexico public policy.

5. Consideration

6. Recommended Enforcement Strategy

7. Recent Developments

• 2023 HB 385: Expanded the health care practitioner ban to include nonsolicitation of patients/employees post-termination.
• 2017 Amendment: Voided out-of-state choice-of-law and forum-selection clauses for health care practitioner agreements.
• FTC Non-Compete Rule (2024): Vacated nationally by Ryan LLC v. FTC, N.D. Tex. (Aug. 20, 2024). State law controls in New Mexico.

Part B — Non-Compete Agreement

THIS EMPLOYEE NON-COMPETE AGREEMENT (this "Agreement") is entered into as of [__/__/____] (the "Effective Date"),

by and between:

EMPLOYER:
Name: [________________________________]
Address: [________________________________]
City/County, New Mexico [ZIP]: [________________________________]
(the "Company")

and

EMPLOYEE:
Name: [________________________________]
Address: [________________________________]
City/County, New Mexico [ZIP]: [________________________________]
(the "Employee")

RECITALS

WHEREAS, the Company is engaged in the business of [________________________________] in New Mexico and elsewhere (the "Business");

WHEREAS, the Company has invested substantial time, capital, and resources in developing confidential information, customer goodwill, and specialized employee training that constitute legitimate protectable interests under New Mexico law;

WHEREAS, Employee will be employed by the Company in the position of [________________________________] with access to such confidential information, customer relationships, and training;

WHEREAS, in consideration for the offer of employment (or, if mid-employment, the additional consideration described in Section 3), Employee agrees to the restrictive covenants set forth herein;

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Parties agree as follows:

1. INDUSTRY-SPECIFIC CARVE-OUT — NEW MEXICO HEALTH CARE PRACTITIONERS

1.1 Health Care Practitioner Status. Employee ☐ IS / ☐ IS NOT a "health care practitioner" as defined in NMSA 1978, § 24-1I-1(B), meaning a dentist, osteopathic physician, physician, podiatrist, certified registered nurse anesthetist, certified nurse practitioner, or certified nurse-midwife.

1.2 Statutory Limitation. If Employee is a health care practitioner who is NOT a shareholder, owner, partner, or director of the Company (§ 24-1I-5(A)), then notwithstanding any other provision of this Agreement, the following are VOID and UNENFORCEABLE upon termination of this Agreement (including renewals/extensions) or Employee's employment with the Company:

(a) Any provision restricting Employee from providing clinical health care services in New Mexico (NMSA § 24-1I-2(A));

(b) Any provision restricting Employee from soliciting patients or employees of the Company (NMSA § 24-1I-2(C), as amended by HB 385 (2023));

(c) Any provision making this Agreement subject to the laws of another state (NMSA § 24-1I-2(B)(1));

(d) Any provision requiring litigation arising under this Agreement to be conducted outside New Mexico (NMSA § 24-1I-2(B)(2)).

1.3 Severability of Void Provisions. The voidness of the foregoing under § 24-1I-2 does not affect the enforceability of Sections 4 (Confidential Information), 7 (Repayment), 8 (Liquidated Damages), or any other lawful provision herein, which the Parties intend to remain in full force and effect per NMSA § 24-1I-3.

2. DEFINITIONS

2.1 "Competing Business" means any person or entity that develops, markets, sells, or provides products or services substantially similar to or competitive with the Business of the Company in the Restricted Territory.

2.2 "Confidential Information" means non-public, proprietary, or trade-secret information of the Company, including customer lists, pricing, business plans, financial data, methods, processes, and software. This definition is consistent with the Defend Trade Secrets Act, 18 U.S.C. § 1836, and the New Mexico Uniform Trade Secrets Act, NMSA 1978, § 57-3A-1 et seq.

2.3 "Customer" means any person or entity that was a customer of the Company at any time during the [____]-month period preceding Employee's termination, or any prospective customer with whom Employee had material contact on behalf of the Company during the same period.

2.4 "Restricted Territory" means: [________________________________]

Choose one (consistent with Bowen reasonableness):

☐ Option A (Counties): The following New Mexico counties: [________________________________]

☐ Option B (Radius): A [____]-mile radius from the Company's principal place of business at [________________________________]

☐ Option C (Service Area): Each location at which Employee provided services or had material customer contact during the final [____] months of employment.

2.5 "Restricted Period" means [____] months following the termination of Employee's employment, for any reason. (Per Bowen, 6–24 months is the typical reasonableness band in New Mexico.)

3. CONSIDERATION

(Select the applicable option:)

☐ At-hire: This Agreement is signed as a condition of, and in consideration for, the Company's offer of employment.

☐ Mid-employment: Employee receives the following additional consideration: [________________________________] (e.g., $[____] signing bonus; promotion to [________]; [____] shares of equity; enhanced severance).

☐ At separation: Employee receives severance of $[____] and other benefits described in a separate Separation Agreement, which constitute consideration for this Agreement.

4. CONFIDENTIAL INFORMATION

Employee shall not, during employment or thereafter, use or disclose any Confidential Information except as authorized by the Company or required by law. This obligation is perpetual and survives termination. Defend Trade Secrets Act notice (18 U.S.C. § 1833(b)): Employee may not be held criminally or civilly liable for disclosure of trade secrets made in confidence to a federal/state/local government official or attorney solely for reporting/investigating a suspected violation of law, or in a sealed court filing.

5. NON-COMPETE [STRIKE IF HEALTH CARE PRACTITIONER PER SECTION 1]

During employment and for the Restricted Period, Employee shall not, directly or indirectly, within the Restricted Territory:

(a) own, manage, operate, or be employed by a Competing Business in a capacity substantially similar to Employee's role with the Company; or

(b) provide services to a Competing Business that involve use of the Company's Confidential Information or Customer relationships.

This Section is intended to be reasonable in time, geography, and scope under Lovelace Clinic v. Murphy and Bowen v. Carlsbad Insurance. If a court finds any portion overbroad, the Parties expressly authorize the court to reform/blue-pencil the provision to the maximum extent enforceable under New Mexico law (Insure New Mexico v. McGonigle).

6. NON-SOLICITATION

6.1 Customers [STRIKE PATIENT REFERENCES IF HEALTH CARE PRACTITIONER]. During the Restricted Period, Employee shall not solicit any Customer for the purpose of providing competing products or services.

6.2 Employees. During the Restricted Period, Employee shall not solicit any employee of the Company to terminate their employment.

Health care note: Patient and employee nonsolicitation post-termination is VOID for health care practitioners under NMSA § 24-1I-2(C) (2023 amendment).

7. REPAYMENT OF RECRUITMENT/TRAINING EXPENSES (Health Care Practitioner Variant Permitted by § 24-1I-3(A))

If Employee's employment with the Company terminates within [____] months ([less than three years per § 24-1I-3(A)]) of the start date, Employee shall repay the following:

(a) Relocation expenses paid by Company: $[____];

(b) Signing bonus: $[____];

(c) Recruiting, education, and training expenses: $[____];

(d) Outstanding loan balance (if any): $[____].

Repayment shall be made within [____] days of separation. This provision is expressly authorized by NMSA 1978, § 24-1I-3(A).

8. LIQUIDATED DAMAGES

In the event of breach of Sections 5 or 6 (where enforceable), Employee shall pay liquidated damages of $[____], which the Parties agree is reasonable in light of (a) the anticipated harm, (b) the difficulty of proving actual loss, and (c) the duration and scope of the restriction. Per NMSA § 24-1I-4, an unreasonably large liquidated damages amount is void as a penalty. The Parties acknowledge this amount is NOT a penalty.

9. REMEDIES

Employee acknowledges that breach of Sections 4, 5, or 6 will cause irreparable harm for which monetary damages are inadequate. The Company is entitled to seek temporary, preliminary, and permanent injunctive relief without bond (or with minimal bond) in addition to liquidated and actual damages.

10. CHOICE OF LAW / VENUE

This Agreement is governed by the laws of the State of New Mexico without regard to its conflict-of-laws principles. Venue shall lie exclusively in the state district court for [______] County, New Mexico, or the U.S. District Court for the District of New Mexico. For health care practitioner agreements, this New Mexico law and venue selection is mandatory under § 24-1I-2(B).

11. SEVERABILITY / REFORMATION

If any provision of this Agreement is held invalid or unenforceable, the Parties authorize the court to reform/blue-pencil such provision to the minimum extent necessary to render it enforceable, and the remainder shall continue in full force.

12. ENTIRE AGREEMENT / COUNTERPARTS / E-SIGNATURE

This Agreement constitutes the entire agreement of the Parties regarding restrictive covenants and supersedes prior oral or written agreements. It may be executed in counterparts and by electronic signature pursuant to the New Mexico Uniform Electronic Transactions Act, NMSA 1978, § 14-16-1 et seq.

EXECUTION

Part C — Pre-Signing Checklist

☐ Confirmed Employee's status — health care practitioner (§ 24-1I-1(B)) yes/no

☐ If health care practitioner: confirmed shareholder/owner/partner/director carve-out (§ 24-1I-5(A)) — yes/no

☐ If health care practitioner: STRUCK Sections 5 (Non-Compete) and 6.1 patient/employee nonsolicit (per § 24-1I-2(A) and (C))

☐ Confirmed New Mexico choice of law and New Mexico venue (mandatory for health care; recommended otherwise)

☐ Geographic scope limited to areas where Employee actually worked or Company actively does business

☐ Time period within 6–24 months (longer requires extraordinary justification)

☐ Scope limited to competitive activities (not all employment)

☐ Consideration documented (at-hire offer letter, mid-employment bonus, or separation severance)

☐ Confidentiality / NDA provision included (§ 24-1I-3(B) permits even for health care practitioners)

☐ DTSA whistleblower notice included (18 U.S.C. § 1833(b))

☐ Repayment of relocation/training expenses included if employment may end < 3 years (§ 24-1I-3(A))

☐ Liquidated damages amount reasonable; not a penalty (§ 24-1I-4)

☐ Severability / reformation clause included

☐ Employee given opportunity to consult independent counsel — documented

☐ Counterpart and e-signature language included (NM UETA)

☐ Reviewed by New Mexico-licensed attorney before execution

☐ Removed all <!-- GUIDANCE --> comments before delivery

Sources and References

• New Mexico Statutes Annotated 1978, Chapter 24, Article 1I — Health Care Practitioner Agreements: https://law.justia.com/codes/new-mexico/chapter-24a/article-4/
• NMSA § 24-1I-2 (FindLaw): https://codes.findlaw.com/nm/chapter-24-health-and-safety/nm-st-sect-24-1i-2/
• House Bill 385 (2023 Reg. Sess.) — non-solicitation amendment: https://www.nmlegis.gov/Sessions/23%20Regular/bills/house/HB0385.HTML
• Lovelace Clinic v. Murphy, 76 N.M. 645, 417 P.2d 450 (1966)
• Bowen v. Carlsbad Ins. & Real Estate, Inc., 104 N.M. 514, 724 P.2d 223 (1986)
• Insure New Mexico, LLC v. McGonigle, 2000-NMCA-018, 128 N.M. 611, 995 P.2d 1053
• New Mexico Uniform Trade Secrets Act, NMSA § 57-3A-1 et seq.
• Defend Trade Secrets Act, 18 U.S.C. § 1836; whistleblower immunity, 18 U.S.C. § 1833(b)
• Ryan LLC v. FTC, No. 3:24-CV-00986-E (N.D. Tex. Aug. 20, 2024) (FTC Non-Compete Rule vacated)
• State Bar of New Mexico — Future of Non-Competes CLE materials: https://www.sbnm.org/Portals/NMBAR/The%20Future%20of%20Non-Competes.pdf